REG - Just Group plc - INTERIM RESULTS FOR THE SIX MONTHS ENDED 30/6/2023
15/08/2023 07:00
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RNS Number : 2889J Just Group PLC 15 August 2023
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NEWS RELEASE
www.justgroupplc.co.uk
15 August 2023
JUST GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023
STRONG GROWTH, CONTINUED MOMENTUM
Just Group plc (the "Group", "Just") announces its results for the six months
ended 30 June 2023.
Profitable and sustainable growth(1)
· Underlying operating profit(2) is up 154% to £173m (H1 22: £68m), driven by
significantly higher new business profits.
· Retirement Income sales(2) have more than doubled to £1.9bn (H1 22: £0.9bn),
which has driven a 112% increase in new business profits to £161m (H1 22:
£76m), with a consistently strong new business margin of 8.5% (H1 22: 8.6%).
· Momentum continues into H2 23. Both the DB and retail markets remain buoyant,
with a record pipeline of DB business.
Strong Solvency II and IFRS(1)
· Capital coverage ratio has further strengthened to 204%(3) (31 December 2022:
199%(3)). The interest rate sensitivity has been significantly reduced, by
largely locking-in interest rate gains, while the property sensitivity has
further reduced.
· New business strain(2) of 1.6% (H1 22: 1.3%) is well within our target of
below 2.5%. Positive underlying capital generation of £18m (H1 22: £33m)
after £30m of new business strain. Capital generation before new business
strain improved to £48m (H1 22: £44m).
· Adjusted profit before tax(2) was £246m (H1 22: adjusted loss before tax
£185m), driven by strong growth in underlying operating profit, and
investment and economic profits. Of this £246m, £129m of profit is deferred
to CSM(4) in the balance sheet, leaving an IFRS profit before tax of £117m
(H1 22: IFRS loss before tax of £237m).
· Improved return on equity(2) to annualised 13.0% and tangible net assets per
share(2) to 204p (H1 22: 5.4% and 31 December 2022: 190p respectively).
Rewarding shareholders
· Interim dividend of 0.58p per share - 15% growth and one third of 2022 full
year dividend, in line with stated policy.
· Given the very strong profit growth in the first half of 2023, we are highly
confident of comfortably exceeding 15% growth in underlying operating
profits(2) for the full year. Our delivery so far in 2023 and positive outlook
further supports our confidence in Just's ability to deliver 15% growth in
underlying operating profit per annum, on average over the medium term.
David Richardson, Group Chief Executive Officer, said:
"We have delivered another impressive set of results and we are highly
confident that we will comfortably exceed our 15% profit growth pledge this
year.
Our DB business is going from strength to strength and I am delighted that our
retail business has returned to growth. We are growing sustainably and are
exceptionally well positioned to continue benefiting from the positive drivers
and favourable demographics supporting both of our principal markets.
We have a growth mindset and we've developed a winning formula - one which
will ensure we fulfil our purpose, to help people achieve a better later life,
while building substantial value for shareholders.
Over the last four years, our performance has consistently exceeded the
commitments we have made and we're more optimistic than ever about the future
for Just."
Notes
(1 ) All comparatives throughout the document are restated under
IFRS 17 and IFRS 9.
(2 ) Alternative performance measure ("APM") - In addition to
statutory IFRS performance measures, the Group has presented a number of
non-statutory alternative performance measures. The Board believes that the
APMs used give a more representative view of the underlying performance of the
Group. APMs are identified in the glossary at the end of this announcement.
Adjusted operating profit is reconciled to IFRS profit before tax in the
Business Review.
(3 ) These figures include the estimated impact of a TMTP
recalculation for 30 June 2023. At 31 December 2022 the Solvency II figures
include a formal TMTP recalculation.
(4 ) Contractual Service Margin.
( )
Enquiries
Investors / Analysts Media
Alistair Smith, Investor Relations Stephen Lowe, Group Communications Director
Telephone: +44 (0) 1737 232 792 Telephone: +44 (0) 1737 827 301
alistair.smith@wearejust.co.uk press.office@wearejust.co.uk
Paul Kelly, Investor Relations Temple Bar Advisory
Telephone: +44 (0) 20 7444 8127 Alex Child-Villiers
paul.kelly@wearejust.co.uk William Barker
Telephone: +44 (0) 20 7183 1190
For those analysts who have registered, a presentation will take place today
at 1 Angel Lane, London, EC4R 3AB, commencing at 08:30 am. The presentation
will also be available via a live webcast.
FINANCIAL CALENDAR DATE
Ex-dividend date for interim dividend 24 August 2023
Record date for interim dividend 25 August 2023
Payment of interim dividend 4 October 2023
A copy of this announcement, the presentation slides and the transcript will
be available on the Group's website www.justgroupplc.co.uk
JUST GROUP PLC
GROUP COMMUNICATIONS
Enterprise House
Bancroft Road
Reigate
Surrey RH2 7RP
Forward-looking statements disclaimer:
This announcement has been prepared for, and only for, the members of Just
Group plc (the "Company") as a body, and for no other persons. The Company,
its Directors, employees, agents and advisers do not accept or assume
responsibility to any other person to whom this document is shown or into
whose hands it may come and any such responsibility or liability is expressly
disclaimed.
By their nature, the statements concerning the risks and uncertainties facing
the Company and its subsidiaries (the "Group") in this announcement involve
uncertainty since future events and circumstances can cause results and
developments to differ materially from those anticipated. This announcement
contains, and we may make other statements (verbal or otherwise) containing,
forward-looking statements in relation to the current plans, goals and
expectations of the Group relating to its or their future financial condition,
performance, results, strategy and/or objectives. Statements containing the
words: "believes", "intends", "expects", "plans", "seeks", "targets",
"continues" and "anticipates" or other words of similar meaning are
forward-looking (although their absence does not mean that a statement is not
forward-looking). Forward-looking statements involve risk and uncertainty
because they are based on information available at the time they are made,
based on assumptions and assessments made by the Company in light of its
experience and its perception of historical trends, current conditions, future
developments and other factors which the Company believes are appropriate and
relate to future events and depend on circumstances which may be or are
beyond the Group's control. For example, certain insurance risk disclosures
are dependent on the Group's choices about assumptions and models, which by
their nature are estimates. As such, although the Group believes its
expectations are based on reasonable assumptions, actual future gains and
losses could differ materially from those that we have estimated. Other
factors which could cause actual results to differ materially from those
estimated by forward-looking statements include, but are not limited to:
domestic and global political, economic and business conditions; asset prices;
market-related risks such as fluctuations in interest rates and exchange
rates, and the performance of financial markets generally; the policies and
actions of governmental and/or regulatory authorities including, for example,
new government initiatives related to the provision of retirement benefits or
the costs of social care; the impact of inflation and deflation; market
competition; changes in assumptions in pricing and reserving for insurance
business (particularly with regard to mortality and morbidity trends, gender
pricing and lapse rates); risks associated with arrangements with third
parties, including joint ventures and distribution partners and the timing,
impact and other uncertainties associated with future acquisitions, disposals
or other corporate activity undertaken by the Group and/or within relevant
industries; inability of reinsurers to meet obligations or unavailability of
reinsurance coverage; default of counterparties; information technology or
data security breaches; the impact of changes in capital, solvency or
accounting standards; and tax and other legislation and regulations in the
jurisdictions in which the Group operates (including changes in the regulatory
capital requirements which the Company and its subsidiaries are subject to).
As a result, the Group's actual future financial condition, performance and
results may differ materially from the plans, goals and expectations set out
in the forward-looking statements. The forward-looking statements only speak
as at the date of this document and reflect knowledge and information
available at the date of preparation of this announcement. The Group
undertakes no obligation to update these forward-looking statements or any
other forward-looking statement it may make (whether as a result of
new information, future events or otherwise), except as may be required by
law. Persons receiving this announcement should not place undue reliance
on forward-looking statements. Past performance is not an indicator of future
results. The results of the Company and the Group in this announcement may not
be indicative of and are not an estimate, forecast or projection of the
Group's future results. Nothing in this announcement should be construed as a
profit forecast.
Chief Executive Officer's Statement
Delivering sustainable growth
I am very pleased to present my Chief Executive Officer's Statement for the
first six months of 2023, during which we have further demonstrated the
strength and potential of our business model. We are growing sustainably and
are exceptionally well positioned to continue benefiting from the positive
drivers and favourable demographics supporting both of our principal markets.
Retirement sales growth
The rise in interest rates during 2022 and 2023 has a positive effect on both
the Defined Benefit ("DB") and retail Guaranteed Income for Life ("GIfL")
markets.
Sales have more than doubled in the first six months of 2023 to £1.9bn with
DB sales, up 149% to £1.4bn (H1 2022: £0.6bn) and retail sales, up 54% to
£0.5bn (H1 22: £0.3bn). This positive momentum has continued into the second
half and we expect another very busy period.
Defined Benefit business
Our DB business is going from strength to strength. During the first six
months of the year, we completed 35 transactions of which 32 were less than
£100m (of these, 22 were less than £10m). We have written our largest
(£513m) and smallest (£0.6m) deals to date, and have a sizeable ongoing
pipeline of new business opportunities for the second half. Our bulk quotation
service continues to grow in popularity, with over 200 schemes from 19 EBCs(1)
onboarded. The service is providing a steady source of smaller deal
completions as EBCs and trustees increasingly benefit from regular insurer
price monitoring and a streamlined transaction process.
As well as expanding our leadership position in the smaller transaction size
segment, we will also drive growth by securing a greater number of larger
transactions. We have written almost 350 DB transactions since entering the
market in 2013 and through these, have gained significant pricing and deal
experience to now regularly quote on larger transactions. Our participation in
the larger transaction segment is supported by the flexibility provided by our
stronger capital position and our expanded panel of reinsurance partners.
Combined with the strong outlook for the market in 2023, we expect our
participation in the larger deal segment to increase further.
In DB, LCP(2) estimate that c.1,000 DB pension schemes are already fully
funded on an insurer buyout basis. As a result, 2023 and 2024 industry volumes
are expected to significantly exceed the record £44bn written in 2019. We
welcome the Chancellor's confirmation, in his recent speech, of the important
role played by insurers offering buy- outs.
Retail business
I am delighted that the GIfL market has returned to strong growth and has had
its busiest six month period since Pensions Freedoms were announced in 2014.
The open market, where Just competes, has achieved particularly strong growth,
and is providing us with increased opportunity to utilise our medical
underwriting expertise to risk select.
Higher interest rates have stimulated both customer and adviser demand. The
findings from the FCA's thematic review into retirement income advice, are
likely to increase the importance of considering guaranteed solutions to help
customers achieve their objectives. We believe this will be supported further
by the expectations created by Consumer Duty, which came into effect on 31st
July.
Expanding our investments in tandem
In order to take advantage of these growth opportunities, we are continuing to
expand our investment capabilities to support new business pricing and deliver
reliable and secure returns for our shareholders. Our "manager of managers"
model approach gives us the flexibility to source assets providing attractive
risk reward characteristics across a range of asset classes, sectors and
geographies. I am pleased to note that we have sourced £0.8bn of other
illiquid investments(3) in the first six months of the year and that we
continue to find opportunities to support the UK economy.
As the government's Solvency UK agenda takes shape over the next two years, we
expect this will unlock additional opportunities to grow our investment in
illiquid assets.
Customers and our purpose
The volatility in investment markets witnessed by our customers during the
final quarter of 2022 and the current unpredictable economic outlook in the
UK creates uncertainty and worry for many who have investments in equities
and fixed interest bonds. We provide a guaranteed income for life to
customers, and as interest rates have risen, the amount of retirement income
we are able to pay customers has increased significantly. This secure income
is often purchased to cover the essential expenditure of the household and in
these uncertain times, our solutions provide much sought reassurance to
customers.
As the retirement specialist we are focussed on helping people in later life.
When we provide financial advice, we help people to discover whether they are
entitled to State Benefits and often uncover many missed benefits that when
secured, can make a profound impact on their lives. We provide a range of
professional advice and guidance to help people, and are continuing to invest
in these services to make them more valuable to a wider range of potential
customers. We can't resolve all the challenges faced by our customers, but we
are helping where we are able to do so and remain focused on living up to the
purpose we set out many years ago: we help people achieve a better later life.
Sustainability
We achieve our goals responsibly and are committed to a sustainable strategy
that protects our communities and the planet we live on. I am very proud that
over the last three years we have reduced our operational carbon intensity per
employee by 81%. However, the most material impact we can make to reduce
carbon emissions will be achieved through the decisions we take with our
£21bn investments portfolio.
Last year we completed our full £575m green and sustainability bond
investment commitments well ahead of schedule. In the first six months of 2023
we have continued to invest in environmental, social, and corporate governance
("ESG") related assets with over £300m invested in social housing, the
renewable energy industry and facilities at NHS University Hospital
Southampton.
Our people
Our Just culture is underpinned by our people who are passionate and committed
to making a difference to the lives of those around them. A key business
priority is that all of our colleagues feel proud to work at Just. The
combination of our strong purpose and having highly engaged teams working the
'Just way', is a competitive advantage which is helping us to drive high
performance and achieve our ambitious growth targets.
I would like to thank my colleagues for their continued focus in providing
outstanding support for our customers when they needed it most and for helping
to deliver an excellent set of results.
We are investing to develop the skills of our colleagues, attract new talent
into Just and build high performing teams. We have continued to maintain
excellent levels of colleague engagement, with a key priority to build a
diverse and inclusive workforce.
Financial performance
In the first six months of 2023, underlying operating profit, now measured
under IFRS 17, is up 154% to £173m, driven by the strong sales performance.
We expect sales activity in the second half of the year to be in line with or
above the first half of the year. Our first half performance has led to a
return on equity of 13%.
Investment and economic profits were £71m, and combined with a number of
smaller non-operating items lead to an adjusted profit before tax(4) of £246m
for the first six months of 2023 (first six months of 2022: adjusted loss
before tax £185m). Of this £246m, £129m of profit is deferred to the CSM
reserve in the balance sheet, leaving a profit before tax of £117m.
The strength and resilience of our capital position and our disciplined
pricing and risk selection ensures we are, and will continue to be capital
self-sufficient. This means we can fund our growth ambitions, reward
shareholders with a growing dividend and maintain a strong buffer of capital
in what are uncertain times.
We will pay an interim dividend of 0.58 pence per share, in line with our
stated policy, which represents 15% growth over last year's interim dividend.
In conclusion
We expect the current macro-economic and political concerns to have a
negligible effect on the Group's business model, with sustained higher long
term interest rates continuing to drive demand for our products. We are
exceptionally well positioned to continue benefiting from the positive
structural growth drivers and demographics supporting both of our principal
markets. Our ability to take advantage of these trends have further increased
our confidence in Just's ability to deliver 15% growth in underlying operating
profit per annum, on average over the medium term.
We have never been stronger. We have the capability and opportunities to
achieve our ambitious growth plans so that we build substantial value for
shareholders and fulfil our purpose to help more people achieve a better later
life.
David Richardson
Group Chief Executive Officer
1 Employee benefit consultant ("EBC")
2 Lane, Clark, Peacock ("LCP"), an employee benefit
consultant.
3 In addition to £789m of other illiquid assets originated
during the first six months of 2023, Just also originated £75m of internally
funded lifetime mortgage assets.
4 Alternative performance measure (APM), see glossary for
definition. See the business review for explanation of the use of APM's and
reconciliation to statutory results.
Business Review
STRONG GROWTH, CONTINUED MOMENTUM
The Group is well positioned in attractive markets with strong and structural
growth drivers. This enables us to benefit from the significant boost in
demand for our products due to the significant rise in long term interest
rates over the past 18 months. We innovate, risk select and price with
discipline, ensuring our business model delivers long-term value for customers
and shareholders.
The Business Review presents the results of the Group for the six months ended
30 June 2023, including unaudited IFRS and Solvency II information. These are
the first reported results under IFRS 17, which has prompted some modification
of the Group's key performance indicators, as set out below.
The growth and success of the business during the first half of 2023 is built
on the foundation of a transformed, low capital intensity new business model,
supported by our strong and resilient capital base. We continue to maintain
cost control across the business whilst specifically targeting our investment
in proposition development, and to enable the business to scale efficiently.
We continue to diversify the asset portfolio by originating a greater
proportion of illiquid assets to back the new business in line with our
investment strategy.
We entered 2023 with very strong momentum in the DB business, as rising
interest rates over the past 18 months have accelerated the closure of scheme
funding gaps. During the first six months of 2023, we wrote a record amount of
DB new business for a first half, £1.4bn from 35 transactions (H1 22:
£0.6bn, 14 transactions) in a buoyant market estimated by Hymans Robertson at
£25bn (H1 22: £12bn). LCP forecast that up to £60bn of DB buy-in/buy-out
transactions could occur in 2023, and therefore the DB market is well on track
to substantially exceed the previous record of £44bn in 2019. Just enters the
second half of 2023 with a record pipeline of active quotations, and we expect
to maintain sales in line with, or above our first half level. Strong pricing
discipline is contributing to further optimising returns from our new business
capital budget. We expect the positive trend to persist as schemes continue
their preparatory work to be transaction ready for 2024. We estimate that less
than 15% of the £1.4tn DB market opportunity has executed thus far, with LCP
forecasting c.£600bn of DB buy-in/buy-out transactions over the decade to
2032, of which over £200bn could transact over the next three years. Around
one in five, (c.1,000) of all DB schemes are already fully funded on an
insurer buyout basis, with the remaining c.4,000 progressively working towards
full funding over the next decade and beyond.
Our GIfL business is also buoyant, boosted by strong growth in the Open
Market, where Just operates. Higher interest rates directly increase the
customer rate on offer, increasing the attractiveness of a guaranteed income.
The customer rate can be further improved through individual medical
underwriting, in which Just is a market leader, with a substantial uplift,
especially for those customers with medical conditions. Quote activity remains
elevated, following the rise in rates post September 2022's mini-budget.
During the six months to 30 June 2023, we wrote £470m of GIfL business, up
54% year on year (H1 22: £305m). The introduction of the FCA's Consumer Duty
in July and findings later this year from the thematic review into retirement
income advice are likely to lead to increased advisor conversations on the
importance of considering guaranteed solutions to help customers achieve their
objectives.
For the first six months of the year, underlying operating profit was up 154%
at £173m (H1 22: £68m), a position that leads us to being very confident of
meeting or exceeding our target to deliver 15% growth in underlying operating
profit per annum, on average over the medium term. Retirement Income(2) sales
of £1,899m were more than double the H1 22 level (£879m), as both DB and
GIfL sales markedly increased, which led to a new business profit of £161m
(H1 22: £76m). New business margin was pleasing at 8.5% (H1 22: 8.6%) as
buoyant markets supported active risk selection, whilst maintaining pricing
and cost discipline. In-force profit at £92m (H1 22: £72m) reflected an
increased return on surplus assets in addition to a growing book of in-force
business. Finance costs have reduced following the November 2022 tender offer
and subsequent cancellation of £76m tier 2 debt.
Total investment and economic variances of £71m combined with other items to
drive an adjusted profit before tax for the first six months of £246m. Of
this £246m, £129m of profit is deferred to the CSM reserve in the balance
sheet, leaving a profit before tax of £117m.
Long dated cashflows from assets and liabilities on the balance sheet are
closely cashflow matched and not exposed to movements in long term interest
rates. Historically, hedges to protect interest rate exposure in our Solvency
II position have created volatility in IFRS profit before tax as interest
rates moved. However, a revised hedging strategy during 2022 and H1 23,
including the purchase of £2bn of long dated gilts held at amortised cost
under IFRS has removed(1) the IFRS exposure whilst significantly containing
our Solvency II sensitivity to future interest rate movements. The key
sensitivities of the Group's capital and financial position to future economic
and demographic factors are set out below and in notes 11 and 14 of these
financial statements.
The Group's Solvency II capital position(1) has further strengthened to
204%(2) (31 December 2022: 199%) helped in part by a continued rise in long
term interest rates. Underlying organic capital generation for the first half
of 2023 was healthy at £18m (H1 22: £33m) with the £30m capital strain from
writing the increased volume of new business maintained at a low 1.6% of
premium (H1 22: £11m and 1.3% of premium). This low new business strain,
materially inside our 2.5% target, reflects strong pricing discipline, risk
selection, and business mix. Lower finance costs also contributed. We continue
to closely monitor and prudently manage our risks, including interest rates,
inflation, currency, residential property and credit. The Solvency II
sensitivities are set out below.
The recent Financial Services and Markets Act contains new powers to set the
direction for financial services following the UK's exit from the European
Union, including reforms to the Solvency II capital regime. As part of the
proposed new Solvency UK regime, in June, HM Treasury and the PRA set out
their proposals to implement the more straightforward items, including
simplification measures and a 65% reduction in risk margin for life insurance
business by the end of 2023. The risk margin reduction is estimated to improve
our current solvency ratio by over 5 percentage points. A consultation paper
on the more complex changes to matching adjustment ("MA") rules and the
associated investment flexibility is expected to be launched in September,
with reforms to take effect in 2024. We expect these MA changes to support the
role HM Treasury is expecting from the industry, whereby appropriate reforms
could increase investment by tens of billions of pounds in long-term finance
to the broader economy, including infrastructure, decarbonisation, social
housing and increased investment in science and technology.
At this time, the outlook for the economy continues to evolve, reflecting
macro-economic and political concerns including the trajectory of central bank
rates to reduce and control inflation, and a UK election by the end of 2024.
The interest rate increases are predicted to lead to a possible shallow
recession later in 2023, followed by a gradual recovery in 2024. We expect
these macro forces to have a negligible effect on the Group's business model,
with sustained higher long term interest rates continuing to drive demand for
our products. We have a strong and resilient capital base, with a low strain
business model that is generating sufficient capital on an underlying basis to
fund our ambitious growth plans, whilst also paying a shareholder dividend
that is expected to grow over time.
(1 ) See note 14 for interest rate sensitivities, with a 100 bps
increase in interest rates resulting in an increase in pretax profit of £4.1m
and a 100 bps decrease in interest rates resulting in an increase in pretax
profit of £8.3m.
(2 ) Solvency II capital coverage ratios as at 30 June 2023
includes a notional recalculation of TMTP. and 31 December 2022 includes a
formal recalculation of TMTP.
(3 ) Alternative performance measure, see glossary for
definition.
Alternative performance measures and key performance indicators
Within the Business Review, the Group has presented a number of alternative
performance measures ("APMs"), which are used in addition to IFRS statutory
performance measures. The Board believes that the use of APMs gives a more
representative view of the underlying performance of the Group.
Just Group has been growing strongly for a number of years and regards the
writing of profitable new business contracts as a key objective for
management. As a result, in management's view, the use of an alternative
performance measure which includes the value of profits deferred for
recognition in future periods is a more meaningful measure than IFRS profits
excluding the value of new business sales.
The APMs used by the Group are: return on equity, underlying operating profit,
new business profit, Retirement Income sales, underlying organic capital
generation, organic capital generation, new business strain, in-force
operating profit, adjusted profit before tax, adjusted earnings, adjusted
earnings per share and tangible net asset value per share. The Directors have
concluded that the principles used as a basis for the calculation of the APMs
remain appropriate, although due to the adoption of new accounting standards
the reconciliation from APMs' to IFRS reported results has changed. Further
information on our APMs can be found in the glossary, together with a
reference to where the APM has been reconciled to the nearest statutory
equivalent.
KPIs are regularly reviewed against the Group's strategic objectives, which
have remained unchanged following the adoption of IFRS 17, which has also not
impacted the Group dividend policy. The Group's KPIs are discussed in more
detail on the following pages.
The Group's KPIs are shown below:
Six months ended Six months ended Change
30 June 2023 30 June 2022
%
£m £m
(restated)
Return on equity(1) 13.0% 5.4% 7.6pp
Underlying operating profit(1) 173 68 154
New business profit(1) 161 76 112
Retirement Income sales(1) 1,899 879 116
IFRS profit/(loss) before tax 117 (237) 149
Underlying organic capital generation(1) 18 33 (45)
New business strain(1) 1.6% 1.3% 0.3pp
30 June 2023 31 December 2022 Change
Solvency II capital coverage ratio(2) 204% 199% 5pp
Tangible net asset value per share(1) 204p 190p(3) -
(1 ) Alternative performance measure, see glossary for
definition.
(2 ) Solvency II capital coverage ratios as at 30 June 23
includes a notional recalculation of TMTP and 31 December 2022 includes a
formal recalculation of TMTP.
Tangible net assets / Return on equity
The return on equity in the six months to 30 June 2023 was 13.0% (30 June
2022: 5.4%), using annualised underlying operating profit after attributed tax
of £132m (30 June 2022: £55m) arising on average tangible net assets of
£2,033m (30 June 2022: £2,020m). The 7.6pp movement was driven by increased
underlying operating profit, driven by new business volumes that more than
doubled during the period. Tangible net assets are reconciled to IFRS total
equity as follows:
30 June 2023 30 June 2022
£m £m
(restated)
IFRS total equity attributable to ordinary shareholders 850 979
Less intangible assets (45) (46)
Tax on amortised intangible assets 3 3
Add back contractual service margin 1,740 1,336
Adjust for tax on contractual service margin (432) (331)
Tangible net assets 2,116 1,941
Tangible net assets per share 204p 187p
Return on equity % (underlying) 13.0% 5.4%
Underlying operating profit
Underlying operating profit is the core performance metric on which we have
based our 15% growth target, per annum, on average, over the medium term.
Underlying operating profit captures the performance and running costs of the
business including interest on the capital structure, but excludes operating
experience and assumption changes, which by their nature are unpredictable and
can vary substantially from period to period. For the first six months of
2023, underlying operating profit grew by 154% to £173m, which is a strong
foundation, and provides strong confidence in achieving our full year
ambitions.
Six months ended Six months ended Change
30 June 2023 30 June 2022
£m £m %
(restated)
New business profit 161 76 112
CSM amortisation (29) (26) 12
Net underlying CSM increase 132 50 164
In-force operating profit 92 72 28
Other Group companies' operating results (8) (7) 14
Development expenditure (10) (9) 11
Finance costs (33) (38) (13)
Underlying operating profit(1) 173 68 154
(1 ) See reconciliation to IFRS profit before tax further in this
Business Review.
New business profit
New business profit more than doubled during the six months to £161m (H1 22:
£76m) driven by a 116% increase in Retirement Income sales to £1.9bn (H1 22:
£0.9bn). The new business margin was maintained at 8.5% (H1 22: 8.6%)
reflecting continued pricing discipline and risk selection in buoyant markets.
CSM amortisation
IFRS 17 introduces two new concepts, the Contractual Service Margin and the
Risk Adjustment to the statement of financial position. CSM amortisation
represents the release from the CSM reserve into profit as services are
provided, net of accretion (unwind of discount) on the CSM reserve balance
(see below). £29m of net CSM amortisation represents a £56m release of CSM
into profit, offset by £27m of interest accreted to the CSM.
The CSM release into profit was £56m (H1 22: £42m), which represents an
annualised 6.2% (H1 22: 6.3%) of the CSM balance immediately prior to release.
The increase during the period represents growth in the CSM reserve from an
additional year of deferred new business profit and the longevity assumption
change at 31 December 2022 which was also deferred to CSM.
Accretion on the CSM balance amounted to £27m (H1 22: £16m) represents an
annualised 3.1% (H1 22: 2.3%) of the opening plus new business CSM balance.
CSM accretion is calculated using locked-in discount rates. The increase
during the period reflects the higher interest rates applicable through the
forward rates locked in at 31 December 2021 for new business written pre 2022
as well as higher interest rates applicable to the new business written since
the end of 2021 and the increase in the CSM balance following the FY22
longevity assumption change.
Net Underlying CSM increase
This represents the net underlying increase in deferred profit in CSM over the
period before allowing for transfers to CSM in respect of operating experience
and assumption changes recognised in the current year. The new business profit
to CSM in-force release multiple of 3 times reflects the strong growth of the
insurance portfolio.
In-force operating profit
In-force operating profit represents investment returns earned on surplus
assets, the release of allowances for credit default, CSM amortisation,
release of risk adjustment allowance for non-financial risk and other. Taken
together, these are the key elements of the IFRS 17 basis operating profit
from insurance activities.
Six months ended Six months ended Change
30 June 2023 30 June 2022
£m £m %
(restated)
Investment return earned on surplus assets 45 28 61
Release of allowances for credit default 14 14 -
CSM amortisation 29 26 12
Release of risk adjustment for non-financial risk / Other 4 4 -
In-force operating profit(1) 92 72 28
The in-force operating profit increased by 28% to £92m (H1 22: £72m), driven
by a significant increase in investment return, as a result of higher interest
rates, on a higher amount of surplus assets.
other group companies' operating results
The operating result for other Group companies was a loss of £8m in the six
months ended 30 June 2023
(six months ended 30 June 2022: loss of £7m). These costs arise from the
holding company, Just Group plc, and the HUB group of businesses.
Development expenditure
Development expenditure of £10m for the six months ended 30 June 2023 (six
months ended 30 June 2022 £9m), relates mainly to product development,
proposition enhancement and new initiatives. It also includes investment in
distribution improvements such as online capability and digital access.
finance costs
Finance costs have decreased by 13% to £33m for the six months ended 30 June
2023 (six months ended 30 June 2022: £38m). These include the coupon on the
Group's Restricted Tier 1 notes, as well as the interest payable on the
Group's Tier 2 and Tier 3 notes. Finance costs have reduced following the
November 2022 tender offer and subsequent cancellation of £76m tier 2 debt.
Today, we are launching an open market repurchase facility (the "OMR
Facility") under which Just Group plc may from time to time, seek to
repurchase on a first come first serve basis, a limited amount up to and not
exceeding £24.027m in aggregate nominal amount of its outstanding 2026 tier 2
subordinated notes (ISIN XS1504958817) (the "Notes"). The price paid for the
Notes will be subject to market pricing and conditions at the time, and at the
sole discretion of Just Group plc. The rationale for the OMR Facility is to
optimise the capital structure and debt profile of the Group, while offering
to holders of the Notes the opportunity to sell them to Just Group plc. Morgan
Stanley & Co International plc have been appointed as sole agent to
execute the OMR Facility. The OMR Facility will expire on 31 October 2023. Any
Notes purchased by Just Group plc will subsequently be cancelled.
Retirement income Sales
Six months ended Six months ended
30 June 2023
£m 30 June 2022 Change
£m %
Defined Benefit De-risking Solutions ("DB") 1,429 574 149
Guaranteed Income for Life Solutions ("GIfL")(1) 470 305 54
Retirement Income sales 1,899 879 116
(1 ) GIfL includes UK GIfL, South Africa GIfL and Care Plans.
The structural drivers and trends in our markets underpin our confidence that
we can continue to deliver attractive returns and growth rates over the long
term. Higher interest rates stimulate further demand for our products, and we
are well positioned to take advantage of the growth opportunities available in
our chosen markets. Over the past 18 months, rising interest rates have
accelerated the closure of DB scheme funding gaps, and therefore more schemes
are able to begin the process to be 'transaction ready', accelerating business
into our short/medium term pipeline that previously would have been expected
to transact in the second half of the decade. The retail GIfL business had its
busiest six month period since 2014, with the Open market, where Just competes
showing particularly strong growth. Higher interest rates directly increase
the customer rate we can offer, further improved through individual medical
underwriting. This increases the value of the guarantee to customers, relative
to other forms of retirement income.
DB sales at £1,429m (H1 22: £574m) were up 149%, reflecting heightened
activity, during the first six months of the year. In February, we closed our
largest DB transaction to date at £513m. In total, we completed 35 deals, of
which 32 were below £100m in size, as we maintained our leadership presence
in the <£100m segment. These activity levels are well ahead of the 56
transactions for the whole of 2022, when Just wrote over a quarter of all
transactions in the market, representing 10% share by market value. Our bulk
quotation service continues to grow in popularity with over 200 DB schemes
from 19 EBCs onboarded, and is providing a steady source of completions as
EBCs and trustees increasingly benefit from price monitoring and a streamlined
transaction process. Recent examples include our smallest DB transaction to
date at £0.6m, and a £2m scheme that had been price monitored since 2019. We
continue to develop the service to allow us to significantly increase our
onboarding capacity. As part of our proposition to EBCs, trustees, and scheme
sponsors, we are always available to quote for any size transaction. We expect
less seasonality in 2023 new business levels than in previous years.
GIfL sales for the six months to 30 June 2023 were £470m (six months to 30
June 2022: £305m), 54% higher year on year. This strong foundation provides
us with opportunity to utilise our market leading medical underwriting to risk
select more profitable and niche segments of the market in the second half.
Furthermore, we estimate that since 2014, more than £130bn of cumulative
retirement savings have moved to drawdown on platform, often without a
decumulation strategy. Due to the higher customer rates now on offer, we
expect that advisers and customers will re-examine the role of guaranteed
income in retirement. The introduction of the FCA's Consumer Duty in July and
the findings later this year from the thematic review into retirement income
advice are also likely to increase the importance of considering guaranteed
solutions to help customers achieve their objectives.
Adjusted Earnings per share
Adjusted EPS (based on underlying operating profit after attributed tax) has
increased to 12.9 pence for the current period from 5.3 pence for the 6 months
ended 30 June 2022.
Six months ended Six months ended
30 June 2022
30 June 2023
(restated)
Adjusted earnings (£m) 132 55
Weighted average number of shares (million) 1,029 1,036
Adjusted EPS(1) (pence) 12.9 5.3
(1 ) Alternative performance measure, see glossary for
definition.
Earnings per share
Six months ended Six months ended
30 June 2022
30 June 2023
(restated)
Earnings (£m) 76 (187)
Weighted average number of shares (million) 1,029 1,036
EPS (pence) 7.3 (18.1)
Earnings per share has increased to 7.3 pence for the current period from
(18.1) pence for the six months ended 30 June 2022.
Reconciliation of Underlying operating profit and Adjusted operating profit
Six months ended Six months ended
30 June 2023 30 June 2022
£m £m
(restated)
Underlying operating profit(1) 173 68
Operating experience and assumption changes 1 (4)
Adjusted operating profit before tax 174 64
Investment and economic movements 71 (255)
Strategic expenditure (7) (3)
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity 8 9
Adjusted profit before tax(1) 246 (185)
Deferral of profit in CSM (129) (52)
Profit/(loss) before tax 117 (237)
(1 ) Alternative performance measure, see glossary for
definition.
Operating experience and assumption changes
Operating experience and assumption changes represent continued positive
mortality experience, partially offset by some minor data and modelling
refinements.
STRategic expenditure
Strategic expenditure was £7m for the six months ended 30 June 2023 (six
months ended 30 June 2022: £3m). This included the transformation to IFRS 17,
in addition to a greater investment in the development of our robo-advice
Destination Retirement proposition.
Investment and economic movements
Six months ended Six months ended
30 June 2023 30 June 2022
£m
£m
(restated)
Change in interest rates (6) (257)
(Wider)/narrower credit spreads 7 (32)
Property growth experience 38 38
Asset timing variance 10 4
Other 22 (8)
Investment and economic movements 71 (255)
Investment and economic movements for the six months ended 30 June 2023 were
positive at £71m (six months ended 30 June 2022: £255m loss). The Group
takes an active approach to hedging its interest rate exposure. In the second
half of 2021 and across 2022, as rates rose and the solvency position
strengthened, we gradually reduced the interest rate hedging to a broadly
economically neutral position, albeit still incurred £257m of losses in
relation to interest rate hedging in the first half of 2022 (£536m loss for
FY 2022, due to rising interest rates). In 2023, the continued increase in
risk free rates has a negligible effect following the implementation of a
revised interest rate hedging strategy during 2022 and the first half of 2023,
including the purchase of £2bn of long dated gilts held at amortised cost
under IFRS. This approach has removed(1) the IFRS exposure whilst
significantly containing our Solvency II sensitivity to future interest rate
movements (see estimated Group Solvency II sensitivities below).
Furthermore, during the first six months of 2023, credit spreads have
narrowed, leading to a £7m positive movement (H1 22: credit spreads widened
leading to a negative movement of £32m). The LTM portfolio property growth
was c.4% during the first six months of 2023, with our diversified portfolio
outperforming the long-term property growth assumption of 1.65% for the six
months (3.3% annual property growth assumption). Other includes positives from
corporate bond default experience and inflation.
(1) See note 14 for interest rate sensitivities, with a 100 bps
increase in interest rates resulting in an increase in pretax profit of £4.1m
and a 100 bps decrease in interest rates resulting in an increase in pretax
profit of £8.3m.
Capital management
The Group's capital coverage ratio was estimated to be 204% at 30 June 2023,
including a notional recalculation of transitional measures on technical
provisions ("TMTP") (31 December 2022: 199% including a formal recalculation
of TMTP). The Solvency II capital coverage ratio is a key metric and is
considered to be one of the Group's KPIs.
30 June 2023(1) 31 December 2022(2)
£m
£m
Own funds 2,698 2,757
Solvency Capital Requirement (1,323) (1,387)
Excess own funds 1,375 1,370
Solvency coverage ratio(1) 204% 199%
(1) Solvency II capital coverage ratios as at 30 June 23 includes a
notional recalculation of TMTP and 31 December 2022 includes a formal
recalculation of TMTP.
(2 ) This is the reported regulatory position as included in the
Group's Solvency and Financial Condition Report as at 31 December 2022.
The Group has approval to apply the matching adjustment and TMTP in its
calculation of technical provisions and uses a combination of an internal
model and the standard formula to calculate its Group Solvency Capital
Requirement ("SCR").
Movement in excess own funds(1)
The table below analyses the movement in excess own funds, in the six months
to 30 June 2023.
At 30 June At 30 June
(Not covered by PwC's independent review opinion) 2023(2) 2022
£m £m
(restated)
Excess own funds at 1 January 1,370 1,168
Operating
In-force surplus net of TMTP amortisation 84 87
New business strain(2) (30) (11)
Finance cost (24) (32)
Group and other costs (12) (11)
Underlying organic capital generation 18 33
Management actions and other items (4) 3
Total organic capital generation(3) 14 36
Non-operating
Strategic expenditure (5) (2)
Dividend (13) (10)
Economic movements 9 57
Excess own funds 1,375 1,249
(1 ) All figures are net of tax, and include a notional
recalculation of TMTP where applicable.
(2 ) New business strain calculated based on pricing assumptions.
(3 ) Organic capital generation includes surplus from in-force,
new business strain, overrun and other expenses, interest and other operating
items. It excludes economic variances, regulatory changes, dividends and
capital issuance.
underlying Organic capital generation and New business STRAIN
In the first six months of 2023, we have delivered £18m of underlying organic
capital generation (six months ended 30 June 2022: £33m).
The business is delivering sufficient ongoing capital generation to support
deployment of capital to capture the profitable growth opportunity available
in our chosen markets, provide returns to our capital providers and further
investment in the strategic growth of the business.
Underlying organic capital generation ("UOCG") has benefitted from the ongoing
focus across the business on minimising new business capital strain. In the
first six months of 2023, due to writing £1.9bn of new business
(H1 22: £0.9bn), new business strain increased by £19m to £30m, which
represents 1.6% of new business premium (six months ended 30 June 2022: 1.3%
of premium), well within our target of below 2.5% of premium. This continued
outperformance is driven by continued pricing discipline and risk selection,
together with a high proportion of small and medium transactions within the DB
sales mix as part of our origination strategy. UOCG before new business strain
improved by 9% to £48m (H1 22: £44m).
In-force surplus after TMTP amortisation was down 3% to £84m, primarily due
to higher interest rates which reduces the amount of capital available (via
lower SCR and risk margin) to release. Group and other costs including
development and non-life costs were £12m (six months ended 30 June 2022:
£11m). Finance costs at £24m were lower, which reflected the interest
savings following a tender offer and subsequent cancellation of £76m tier 2
debt in November 2022. Management actions and other items reduced the capital
surplus by £4m, leading to a total of £14m from organic capital generation.
NON-OPERATING items
Other economic movements summed to £9m in the capital surplus. The effect
from higher interest rates (10 year gilts rose by rose by 55bps during the
period) was negligible at £(3)m in the surplus as Own Funds and SCR both
reduced, although this provided a boost to the ratio. Property price growth,
supported by our regular individual property valuation refresh, of c.4%
(compared to our six monthly 1.65% long term growth assumption) led to an
£18m increase in capital surplus, offset by £6m of Other. Payment of the
2022 final dividend in May cost £13m and strategic expenses reduced the
capital surplus by a further £5m.
Estimated group Solvency II sensitivities(1,5)
The property sensitivity has remained stable at 11% (31 December 2022: 12%).
We expect that reduced LTM origination and backing ratio on new business will
contain the Solvency II sensitivity to house prices to at or below this level
over time. The credit quality step downgrade sensitivity has slightly reduced
due to credit spreads narrowing during the period, which decreases the cost of
trading the 10% of our credit portfolio assumed to be downgraded back to their
original credit rating.
Sensitivities to economic and other key metrics are shown in the table below.
At 30 June At 30 June
2023 2023
% £m
Solvency coverage ratio/excess own funds at 30 June 2023(2) 204 1,375
-50bps fall in interest rates (with TMTP recalculation) (6) 22
+50bps increase in interest rates (with TMTP recalculation) 5 (28)
+100bps credit spreads (with TMTP recalculation) 12 74
Credit quality step downgrade(3) (8) (106)
+10% LTM early redemption 1 15
-10% property values (with TMTP recalculation)(4) (11) (123)
-5% mortality (10) (132)
1 In all sensitivities the Effective Value Test ("EVT") deferment rate
is allowed to change subject to the minimum deferment rate floor of 3% as at
30 June 2023 (2.0% as at 31 December 2022) except for the property sensitivity
where the deferment rate is maintained at the level consistent with base
balance sheet.
2 Sensitivities are applied to the reported capital position which
includes a notional TMTP recalculation.
3 Credit migration stress covers the cost of an immediate big letter
downgrade (e.g. AAA to AA or A to BBB) on 10% of all assets where the capital
treatment depends on a credit rating (including corporate bonds, ground
rents/income strips; but lifetime mortgage senior notes are excluded).
Downgraded assets are assumed to be traded to their original credit rating, so
the impact is primarily a reduction in Own Funds from the loss of value on
downgrade. The impact of the sensitivity will depend upon the market levels of
spreads at the balance sheet.
4 After application of NNEG hedges.
5 The results do not include the impact of capital tiering restriction.
Reconciliation of IFRS equity to Solvency II own funds
30 June 31 December 2022
£m
2023
(restated)
£m
Shareholders' net equity on IFRS basis 1,169 1,103
CSM 1,740 1,611
Goodwill (34) (34)
Intangibles (11) (13)
Solvency II risk margin (440) (456)
Solvency II TMTP(1) 731 874
Other valuation differences and impact on deferred tax (977) (884)
Ineligible items (65) (50)
Subordinated debt 600 619
Group adjustments (15) (13)
Solvency II own funds(1) 2,698 2,757
Solvency II SCR(1) (1,323) (1,387)
Solvency II excess own funds(1) 1,375 1,370
(1 ) Solvency II capital coverage ratios as at 30 June 2023
include a notional recalculation of TMTP and 31 December 2022 includes a
formal recalculation of TMTP.
Highlights from condensed consolidated statement of comprehensive income
The table below presents the Condensed consolidated statement of comprehensive
income for the Group.
Six months ended Six months ended
30 June 2023 30 June 2022
£m £m
(restated)
Insurance revenue 753 639
Insurance service expenses (682) (583)
Net expenses from reinsurance contracts (17) (9)
Insurance service result 54 47
Net investment return - (3,408)
Net finance income/(expense) from insurance and reinsurance contracts 144 3,197
Net change in investment contract liabilities (1) -
Net investment result 143 (211)
Other income 12 6
Other operating expenses (51) (50)
Other finance costs (39) (29)
Share of results of associates (2) -
Profit/(loss) before tax 117 (237)
Income tax (35) 56
Profit/(loss) after tax 81 (181)
Insurance revenue
Insurance revenue includes the recognition of revenue earned associated with
the expected value of claims and expenses of both new and in-force business.
Insurance revenue also includes the release of risk adjustment as contracts
run off, and the value of release into profit of contractual service margin.
In the six months to 30 June 2023, insurance revenue increased by £114m (18%)
to £753m (six months to 30 June 2022: £639m) as the premiums during the
period further increases the number of annuitants the Group serves.
The origination of £1,899m of Retirement Income new business sales written
during the first six months of 2023 is initially recognised in the contractual
service margin and will be released to insurance revenue over the term of the
associated insurance contracts.
Insurance service expenses
Insurance service expenses represents the actual value of claims and expenses
of both new and in-force business. During the first six months of 2023,
insurance service expenses increased by 17% to £682m (H1 22: £583m) due to
the increased volume of business.
Net expenses from reinsurance contracts
Net expenses from reinsurance contracts represent the difference between the
values of expected and actual reinsurance claims and expenses, together with
the release of reinsurance risk adjustment as contracts run off, and the
release of reinsurance contractual service margin. The reinsurance contractual
service margin represents the cost of reinsurance which is spread over the
duration of the reinsurance contracts. During the six months to 30 June 2023,
net expenses from reinsurance contracts increased by £8m to £17m reflecting
a higher release of reinsurance CSM (cost) following an increase to the CSM
balance attributable to the mortality basis change at FY22.
Net investment return
The main components of net investment return are interest earned and changes
in fair value of the Group's corporate bond, mortgage and other fixed income
assets. Although there has been an increase in risk-free rates during the
period, a revised hedging strategy during 2022 and H1 23 has removed(1) the
IFRS exposure whilst significantly containing our Solvency II sensitivity to
future interest rate movements. We closely match our assets and liabilities,
hence fluctuations in interest rates will cause similar movements on both
sides of the IFRS balance sheet. During the first half of 2023, the Group
purchased long term-gilts held on an amortised cost basis in IFRS, fair value
basis in Solvency II to reduce the Group's Solvency II capital exposure to
interest rate movements.
Net finance income/(expense) from insurance and reinsurance contracts
Finance costs from insurance and reinsurance contracts represent the net cost
of the unwind of the discounting of reserves, and the net gain or loss from
changes in discount rates. The net income in the current period reflected a
benefit from the increase in discount rates on the value of best estimate and
risk adjustment reserves, partly offset by the net cost of unwind of reserves.
Long dated cashflows from assets and liabilities on the balance sheet are
closely cashflow matched and not exposed to movements in long term interest
rates, particularly since the change in the interest rate hedging strategy
explained above.
(1 ) See note 14 for interest rate sensitivities, with a
100 bps increase in interest rates resulting in an increase in pretax profit
of £4.1m and a 100 bps decrease in interest rates resulting in an increase in
pretax profit of £8.3m.
Other operating expenses
Other operating expenses are broadly stable at £51m in the current period and
are in line with £50m for the six months ended 30 June 2022, as we maintained
strong cost control in the business, despite an inflationary environment.
Other finance costs
The Group's overall finance costs increased to £39m (six months to 30 June
2022: £29m). Finance costs have increased due to interest charged on
repurchase agreements used to fund the new gilts investment portfolio in
relation to the new interest rate hedging strategy, which was implemented in
the first half of 2023. Within the KPIs, interest on repurchase agreements is
excluded from finance costs as it is included within the return on surplus
within in-force operating profit alongside the gilt income.
Note that the coupon on the Group's Restricted Tier 1 notes is recognised as a
capital distribution directly within equity and not within finance costs.
Income tax
Income tax for the period ended 30 June 2023 was £35m (six months ended 2022:
credit of £56m). The effective tax rate of 30% (2022: 24%) is higher than the
standard 23.5% corporation tax rate. This is principally due to tax on a prior
year adjustment.
Highlights from condensed consolidated statement of financial position
The table below presents selected items from the Condensed consolidated
statement of financial position. The information below is extracted from the
statutory consolidated statement of financial position.
30 June 2023 31 December 2022
£m £m
(restated)
Assets
Financial investments 26,161 23,351
Reinsurance contract assets 719 776
of which CSM 80 107
Other assets 1,323 1,285
Total assets 28,203 25,412
Share capital and share premium 199 199
Other reserves 945 938
Accumulated profit and other adjustments (294) (354)
Total equity attributable to ordinary shareholders of Just Group plc 850 783
Tier 1 notes 322 322
Non-controlling interest (3) (2)
Total equity 1,169 1,103
Liabilities
Insurance contract liabilities 20,606 19,648
of which CSM 2,047 1,943
Reinsurance contract liabilities 103 121
of which CSM (227) (225)
Other financial liabilities 5,354 3,669
Other liabilities 971 871
Total liabilities 27,034 24,309
Total equity and liabilities 28,203 25,412
Total Net Contractual Service Margin included above 1,740 1,611
Net Contractual Service Margin net of deferred tax 1,308 1,212
Financial investments
During the period, financial investments increased by £2.8bn to £26.2bn
(2022: £23.4bn). Excluding the derivatives and collateral, and gilts
purchased in relation to the interest rate hedging, during the first half of
2023, the core Investments portfolio increased by 5% to £21.3bn. Over the
past 18 months, central banks and governments are withdrawing accommodative
stimulus in response to the pandemic, while at the same time, central banks
are rapidly raising base rates from their historical low levels to counteract
the effect of inflation and prevent it becoming embedded in the economy.
Increases in risk-free rates during the period reduce the value of the assets
(and matched liabilities), but this was more than offset by investment of the
Group's £1.9bn of new business premiums. Credit spreads also tightened during
the period. The credit quality of the corporate bond portfolio remains
resilient, with 51% of the Group's corporate bond and gilts portfolio rated A
or above
(31 December 2022: 52%), with a reduction due to a slightly lower weighting to
Government investments. Our diversified portfolio continues to grow and is
well balanced across a range of industry sectors and geographies.
We continue to position the portfolio with a defensive bias, and year to date
have experienced positive ratings performance as 9% of the Group's bond
portfolio (excluding gilts) was upgraded, offset by 4% being downgraded. The
Group continues to have very limited exposure to those sectors that are most
sensitive to structural change or macroeconomic conditions, such as auto
manufacturers, consumer (cyclical) and basic materials. The Group has
increased its ground rent (primarily commercial) investments, and selectively
added to consumer and banks investments. The BBB-rated bonds are weighted
towards the most defensive sectors including utilities, communications and
technology, and infrastructure. We have broadened the BBB exposure towards
ground rents, which offer the security of a first charge over the asset, with
reduced exposure from the heavier weighted sectors.
The Group continues to have ample liquidity. We prudently manage the balance
sheet by hedging all foreign exchange and inflation exposure, and have
implemented a revised interest rate hedging strategy during the first half of
2023. This involved the purchase of £2bn of long dated gilts, which are held
at amortised cost under IFRS. The effect is to significantly reduce the
Solvency II sensitivity to future interest rate movements, without the
associated volatility on the IFRS position.
Other illiquid assets and lifetime mortgages
To support new business pricing, optimise back book returns, and to further
diversify the investments, the Group originates other illiquid assets
including infrastructure, real estate investments and private placements.
Income producing real estate investments such as ground rents and income
strips are typically much longer duration and hence the cashflow profile is
very beneficial, especially to match DB deferred liabilities.
To date, Just has invested £3.9bn in other illiquid assets, representing 18%
of the investments portfolio
(31 December 2022: 16%), spread across more than 300 investments, both UK and
abroad. We have invested in our in-house credit team as we have broadened the
illiquid asset origination, and work very closely with our specialist asset
managers on structuring to enhance our security, with a right to veto on each
asset. We anticipate that the upcoming Solvency II reforms, when implemented,
will increase the investment opportunities available to us through wider
matching adjustment eligibility criteria, such as callable bonds, or assets
with a construction phase, where the commencement of cashflows is not entirely
certain. A PRA consultation paper on the more complex changes to matching
adjustment ("MA") rules and the associated investment flexibility is expected
to be launched in September, with reforms to take effect in 2024. We expect
these MA changes to support the role HM Treasury is expecting from the
industry, whereby appropriate reforms could increase investment by tens of
billions of pounds in long-term finance that underpins UK economic growth and
productivity.
In the first six months of the year, we funded £789m of other illiquid assets
(35 investments), which represented a 42% new business backing ratio. Other
illiquid assets are originated via a panel of 15 specialist external asset
managers, each carefully selected based on their particular area of expertise.
Our "manager of managers" approach allows us to efficiently scale origination
of new investments, and to flex allocations between sectors depending on
market conditions and risk adjusted returns.
In addition, during the first half of 2023, internally funded lifetime
mortgages were £75m (H1 22, £274m), primarily due to a quieter LTM market,
which more than halved to £1.4bn, and our ongoing pricing discipline. LTMs
remain an attractive asset class, however, in a higher interest rate
environment, the initial loan-to-value available to customers is reduced. We
continue to be selective in the mortgages we originate, as we use our market
insight and distribution to target certain sub-segments of the market. The
loan-to-value ratio of the in-force lifetime mortgage portfolio was 36.5% (31
December 2022: 37.3%), reflecting continued performance across our
geographically diversified portfolio, which offsets the interest roll-up.
Lifetime mortgages at £5.2bn represent 24% of the investments portfolio,
which we expect to drift lower over time as we originate less new LTMs and
diversify the portfolio with other illiquid assets. The 11% Solvency II
capital coverage ratio impact for an immediate 10% fall in UK house prices
remains at a level we are comfortable with.
The following table provides a breakdown by credit rating of financial
investments, including privately rated investments allocated to the
appropriate rating.
30 June 2023 30 June 2023 31 December 2022 31 December 2022
£m % £m %
(restated) (restated)
AAA(1) 2,235 8 1,939 8
AA(1,3) and gilts 4,140 17 1,993 8
A(1,2,3) 6,398 24 5,989 26
BBB(1,2,3) 6,851 26 6,441 28
BB or below(1,2) 655 2 793 3
Unrated(1,3) 865 3 930 4
Lifetime mortgages 5,177 20 5,306 23
Total(1,2,3) 26,321 100 23,391 100
1 Includes units held in liquidity funds, derivatives and collateral
and gilts (interest rate hedging).
2 Includes investment in trusts which holds ground rent generating
assets which are included in investment properties and investments accounted
for using the equity method in the IFRS consolidated statement of financial
position.
3 The comparative has been restated to re-allocate ground rents and
certain SME investment and other funds to the appropriate rating.
The sector analysis of the Group's financial investments portfolio is shown
below and continues to be well diversified across a variety of industry
sectors.
30 June 2023 30 June 2023 31 December 2022 31 December 2022
£m % £m %
(restated) (restated)
Basic materials 207 1.0 270 1.3
Communications and technology 1,289 6.1 1,327 6.6
Auto manufacturers 180 0.8 250 1.2
Consumer (staples including healthcare) 1,245 5.9 1,012 5.0
Consumer (cyclical) 245 1.2 125 0.6
Energy 424 2.0 535 2.7
Banks 1,374 6.5 1,120 5.5
Insurance 660 3.1 607 3.0
Financial - other 1,123 5.3 956 4.7
Real estate including REITs 510 2.4 437 2.2
Government 1,412 6.6 1,596 7.9
Industrial 599 2.8 622 3.1
Utilities 2,216 10.4 2,266 11.2
Commercial mortgages 629 3.0 584 2.9
Ground rents(1) 847 4.0 291 1.4
Infrastructure 1,868 8.8 1,702 8.5
Other 42 0.2 42 0.2
Corporate / government bond total 14,870 69.9 13,742 68.0
Lifetime mortgages 5,177 24.4 5,306 26.2
Liquidity funds 1,205 5.7 1,174 5.8
Investments portfolio 21,252 100.0 20,222 100.0
Derivatives and collateral 3,099 3,169
Gilts (interest rate hedging) 1,970 -
Total(1) 26,321 23,391
1 Includes direct ground rents and where applicable, investment in
trusts which holds ground rent generating assets which are included in
investment properties and investments accounted for using the equity method in
the IFRS consolidated statement of financial position.
Reinsurance contract assets and liabilities
In accordance with IFRS 17, the Group distinguishes between its portfolios of
reinsurance contracts which cover longevity and inflation risks and portfolios
of reinsurance treaties covering longevity reinsurance alone. The Group's
contracts transferring inflation risk are quota share arrangements which are
in asset positions. Since the introduction of Solvency II in 2016, the Group
has increased its use of reinsurance swaps rather than quota share treaties
and these are in liability positions.
Reinsurance assets decreased to £719m at 30 June 2023 (31 December 2022:
£776m) as the reinsurance quota share treaties gradually run-off.
Other assets
Other assets remained consistent at £1.3bn at 30 June 2023 (31 December 2022:
£1.3bn). These assets mainly comprise cash and intangible assets. The Group
holds significant amounts of assets in cash, so as to protect against
liquidity stresses.
Insurance contract liabilities
Insurance contract liabilities increased to £20.6bn at 30 June 2023 (31
December 2022: £19.6bn). The increase in liabilities reflects the increase in
new business premiums written offset by an increase to the valuation rate of
interest and policyholder payments over the period.
Other liabilities
Other liability balances decreased to £971m at 30 June 2023 (31 December
2022: £871m) due to the reductions in the deferred tax liability and
accruals.
IFRS net assets
The Group's total equity at 30 June 2023 was £1.2bn (31 December 2022:
£1.1bn). Total equity includes the Restricted Tier 1 notes of £322m (after
issue costs) issued by the Group in September 2021. The total equity
attributable to ordinary shareholders increased to £850m (31 December 2022:
£783m).
New business profit Reconciliation
New business profit is deferred on the balance sheet under IFRS 17. It is the
equivalent of the previous new business profit KPI under IFRS 4 and is
determined in a similar manner, but uses risk parameters updated for IFRS 17.
The effect of these changes is detailed in the reconciliation table at the end
of this section.
In addition IFRS 17 introduces clarification regarding the economic
assumptions to be used at the point of recognition of contracts for accounts
purposes. Just recognises contracts based on their completion dates for IFRS
17, but bases its assessment of new business profitability for management
purposes based on the economic parameters prevailing at the quote date for
GIfL business. IFRS 17 also introduces a requirement to include the
reinsurance CSM in respect of business to be written after the reporting date
up until the end of reinsurance treaty notice periods.
Six months ended Six months ended
30 June 2023 30 June 2022
£m £m
(restated)
New business CSM on gross business written 158 88
Reinsurance CSM (10) (5)
Net new business CSM 148 83
Impact of using quote date for profitability measurement 13 (7)
New business profit 161 76
Deferral of profit in CSM
As noted above, underlying operating profit is the core performance metric on
which we have based our 15% growth target, per annum, on average, over the
medium term. This includes new business profits deferred in CSM that will be
released in future. When reconciling the underlying operating profit with the
statutory IFRS profit it is necessary to adjust for the value of the net
deferral of profit in CSM.
Net transfers to contractual service margin includes amounts that are
recognised in profit or loss including the accretion and the amortisation of
the contractual service margin:
Six months ended 30 June 2023 Six months ended 30 June 2022
Gross insurance contracts Reinsurance contracts Total Gross insurance contracts Reinsurance contracts Total
£m £m £m £m £m £m
CSM balance at 1 January 1,943 (332) 1,611 1,489 (205) 1,284
New Business initial CSM recognised 158 (10) 148 88 (5) 83
Accretion of interest on CSM 34 (7) 27 18 (2) 16
Changes to future cash flows at locked-in economic assumptions (21) 31 10 (23) 18 (5)
Amortisation of CSM (67) 11 (56) (49) 7 (42)
Net transfers to CSM 104 25 129 34 18 52
CSM balance at 30 June 2,047 (307) 1,740 1,523 (187) 1,336
Restatement of alternative performance measures
As noted earlier, certain Group's KPIs have been affected by the
implementation of IFRS 17 as a result of changes to risk parameters and other
measurement factors in the underlying statutory accounts. The opportunity has
been taken to make other changes to the derivation of the KPIs at the same
time as implementing IFRS 17, notably:
· The impact of demographic changes on the valuation of LTMs has
been reclassified as an investment value change instead of being included with
insurance experience and assumption changes. This change treats the full
return on LTMs as investment return and recognises their reduced significance
within the investment portfolio.
· Non-recurring expenses have been reallocated to new business
acquisition expenses or development expenses within underlying operating
profit or to strategic expenses. This has also been reflected and aligned to
the classifications used for measurement of Solvency II capital generation.
The table below compares the new business profits, Underlying profit and
Adjusted operating profit before tax KPIs as presented in the Annual Report
and Accounts in 2022 under IFRS 4 (previous accounting standard) with the
equivalent KPIs based on the IFRS 17 accounts:
New business Underlying Adjusted
profit operating profit operating profit
£m £m
£m
As presented in 2022 Annual Report and Accounts under IFRS 4 233 249 336
Changes in allowances for credit defaults 38 25 25
Changes attributable to replacement of IFRS 4 prudent reserves with IFRS 17 2 (9) (9)
risk adjustment
Change to the classification of demographic assumption changes and experience - - 24
variances in respect of LTMs
Reclassification of expenses (1) (6) (6)
Other differences (6) (2) (9)
As presented in 2023 Interim Statement under IFRS 17 266 257 361
Dividends
The Board has declared an interim dividend of 0.58 pence per share (£6m)
(HY2022 interim dividend 0.5 pence per share £5m). This is in line with our
stated policy for the interim dividend to be one-third of the equivalent prior
year full year dividend of 1.73 pence per share.
ANDY PARSONS
Group Chief Financial Officer
Risk management
The Group's enterprise-wide risk management strategy is to enable all
colleagues to take more effective business decisions through a better
understanding of risk.
Purpose
The Group risk management framework supports management in making decisions
that balance the competing risks and rewards. This allows them to generate
value for shareholders, deliver appropriate outcomes for customers and help
our business partners and other stakeholders. Our approach to risk management
is designed to ensure that our understanding of risk underpins how we run the
business.
Risk framework
Our risk framework, owned by the Group Board, covers all aspects involved in
the successful management of risk, including governance, reporting and
policies. Our appetite for different types of risk is embedded across the
business to create a culture of confident risk-taking. The framework is
continually developed to reflect our risk environment and emerging best
practice.
Risk evaluation and reporting
We evaluate our principal and emerging risks to decide how best to manage them
within our risk appetite. Management regularly reviews its risks and produces
management information to provide assurance that material risks in the
business are being appropriately mitigated. The Risk function, led by the
Group Chief Risk Officer ("GCRO"), challenges the management team on the
effectiveness of its risk evaluation and mitigation. The GCRO provides
the Group Risk and Compliance Committee ("GRCC") with his independent
assessment of the principal and emerging risks to the business.
Company policies govern the exposure of risks to which the Group is exposed
and define the risk management activities to ensure these risks remain within
appetite.
Financial risk modelling is used to assess the amount of each risk type
against our capital risk appetite. This modelling is principally aligned to
our regulatory capital metrics. The results of the modelling allow the Board
to understand the risks included in the Solvency Capital Requirement ("SCR")
and how they translate into regulatory capital needs. By applying stress and
scenario testing, we gain insights into how risks might impact the Group in
different circumstances.
Quantification of the financial impact of climate risk is subject to
significant uncertainty. Risks arising from the transition to a lower carbon
economy are heavily dependent on government policy developments, social
responses to these developments and market trends. Just's initial focus has
been on the implementation of strategies to reduce the likely exposure to
this risk. Just will continue to adapt its view of climate risk as more data
and methodologies emerge.
The aggregate exposure to climate risk is assessed against existing risk
appetites, with climate risk a factor to be considered in the management of
these risks. Risk appetite tolerances will be reviewed as further
stress-testing results become available.
Own Risk and Solvency Assessment
The Group's Own Risk and Solvency Assessment ("ORSA") process embeds
comprehensive risk reviews into our Group management activities. Our annual
ORSA report is a key part of our business risk management cycle. . It
summarises work carried out in assessing the Group's risks related to its
strategy and business plan, supported by a variety of quantitative scenarios,
and integrates findings from recovery and run-off analysis. The report
provides an opinion on the viability and sustainability of the Group and
informs strategic decision making. Updates are provided to the GRCC each
quarter, including factors such as key risk limit consumption as well as
conduct, and operational and market risk developments, to keep the Board
appraised of the Group's evolving risk profile.
Reporting on climate risk is being integrated into the Group's regular
reporting processes, which will evolve as the quantification of risk exposures
develops and key risk indicators ("KRIs") are identified.
Principal risks and uncertainties
STRATEGIC priorities
1. Grow sustainably
2. Transform how we work
3. Grow through innovation
4. Get closer to our customers and partners
5. Be proud to work at Just
A material change was made to how the risks and uncertainties are presented in
this report. The first section summarises the Group's ongoing core risks and
how they are managed in business as usual. The risk outlook section calls out
the risk subjects that are evolving and are of material importance from a
Group perspective.
Ongoing principal risks
Risk How we manage or mitigate the risk
A • Premiums invested into assets matching liability cash flows as closely as
Market risk arises from changes in interest rates, residential property practicable;
prices, credit spreads, inflation, and exchange rates, which affect, directly
or indirectly, the level and volatility of market prices of assets and • Market risk exposures managed within pre-defined limits aligned to risk
liabilities. The Group is not exposed to any material levels of equity risk. appetite for individual risks;
Some very limited equity risk exposure arises from investment into credit
funds which have a mandate which allows preferred equity to be held. • Exposure managed using regulatory and economic metrics to achieve desired
financial outcomes;
• Balance sheet managed by hedging exposures including currency and
Strategic priorities inflation where cost effective to do so; and
1, 3 • Interest rate hedging is in place to manage both Solvency II capital
coverage and IFRS equity positions.
B • Investments are restricted to permitted asset classes and concentration
Credit risk arises if another party fails to perform its financial obligations limits;
to the Group, including failing to perform them in a timely manner.
• Credit risk exposures monitored in line with credit risk framework,
driving corrective action where required;
Strategic priorities • External events that could impact credit markets are tracked continuously;
1, 3, 4 • Credit risks from reinsurance balances mitigated by the reinsurer
depositing back premiums ceded and through collateral arrangements or
recapture plans; and
• The external fund managers we use are subject to Investment Management
Agreements and additional credit guidelines.
C • Controls maintained over insurance risks related to product development
Insurance risk arises through exposure to longevity, mortality, morbidity and pricing;
risks and related factors such as levels of withdrawal from lifetime mortgages
and management and administration expenses. • Adherence to approved underwriting requirements;
• Medical information developed and used for pricing and reserving to assess
longevity risk;
Strategic priorities
• Reinsurance used to reduce longevity risk, with oversight by Just of
1, 3, 4 overall exposures and the aggregate risk ceded;
• Group Board review and approval of assumptions used; and
• Regular monitoring, control and analysis of actual experience and expense
levels.
D • Utilise stress and scenario testing and analysis: including collateral
Liquidity risk is the risk of insufficient suitable assets available to meet margin stresses, asset eligibility and haircuts under stress;
the Group's financial obligations as they fall due.
• Utilise corporate bond collateral capacity to reduce liquidity demands and
improve our liquidity stress resilience;
Strategic priorities • Risk assessment reporting and risk event logs inform governance and enable
effective oversight; and
1, 3, 4
• Contingency funding plan maintained with funding options and process for
determining actions.
E • Implementation of policies, controls, and mitigating activities to keep
Conduct and operational risks arise from inadequate internal processes, people risks within appetite;
and systems, or external events including changes in the regulatory
environment. Such risks can result in harm to our customers, the markets • GRCC oversight of risk status reports and any actions needed to bring
in which we do business or our regulatory relationships as well as direct or risks back within appetite;
indirect loss, or reputational impacts.
• Scenario-based assessment to establish the level of capital needed for
conduct and operational risks;
Strategic priorities • Monitoring conduct risk indicators and their underlying drivers prompting
action to protect customers;
1, 2, 3, 4, 5
• Risk management training and other actions to embed regulatory changes;
and
• Ensuring data subjects can exercise their GDPR rights including their
right to be forgotten and subject access requests to obtain their data held
by Just.
F • The Group operates an annual strategic review cycle;
Strategic risk arises from the choices the Group makes about the markets in
which it competes and the environment in which it competes. These risks • Information on the strategic environment, which includes both external
include the risk of changes to regulation, competition, or social changes market and economic factors and those internal factors which affect our
which affect the desirability of the Group's products and services. ability to maintain our competitiveness, is regularly analysed to assess the
impact on the Group's business models;
• Engagement with industry bodies supports our information gathering; and
Strategic priorities
• The Group responds to consultations through trade bodies where
1, 2, 3, 4, 5 appropriate.
Risk outlook
How this risk affects Just Just's exposure to the risk Outlook and how we manage or mitigate the risk
1 Just monitors and assesses regulatory developments on an ongoing basis. We HM Treasury continues to review the future regulatory framework for financial
Political and regulatory seek to actively participate in all regulatory initiatives which may affect or services, which includes the Solvency II review. Both reviews could impact the
provide future opportunities for the Group. Our aims are to implement any amount of capital our businesses are required to hold. The HM Treasury
Changes in regulation and/or the political environment can impact the Group's changes required effectively and deliver better outcomes for our customers and response in November 2022 set out the Government's final reform package for
financial position and its ability to conduct business. The financial services a competitive advantage for the business. We develop our strategy by giving Solvency UK, including:
industry continues to see a high level of regulatory activity. consideration to planned political and regulatory developments and allowing
for contingencies should outcomes differ from our expectations. • a reduction in the Risk Margin;
• an enhancement in the Fundamental Spread risk sensitivity although its
Strategic priorities underlying design will be unchanged; and
1, 3, 4, 5 • a broadening of eligibility requirements for the Matching Adjustment, the
inclusion of assets with 'highly predictable' cash flows, and other changes
Trend including increased flexibility in the associated processes.
Uncertain The Solvency II review is now being implemented. The Group continues to
monitor and assess the changes proposed and engage with the PRA and industry
representatives. The PRA has published the first of three consultations
(CP12/23). Matching Adjustment and Risk Margin reform are of key importance to
Just's business model.
The FCA's rules for a new Consumer Duty ("Duty") (PS22/9 published July 2022)
have set higher and clearer standards for consumer protection across financial
services and require firms to put customers' needs first. Firms are required
to apply the Duty to new and existing products and services that are open to
sale (or renewal) from 31 July 2023, and from 31 July 2024 to apply the Duty
to products and services in closed books. The Group has achieved substantive
compliance by the 31 July 2023 deadline. Work is now progressing on
continuation of embedding the Duty as well as delivery of plans to meet the
July 2024 deadline.
New PRA and FCA regulations on operational resilience took effect in March
2022. The Regulators expect firms to be operationally resilient to ensure
customers are not at a financial disadvantage or placed at risk of financial
harm. Firms must identify its most important business services and set impact
tolerances for each, with regular scenario testing and an annual
Self-Assessment for Board approval. To comply, Just Group identified 15
Important Business Services ("IBS") and set Impact Tolerances ("ITOL") for
each IBS in March 2022. These were reviewed and approved by the Board as part
of our annual Self-Assessment, most recently in March 2023.
The change in insurance accounting standard to IFRS 17 has been implemented
and reported in this interim statement. In July 2023 we published an IFRS 17
restatement for FY22 and HY22.
2 Our TCFD disclosures (pages 36 to 43 of the Just Group plc Annual Report and Just is proactive in pursuing its sustainability responsibilities and
Climate and ESG Accounts 2022) explains how climate-related risks and opportunities are recognises the importance of its social purpose. We have set sustainability
embedded in Just's governance, strategy and risk management, with metrics to targets for our operations to be carbon net zero by 2025 and for emissions
Climate change could impact our financial position by impacting the value of show the potential financial impacts on the Group. The metrics reflect the from our investment portfolio, properties on which lifetime mortgages are
residential properties in our lifetime mortgage portfolio and the yields and stress-testing capabilities developed to date to assess the potential impact secured and supply chain to be net zero by 2050, with a 50% reduction in
default risk of our investment portfolios. Just's reputation could also be of climate risk on the Group's financial position. these emissions by 2030. A transition plan has been published and a second
affected by missed emissions targets or inadequate actions on sustainability
iteration is being developed.
issues. The value of properties on which lifetime mortgages are secured can be
affected by: Evidence is emerging that markets are beginning to differentiate the price of
assets based on their ESG position and the Board expects this to continue.
(i) transition risk - such as potential government policy changes related to
Strategic priorities the energy efficiency of residential properties; We will continue to develop stress testing capabilities to support the
monitoring of potential climate change impact on our investment and LTM
1, 2, 3, 4, 5 (ii) physical risks - such as increased flooding due to severe rainfall, or portfolios with a particular focus on refining the quality of input data.
more widespread subsidence after extended droughts.
Trend
Under Just's Responsible Investment Framework, the ESG characteristics are
A shortfall in property sale price against the outstanding mortgage could lead considered during the investment decision making process. Risks arising from
Increasing to a loss due to the no-negative equity guarantee given to customers. The flooding, coastal erosion and subsidence are taken into account in lifetime
lifetime mortgage lending policy will be kept under review in light of climate mortgage lending decisions.
risk and adjustments made as required.
For corporate bond and illiquid investment portfolios, the impact of climate
risk on assets or business models may affect the ability of corporate bond
issuers and commercial borrowers to service their liabilities. Yields
available from corporate bonds may also be affected by any litigation or
reputational risks associated with the issuers' environmental policies or
adherence to emissions targets.
3 Our IT systems are central to conducting our business from delivering The cyber threat to firms is expected to continue at a high level in the
Cyber and technology outstanding customer service to the financial management of the business. We coming years with evolving sophistication. We will continue to closely monitor
maintain a framework of operational resilience and disaster recovery evolving external cyber threats to ensure our information security measures
IT systems are key to serving customers and running the business. These capabilities so that we can continue to operate the business in adverse remain fit for purpose.
systems may not operate as expected or may be subject to cyber-attack to steal circumstances.
or misuse our data or for financial gain. Any system failure affecting the
2023 is seeing further investments in cyber-attack countermeasures, to enable
Group could lead to costs and disruption, adversely affecting its business and Protecting the personal information of our customers and colleagues is a key consistent delivery of required security standards. Just's new Chief
ability to serve its customers, as well as reputational damage. priority. Internal controls and our people are integral to protecting the Information Security Officer is implementing a revised information security
integrity of our systems, with our multi-layered approach to information team structure and approach.
security supported by training, embedded company policies and governance.
Strategic priorities We continue to invest in strategic technologies to strengthen data security
and overall resilience. In 2023, we are continuing to make enhancements to
1, 2, 3, 4, 5 network architecture. Our email system has been made more resilient to
malicious attacks, including emerging types of ransomware.
Trend
A specialist Security Operations Centre monitors all our externally facing
Stable infrastructure and services, with threat analysis, incident management and
response capabilities. The Group's cyber defences are subject to regular
external penetration tests to drive enhancements to our technology
infrastructure.
The development of in-house systems and our use of third-party systems is
tightly controlled by technical teams following established standards and
practices.
4 A high proportion of longevity risk on new business Just writes is reinsured, Experience and insights emerging since mid-2021 indicate that COVID-19 and
Insurance risk with the exception of Care business for which the risk is retained in full. the aftermath of the pandemic, will have a material and enduring impact on
Most of the financial exposure to the longevity risks that are not reinsured mortality for existing and future policyholders. Our current assumption about
In the long-term, the rates of mortality suffered by our customers may differ relate to business written prior to 2016. these changes has been incorporated into Just's pricing across our Retirement
from the assumptions made when we priced the contract.
Income and Lifetime Mortgage products and will be updated as more information
Reinsurance treaties include collateral to minimise exposure in the event of becomes available.
Strategic priorities a reinsurer default. Analysis of collateral arrangements can be found in Notes
27 and 29 of the Just Group plc Annual Report and Accounts.
1, 3, 4
Mortality experience continues to be volatile and significantly above
Trend pre-pandemic levels.
Stable
5 Financial market volatility leads to changes in the level of market prices of Tightening fiscal and monetary policy are expected to weaken global growth
Market and credit risk assets and liabilities. Our business model and risk management framework have significantly in 2023, with a sustained recession possible in the UK.
been designed to remain robust against market headwinds. Our policy is to Financial markets are likely to remain volatile during this period.
Fluctuations in interest rates, residential property values, credit spreads, manage market risk within pre-defined limits.
inflation and currency may result, directly or indirectly, in changes in the
Our investment assets may experience increased movements in downgrade and/or
level and volatility of market prices of assets and liabilities. Investment in fixed income investments involves default, credit rating default experience in 2023. Residential property price falls may increase the
downgrade and concentration risks. Other credit risk exposures arise due to Group's exposure to the risk of shortfalls in expected repayments due to
the potential default by counterparties we use to: no-negative equity guarantee within its portfolio of lifetime mortgages. Any
commercial property price falls would reduce the value of collateral held
Investment credit risk is a result of investing to generate returns to meet • provide reinsurance to manage longevity risk and to fund new business. within our commercial mortgage portfolio. The Group is selective in lending in
our obligations to policyholders.
order to limit exposure to marginal properties which are more likely to suffer
• provide financial instruments to mitigate interest rate and currency risk significant falls in value in a recession.
exposures.
Credit exposures to derivative and deposit counterparties are monitored and
Global factors have led to high inflation, increased interest rates and • holding our cash balances. actively managed to reduce concentration risk.
significant volatility in financial markets.
All over-the-counter derivative transactions are conducted under standardised Our balance sheet sensitivities to these risks can be found in Note 11.
International Swaps and Derivatives Association master agreements. The Group
has collateral agreements with relevant counterparties under each master
Strategic priorities agreement.
1, 3, 4 Credit risk on cash assets is managed by imposing restrictions over the credit
ratings of third parties with whom cash is deposited.
Trend
Increasing
6 Exposure to liquidity risk arises from: Financial markets are expected to remain volatile into the foreseeable future
Liquidity risk
with an increased level of liquidity risk. At the same time (partly as a
• short term cash flow volatility leading to mismatches between cash flows result of the LDI crisis) Just is experiencing strong market demand for
Having sufficient liquidity to meet our financial obligations as they fall due from assets and liabilities, particularly servicing collateral requirements defined benefit de-risking solutions from pension schemes.
requires ongoing management and the availability of appropriate liquidity of financial derivatives and reinsurance agreements;
cover. The liquidity position is stressed in extremely volatile conditions
Just's use of derivative positions is planned to increase in proportion to its
such as those seen in September 2022. • the liquidation of assets to meet liabilities during stressed market planned growth. Throughout any period of heightened volatility, Just maintains
conditions; robust liquidity stress testing and holds a high level of liquidity coverage
above stressed projections.
• higher-than-expected funding requirements on existing LTM contracts,
Strategic priorities lower redemptions than expected; and
1, 3, 4 • liquidity transferability risk across the Group.
Trend Financial markets continue to experience volatility. Just was not directly
affected by the Liability Driven Investment ("LDI") crisis last year however
Increasing whilst the market turmoil seen has reduced volatility remains. Future calls on
liquidity are managed within the Group's existing liquidity risk management
framework which reserves.
7 Risks to the Group's strategy arise from regulatory change as the Group Regulation changes, such as Solvency II reform set out in Risk 1, are subject
Strategic risk operates in regulated markets and has partners and distributors who are to consultation. It is likely the Group's regulators will not make further
themselves regulated. Actions by regulators may change the shape and scale of significant changes until these have been implemented.
The choices we make about the markets in which we compete and the demand the market or alter the attractiveness of markets or demand for the Group's
for our product and service offering may be affected by external risks products. There is a risk that pension scheme regulation may change as a result of
including changes to regulation, competition, or social changes.
schemes' own exposures. The FPC has published its assessment of the minimum
Changes in the nature or intensity of competition may impact the Group and liquidity resilience requirement for pension schemes which may alter schemes
increase the risk the business model is not able to be maintained. The actions propensity to transfer liabilities to insurers. The UK government is
of our competitors may increase the exposure to the risk from regulation discussing a wide range of potential reforms to aspects of retirement
Strategic priorities should they fail to maintain appropriate standards of prudence. provision that could change the strategic landscape.
1, 2, 3, 4, 5 Demand for de-risking solutions is expected to remain strong having increased
after the LDI crisis. Competition for schemes may increase from both existing
Trend and potential new competitors. Demand for Lifetime Mortgages has reduced as a
result of higher interest rates and may remain subdued until these fall.
Stable
The Group's strategic priorities are explained in more detail on pages 16 and
17 of the Just Group plc Annual Report and Accounts 2022.
Statement of Directors' responsibilities
Each of the Directors of the Company confirms that to the best of their
knowledge:
· the Condensed consolidated financial statements have been
prepared in accordance with UK-adopted IAS 34: Interim financial reporting, as
adopted by the UK Endorsement Board;
· the interim results statement includes a fair review of the
information required by Disclosure and Transparency Rule 4.2.7, namely
important events that have occurred during the period and their impact on the
Condensed consolidated financial statements, as well as a description of the
principal risks and uncertainties faced by the Company and the undertakings
included in the Condensed consolidated financial statements taken as a whole
for the remaining six months of the financial period; and
· the interim results statement includes a fair review of material
related party transactions and any material changes in the related party
transactions described in the last annual report as required by Disclosure and
Transparency Rule 4.2.8.
By order of the Board:
David Richardson
Group Chief Executive Officer
14 August 2023
Independent review report to Just Group plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Just Group plc's condensed consolidated interim financial
statements (the "interim financial statements") in the interim results of Just
Group plc for the 6 month period ended 30 June 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the condensed consolidated statement of financial position as at
30 June 2023;
· the condensed consolidated statement of comprehensive income for
the period then ended;
· the condensed consolidated statement of cash flows for the period
then ended;
· the condensed consolidated statement of changes in equity for the
period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results of Just Group
plc have been prepared in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the interim results and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The interim results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim results in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority. In preparing the interim results, including the
interim financial statements, the directors are responsible for assessing the
group's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or to
cease operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the interim results based on our review. Our conclusion,
including our Conclusions relating to going concern, is based on procedures
that are less extensive than audit procedures, as described in the Basis for
conclusion paragraph of this report. This report, including the conclusion,
has been prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We do not, in
giving this conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may
come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
14 August 2023
Condensed consolidated statement of comprehensive income
for the period ended 30 June 2023
Note Six months ended Six months ended Year ended
30 June 2023
31 December 2022
£m 30 June 2022 £m
£m (restated)
(restated)
Insurance revenue 2 753.3 639.3 1,325.3
Insurance service expenses 3 (682.4) (583.0) (1,196.4)
Net expenses from reinsurance contracts (17.3) (9.4) (29.8)
Insurance service result 53.6 46.9 99.1
Net investment gain/(loss) on financial assets measured at fair value through 4 (11.1) (3,408.2) (5,188.8)
profit and loss
Interest income on financial assets measured at amortised cost 4 11.0 - -
Investment return (0.1) (3,408.2) (5,188.8)
Net finance income/(expense) from insurance contracts 5 150.5 3,274.3 4,823.1
Net finance (expense)/income from reinsurance contracts (6.9) (77.3) (90.7)
Movement in investment contract liabilities (0.7) 0.4 2.6
Net investment result 142.8 (210.8) (453.8)
Other income 12.4 6.3 14.1
Other operating expenses (51.2) (50.8) (92.7)
Other finance costs (39.0) (29.0) (57.6)
Share of results of associates accounted for using the equity method (1.9) - (2.9)
Profit/(loss) before tax 116.7 (237.4) (493.8)
Income tax 7 (35.4) 56.7 132.0
Profit/(loss) for the period 81.3 (180.7) (361.8)
Other comprehensive income/(loss):
Items that will not be reclassified subsequently to profit or loss:
Revaluation of land and buildings - (0.2) 0.2
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations 1.0 0.7 (0.3)
Other comprehensive income/(loss) for the period, net of income tax 1.0 0.5 (0.1)
Total comprehensive income/(loss) for the period 82.3 (180.2) (361.9)
(Loss)/profit attributable to:
Equity holders of Just Group plc 81.6 (180.4) (361.2)
Non-controlling interest (0.3) (0.3) (0.6)
Profit/(loss) for the period 81.3 (180.7) (361.8)
Total comprehensive income/(loss) attributable to:
Equity holders of Just Group plc 82.6 (179.9) (361.3)
Non-controlling interest (0.3) (0.3) (0.6)
Total comprehensive income/(loss) for the period 82.3 (180.2) (361.9)
Basic earnings/(loss) per share (pence) 7 7.34 (18.09) (36.30)
Diluted earnings/(loss) per share (pence) 7 7.17 (18.09) (36.30)
The notes are an integral part of these financial statements.
Condensed consolidated statement of changes in equity
for the period ended 30 June 2023
Share Other reserves Accumulated Tier 1 notes Non- Total
capital
loss(1)
Six months ended and share premium £m £m Total shareholders' £m Total owners' controlling interest £m
equity
equity
30 June 2023 £m
£m
£m £m
At 1 January 2023 198.6 938.3 (353.5) 783.4 322.4 1,105.8 (2.5) 1,103.3
Profit for the period - - 81.6 81.6 - 81.6 (0.3) 81.3
Other comprehensive income/(loss) for the period, net of income tax - - 1.0 1.0 - 1.0 - 1.0
Total comprehensive income/(loss) for the period - - 82.6 82.6 - 82.6 (0.3) 82.3
Contributions and distributions
Shares issued - - - - - - - -
Dividends - - (12.8) (12.8) - (12.8) - (12.8)
Interest paid on Tier 1 notes (net of tax) - - (6.1) (6.1) - (6.1) - (6.1)
Share-based payments - 6.7 (4.1) 2.6 - 2.6 - 2.6
Total contributions and distributions - 6.7 (23.0) (16.3) - (16.3) - (16.3)
At 30 June 2023 198.6 945.0 (293.9) 849.7 322.4 1,172.1 (2.8) 1,169.3
Year ended Share Other Accumulated Total shareholders' equity Tier 1 notes Total owners' equity Non- Total
capital and share premium reserves loss(1)
£m
31 December 2022 £m £m £m £m £m controlling interest £m
£m
At 1 January 2022 - previously reported 198.5 944.0 977.0 2,119.5 322.4 2,441.9 (1.9) 2,440.0
Impact of adoption of new accounting standards - - (943.6) (943.6) - (943.6) - (943.6)
At 1 January 2022 - restated 198.5 944.0 33.4 1,175.9 322.4 1,498.3 (1.9) 1,496.4
Loss for the year - - (361.2) (361.2) - (361.2) (0.6) (361.8)
Other comprehensive income/(loss) for the year, net of income tax - 0.2 (0.3) (0.1) - (0.1) - (0.1)
Total comprehensive income/(loss) for the year - 0.2 (361.5) (361.3) - (361.3) (0.6) (361.9)
Contributions and distributions
Shares issued 0.1 - - 0.1 - 0.1 - 0.1
Dividends - - (15.6) (15.6) - (15.6) - (15.6)
Interest paid on Tier 1 notes (net of tax) - - (13.6) (13.6) - (13.6) - (13.6)
Share-based payments - (5.9) 3.8 (2.1) - (2.1) - (2.1)
Total contributions and distributions 0.1 (5.9) (25.4) (31.2) - (31.2) - (31.2)
At 31 December 2022 198.6 938.3 (353.5) 783.4 322.4 1,105.8 (2.5) 1,103.3
Share Other reserves Accumulated Tier 1 notes Non- Total
capital and share premium
£m loss(1)
£m
Six months ended £m £m Total shareholders' Total owners' controlling interest £m
equity equity
30 June 2022
£m
£m £m
At 1 January 2022 198.5 944.0 977.0 2,119.5 322.4 2,441.9 (1.9) 2,440.0
Impact of adoption of new accounting standards - - (943.6) (943.6) - (943.6) - (943.6)
At 1 January 2022 - restated 198.5 944.0 33.4 1,175.9 322.4 1,498.3 (1.9) 1,496.4
Loss for the period - - (180.4) (180.4) - (180.4) (0.3) (180.7)
Other comprehensive income/(loss) for the period, net of income tax - (0.2) 0.7 0.5 - 0.5 - 0.5
Total comprehensive income/(loss) for the period - (0.2) (179.7) (179.9) - (179.9) (0.3) (180.2)
Contributions and distributions
Shares issued 0.1 - - 0.1 - 0.1 - 0.1
Dividends - - (10.4) (10.4) - (10.4) - (10.4)
Interest paid on Tier 1 notes (net of tax) - - (7.0) (7.0) - (7.0) - (7.0)
Share-based payments - 0.6 (0.4) 0.2 - 0.2 - 0.2
Total contributions and distributions 0.1 0.6 (17.8) (17.1) - (17.1) - (17.1)
At 30 June 2022 198.6 944.4 (164.1) 978.9 322.4 1,301.3 (2.2) 1,299.1
(1) Includes currency translation reserve of £0.1m (31 December 2022:
£1.1m, 30 June 2022: £0.9m).
The notes are an integral part of these financial statements.
Condensed consolidated statement of financial position
as at 30 June 2023
Note 30 June 2023 31 December 2022 30 June 2022
£m
£m £m
(restated)
(restated)
Assets
Intangible assets 45.4 47.1 45.6
Property, plant and equipment 21.1 22.4 12.7
Investment property 39.7 40.3 50.1
Financial investments 10 26,160.8 23,351.4 22,788.6
Investments accounted for using the equity method 161.6 194.3 -
Reinsurance contract assets 14 718.6 776.4 599.0
Deferred tax assets 7 418.2 449.2 363.5
Current tax assets - 5.7 14.1
Prepayments and accrued income 16.8 10.8 9.9
Other receivables 48.1 32.7 22.5
Cash available on demand 572.8 482.0 544.4
Total assets 28,203.1 25,412.3 24,450.4
Equity
Share capital and share premium 12 198.6 198.6 198.6
Other reserves 945.0 938.3 944.4
Accumulated loss (293.9) (353.5) (164.1)
Total equity attributable to shareholders of Just Group plc 849.7 783.4 978.9
Tier 1 notes 13 322.4 322.4 322.4
Total equity attributable to owners of Just Group plc 1,172.1 1,105.8 1,301.3
Non-controlling interest (2.8) (2.5) (2.2)
Total equity 1,169.3 1,103.3 1,299.1
Liabilities
Insurance contract liabilities 14 20,605.6 19,647.5 19,559.4
Reinsurance contract liabilities 14 103.1 120.7 145.9
Investment contract liabilities 29.3 32.5 29.8
Loans and borrowings 15 709.9 699.3 774.7
Other financial liabilities 16 5,354.1 3,668.9 2,497.4
Other provisions 1.0 1.1 0.8
Current tax liabilities 0.8 - -
Accruals and deferred income 32.3 42.9 33.0
Other payables 197.7 96.1 110.3
Total liabilities 27,033.8 24,309.0 23,151.3
Total equity and liabilities 28,203.1 25,412.3 24,450.4
The notes are an integral part of these financial statements.
The financial statements were approved by the Board of Directors on 14 August
2023 and were signed on its behalf by:
Andy parsons
Director
Condensed consolidated statement of cash flows
for the period ended 30 June 2023
Note Six months ended Six months ended Year ended 31 December 2022
30 June 2023 30 June 2022 £m
£m
£m (restated)
(restated)
Cash flows from operating activities
Profit/(loss) before tax 116.7 (237.4) (493.8)
Property revaluation loss - - 0.5
Depreciation of property, plant and equipment 1.7 1.7 3.3
Share of results from associates 1.9 - 2.9
Amortisation of intangible assets 1.4 0.3 2.6
Share-based payments 2.0 (0.5) (3.4)
Interest income (497.6) (309.5) (637.9)
Interest expense 39.0 28.7 58.0
Net purchases, sales, realised and unrealised gains and losses on financial (2,635.0) 2,668.1 2,766.0
investments
Decrease/(increase) in net reinsurance contracts 76.2 136.0 (29.5)
Increase in prepayments and accrued income (6.0) (3.9) (4.8)
Decrease/(increase) in other receivables 13.5 (2.0) (12.6)
Increase/(decrease) in insurance contract liabilities 958.1 (3,527.1) (3,439.3)
Decrease in investment contract liabilities (3.2) (3.8) (1.1)
(Decrease)/increase in accruals and deferred income (0.2) (9.9) 1.4
Increase in other creditors 1,694.2 787.2 1,339.6
(Decrease)/increase in other payables (45.9) 31.4 307.2
Interest received 480.6 192.0 401.9
Interest paid (36.0) (37.7) (74.7)
Taxation received 5.9 16.0 16.0
Net cash inflow/(outflow) from operating activities 167.3 (270.4) 202.3
Cash flows from investing activities
Additions to internally generated intangible assets - (0.8) (4.6)
Acquisition of property and equipment (0.3) (0.2) (3.5)
Disposal of property - 3.1 3.1
Acquisition of subsidiaries - - (197.3)
Net cash (outflow)/inflow from investing activities (0.3) 2.1 (202.3)
Cash flows from financing activities
Issue of ordinary share capital (net of costs) 12 - 0.1 0.1
Decrease in borrowings (net of costs) - - (76.5)
Dividends paid 9 (12.8) (10.4) (15.6)
Coupon paid on Tier 1 notes 9 (8.1) (8.7) (16.9)
Interest paid on borrowings (24.4) (28.4) (57.1)
Payment of lease liabilities - principal (0.9) (1.9) (2.9)
Payment of lease liabilities - interest - - (0.1)
Net cash outflow from financing activities (46.2) (49.3) (169.0)
Net increase/(decrease) in cash and cash equivalents 120.8 (317.6) (169.0)
Foreign exchange differences on cash balances 1.2 - 4.7
Cash and cash equivalents at start of period 1,656.4 1,820.7 1,820.7
Cash and cash equivalents at end of period 1,778.4 1,503.1 1,656.4
Cash available on demand 572.8 544.4 482.0
Units in liquidity funds 1,205.6 958.7 1,174.4
Cash and cash equivalents at end of period 1,778.4 1,503.1 1,656.4
The notes are an integral part of these financial statements.
Notes to the Condensed consolidated financial statements
1. Basis of preparation
These Condensed interim financial statements comprise the Condensed
consolidated financial statements of Just Group plc ("the Company") and its
subsidiaries, together referred to as "the Group", as at, and for the
six-month period ended, 30 June 2023.
This condensed consolidated interim financial report for the half-year
reporting period ended 30 June 2023 has been prepared in accordance with the
UK-adopted International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority..
These Condensed interim financial statements need to be read in conjunction
with the Annual Report and Accounts for the year ended 31 December 2022 which
were under the historical cost convention, as modified by the revaluation of
land and buildings, and financial assets and financial liabilities (including
derivative instruments and investment contract liabilities) at fair value.
These Condensed interim financial statements do not comprise statutory
accounts within the meaning of Section 434 of the Companies Act 2006. The
results for the year ended and position as at 31 December 2022 have been taken
from the Group's 2022 Annual Report and Accounts and restated for the adoption
of IFRS 17 'Insurance Contracts', and IFRS 9 'Financial Instruments', as
explained in note 1.2. The Group's 2022 Annual Report and Accounts was
approved by the Board of Directors on 7 March 2023 and delivered to the
Registrar of Companies. The report of the auditor on those accounts was (i)
unqualified, (ii) did not contain any statement under section 498 (2) or (3)
of the Companies Act 2006, and (iii) did not contain an emphasis of matter
paragraph. The results for the six‑month period ended 30 June 2022 have been
taken from the Group's Interim Results for the six months to 30 June 2022 and
are also restated for the adoption of IFRS 17 and IFRS 9. The previously
reported Statements of financial position at 31 December 2021 (the
transitional balance sheet presented on 1 January 2022 for the cumulative
impacts of the adoption of new accounting standards) and 31 December 2022 and
30 June 2022 (the comparative balance sheets) have been restated. All restated
figures resulting from the adoption of IFRS 17 and IFRS 9 are unaudited.
1.1. Going concern
A detailed going concern assessment has been undertaken and having completed
this assessment, the Directors are satisfied that the Group has adequate
resources to continue to operate as a going concern for a period of not less
than 12 months from the date of this report and that there is no material
uncertainty in relation to going concern. Accordingly, they continue to adopt
the going concern basis in preparing the Condensed interim financial
statements.
This assessment includes the consideration of the Group's business plan
approved by the Board; the projected liquidity position of the Company and the
Group, impacts of economic stresses, the current financing arrangements and
contingent liabilities and a range of forecast scenarios with differing levels
of new business and associated additional capital requirements to write
anticipated levels of new business.
The Group has a robust liquidity framework designed to withstand a range of
"worst case" to 1-in-200 year historic liquidity events. The Group liquid
resources includes an undrawn revolving credit facility of up to £300m for
general corporate and working capital purposes. The borrowing facility is
subject to covenants that are measured biannually in June and December, being
the ratio of consolidated net debt to the sum of net assets and consolidated
net debt not being greater than 45%. The ratio on 30 June 2023 was 25.4% (31
December 2022: 14.6%). The Group's business plan indicates that liquidity
headroom will be maintained above the Group's borrowing facilities and
financial covenants will be met throughout the period.
The Group and its regulated insurance subsidiaries are required to comply with
the requirements established by the Solvency II Framework directive as adopted
by the Prudential Regulation Authority ("PRA") in the UK, and to measure and
monitor its capital resources on this basis. The overriding objective of the
Solvency II capital framework is to ensure there is sufficient capital within
the insurance company to protect policyholders and meet their payments when
due. Insurers are required to maintain eligible capital, or "Own Funds", in
excess of the value of the Solvency Capital Requirement ("SCR"). The SCR
represents the risk capital required to be set aside to absorb 1-in-200 year
stress tests, over the next years' time horizon, of each risk type that the
insurer is exposed to, including longevity risk, property risk, credit risk,
and interest rate risk. These risks are aggregated together with appropriate
allowance for diversification benefits.
The resilience of the solvency capital position has been tested under a range
of adverse scenarios, before and after management actions within the Group's
control, which considers the possible impacts on the Group's business,
including stresses to UK residential property prices, house price inflation,
the credit quality of assets, mortality, and risk-free rates, together with a
reduction in new business levels. In addition, the results of extreme property
stress tests were considered, including a property price fall of over 40%.
Eligible own funds exceeded the minimum capital requirement in all stressed
scenarios described above.
Based on the assessment performed above, the Directors conclude that it
remains appropriate to value assets and liabilities on the assumption that
there are adequate resources to continue in business and meet obligations as
they fall due for the foreseeable future, being at least 12 months from the
date of signing this report.
Furthermore, the Directors note that in a scenario where the Group ceases to
write new business the going concern basis would continue to be applicable
while the Group continued to service in-force policies.
The Directors' assessment concluded that it remains appropriate to value
assets and liabilities on the assumption that there are adequate resources to
continue in business and meet obligations as they fall due for the foreseeable
future, being at least 12 months from the date of signing this report.
Accordingly, the going concern basis has been adopted in the valuation of
assets and liabilities.
1.2. New accounting standards and new material accounting policies
The Group has applied UK-adopted IFRS for the preparation of these financial
statements. Other than the adoption of the new IFRS 9 and IFRS 17 accounting
standards described below, the accounting policies applied in the preparation
of these consolidated financial statements are consistent with those applied
in the preparation of the Group's consolidated financial statements for the
year ended 31 December 2022.
1.2.1. Adoption of new and amended accounting standards
The Group has adopted two new accounting standards, with effect from 1 January
2023:
· IFRS 17 'Insurance Contracts' was issued in May 2017 with an
effective date of 1 January 2021. In June 2020, the IASB issued an amended
standard which delayed the effective date to 1 January 2023. IFRS 17 was
approved for adoption by the UK Endorsement Board in May 2022.
IFRS 17 establishes the principles for the recognition, measurement,
presentation and disclosure of insurance contracts and supersedes IFRS 4,
'Insurance Contracts'.
· IFRS 9 'Financial Instruments' replaces IAS 39 'Financial
Instruments: Recognition and Measurement' and is effective for accounting
periods beginning on or after 1 January 2018. However, the Group previously
met the relevant criteria and has applied the temporary exemption from IFRS 9
for annual periods before 1 January 2023, the date at which IFRS 17 becomes
effective. Consequently, the Group has applied IFRS 9 commencing 1 January
2023, with comparative periods restated. The classification overlay approach
permitted by IFRS 17 on transition of IFRS 9 together with IFRS 17 is applied
to derecognised financial statements.
The IFRS 9 standard is applicable to financial assets and financial
liabilities and covers the classification, measurement, impairment and
derecognition of financial assets and liabilities together with a new hedge
accounting model.
The comparative figures in the financial statements have been restated on the
adoption of the standards. The impact on the opening statement of financial
position for the earliest presented period (1 January 2022) is disclosed in
Note 1.2.2.
Significant accounting policy choices on the adoption of the new standards
(IFRS 17 and IFRS 9) are included in Note 1.5 and 1.6 respectively.
On the transition date, 1 January 2022, the Group has:
• Identified, recognised, and measured each group of gross
insurance contracts and associated reinsurance contracts, as if IFRS 17 had
always applied unless impracticable (refer to Note 1.3). Where the Group has
concluded that the Fully Retrospective Approach is impracticable, it has
applied the Fair Value Approach (refer to Note 1.4) on transition;
• Derecognised any existing IFRS 4 balances, including the Present
Value of In Force Business and other relevant balances that would not exist
had IFRS 17 always applied;
• Presented reinsurance balances separately depending on whether
they are in an asset or liability position at a portfolio level (previously at
a treaty level), and reinsurance deposits previously classified as financial
instruments are included within the value of reinsurance contracts;
• Recognised allowance for expected credit losses ("ECL") on
financial assets which are measured at amortised cost, on the adoption of IFRS
9: Financial Instruments; and
• Recognised any resulting net difference in retained earnings net
of any related tax adjustments.
The change in tax law enabling spreading of the tax recovery of the deferred
tax asset created at implementation of IFRS17 over a period of 10 years was
enacted on 10 November 2022. The deferred tax asset at the transition date,
based on the tax rules effective at that date, has been deemed fully
recoverable based on projections of future business activity.
The following amendments to existing standards in issue have been adopted by
the Group and do not have a significant impact on the financial statements:
• IAS 1, Presentation of financial statements - Amendments in
respect of disclosures of accounting policies;
• IAS 8, Accounting policies - Amendments in respect of the
definition of accounting estimates;
• IAS 12, Income taxes - Amendments in respect of deferred tax
related to assets and liabilities arising from a single transaction.
The following amendments to existing standards in issue have not been adopted
by the Group and are not expected to have a significant impact on the
financial statements:
• IAS 1, Presentation of financial statements - Amendments in
respect of the classification of liabilities as current or non-current
(effective 1 January 2024).
1.2.2. Impact of adoption of new accounting standards
Statement of financial position
The previously reported Statements of financial position at 31 December 2021
(the transitional balance sheet presented on 1 January 2022 for the cumulative
impacts of the adoption of new accounting standards) and
31 December 2022 and 30 June 2022 (the comparative balance sheets) have been
restated as follows:
Restatement of the transitional Statement of financial position (1 January
2022)
Statement of financial position
31 December 2021 Reclassification Measurement 1 January 2022
(previously reported) adjustments adjustments (restated)
£m
£m £m £m
Assets
Intangible assets 119.7 - (74.6) 45.1
Property, plant and equipment 14.2 - - 14.2
Financial investments measured at fair value through profit and loss 24,681.7 - - 24,681.7
Reinsurance contract assets (previously reinsurance assets) 2,808.2 (2,128.1) 36.1 716.2
Deferred tax assets (5.3) 309.7 304.4
Current tax assets 30.2 - - 30.2
Prepayments and accrued income 75.6 (69.9) - 5.7
Other receivables (previously insurance and other receivables) 35.4 (13.7) (1.0) 20.7
Other assets 582.9 - - 582.9
Total assets 28,347.9 (2,217.0) 270.2 26,401.1
Equity
Share capital 103.9 - - 103.9
Share premium 94.6 - - 94.6
Other reserves 944.0 - - 944.0
Accumulated profit 977.0 - (943.6) 33.4
Total equity attributable to shareholders of Just Group plc 2,119.5 - (943.6) 1,175.9
Tier 1 notes 322.4 - - 322.4
Total equity attributable to owners of Just Group plc 2,441.9 - (943.6) 1,498.3
Non-controlling interests (1.9) - - (1.9)
Total equity 2,440.0 - (943.6) 1,496.4
Liabilities
Insurance contract liabilities (previously Insurance liabilities) 21,812.9 (57.0) 1,330.3 23,086.2
Reinsurance contract liabilities (previously reinsurance liabilities) 274.7 6.5 (116.5) 164.7
Investment contract liabilities 33.6 - - 33.6
Other financial liabilities 2,865.6 (2,144.7) - 720.9
Deferred tax liabilities 5.3 (5.3) -
Other payables (previously insurance and other payables) 93.3 (12.6) - 80.7
Other liabilities 822.5 (3.9) - 818.6
Total liabilities 25,907.9 (2,217.0) 1,213.8 24,904.7
Total equity and liabilities 28,347.9 (2,217.0) 270.2 26,401.1
Restatement of the comparative Statement of financial position at 30 June 2022
Statement of financial position
30 June 2022 Reclassification Measurement 30 June 2022
(previously reported) adjustments adjustments (restated)
£m
£m £m £m
Assets
Intangible assets 111.3 - (65.7) 45.6
Property, plant and equipment 12.7 - - 12.7
Financial investments measured at fair value through profit and loss 22,788.6 - - 22,788.6
Reinsurance contract assets (previously reinsurance assets) 2,372.4 (1,803.9) 30.5 599.0
Deferred tax assets 66.8 - 296.7 363.5
Current tax assets 14.1 - - 14.1
Prepayments and accrued income 34.2 (24.3) - 9.9
Other receivables (previously insurance and other receivables) 381.8 (358.3) (1.0) 22.5
Other assets 594.5 - - 594.5
Total assets 26,376.4 (2,186.5) 260.5 24,450.4
Equity
Share capital 103.9 - - 103.9
Share premium 94.7 - - 94.7
Other reserves 944.4 - - 944.4
Accumulated profit 734.0 - (898.1) (164.1)
Total equity attributable to shareholders of Just Group plc 1,877.0 - (898.1) 978.9
Tier 1 notes 322.4 - - 322.4
Total equity attributable to owners of Just Group plc 2,199.4 - (898.1) 1,301.3
Non-controlling interests (2.2) - (2.2)
Total equity 2,197.2 - (898.1) 1,299.1
Liabilities
Insurance contract liabilities (previously Insurance liabilities) 18,652.7 (368.5) 1,275.2 19,559.4
Reinsurance contract liabilities (previously reinsurance liabilities) 258.6 3.9 (116.6) 145.9
Investment contract liabilities 29.8 - - 29.8
Other financial liabilities 4,307.4 (1,810.0) - 2,497.4
Deferred tax liabilities - - - -
Other payables (previously insurance and other payables) 120.2 (9.9) - 110.3
Other liabilities 810.5 (2.0) - 808.5
Total liabilities 24,179.2 (2,186.5) 1,158.6 23,151.3
Total equity and liabilities 26,376.4 (2,186.5) 260.5 24,450.4
Restatement of the comparative Statement of financial position at 31 December
2022
31 December 2022 Reclassification Measurement 31 December 2022
(previously reported) adjustments adjustments (restated)
£m
£m £m £m
Assets
Intangible assets 103.8 - (56.7) 47.1
Property, plant and equipment 22.4 - - 22.4
Financial investments measured at fair value through profit and loss 23,477.2 (125.8) - 23,351.4
Investments accounted for using the equity method 194.3 - - 194.3
Reinsurance contract assets (previously reinsurance assets) 2,286.9 (1,596.9) 86.4 776.4
Deferred tax assets 93.2 - 356.0 449.2
Current tax assets 5.7 - - 5.7
Prepayments and accrued income 85.0 (74.2) - 10.8
Other receivables (previously insurance and other receivables) 322.8 (289.0) (1.1) 32.7
Other assets 522.3 - - 522.3
Total assets 27,113.6 (2,085.9) 384.6 25,412.3
Equity
Share capital 103.9 - - 103.9
Share premium 94.7 - - 94.7
Other reserves 938.3 - - 938.3
Accumulated profit 721.0 - (1,074.5) (353.5)
Total equity attributable to shareholders of Just Group plc 1,857.9 - (1,074.5) 783.4
Tier 1 notes 322.4 - - 322.4
Total equity attributable to owners of Just Group plc 2,180.3 - (1,074.5) 1,105.8
Non-controlling interests (2.5) - (2.5)
Total equity 2,177.8 - (1,074.5) 1,103.3
Liabilities
Insurance contract liabilities (previously Insurance liabilities) 18,332.9 (336.1) 1,650.7 19,647.5
Reinsurance contract liabilities (previously reinsurance liabilities) 305.8 6.5 (191.6) 120.7
Investment contract liabilities 32.5 - - 32.5
Other financial liabilities 5,250.2 (1,581.3) - 3,668.9
Deferred tax liabilities - - - -
Other payables (previously insurance and other payables) 262.5 (166.4) - 96.1
Other liabilities 751.9 (8.6) - 743.3
Total liabilities 24,935.8 (2,085.9) 1,459.1 24,309.0
Total equity and liabilities 27,113.6 (2,085.9) 384.6 25,412.3
The reclassification adjustments are:
· the inclusion of insurance receivables and payables balances as
cash flows in the measurement of insurance and reinsurance contracts;
· the offsetting of reinsurance deposit backed liabilities against
reinsurance contract assets, previously recognised in 'Other financial
liabilities';
· the presentation of reinsurance contracts as an asset / liability
based on the net position of all contracts within a portfolio, rather than the
previous IFRS 4 treatment which was recognised on an individual contract
basis;
· in addition to the reclassifications as a result of adopting IFRS
17 and IFRS 9, a further reclassification of £126m has been made in respect
of future funding commitments as a derivative forward which was incorrectly
accounted for previously. There is no impact on net assets of this revised
classification. The impact on 1 January 2022 and 30 June 2022 is not material.
IFRS 17 represents a significant change from the previous measurement
requirements contained in IFRS 4. The measurement adjustments are:
· for insurance and reinsurance contracts principally:
o discount rates, which include allowance for expected and unexpected credit
default risks instead of the prudent allowance for credit default risk in IFRS
4;
o risk adjustment for non-financial risk, a new concept required by IFRS 17
compared to the prudent margins required by IFRS 4; and
o contractual service margin, which is a significant conceptual change from
IFRS 4, whereby profits are recognised over the term of insurance and
reinsurance contracts rather than at point of sale.
· The derecognition of present value in force business intangible
assets.
· Accounting for the associated tax impacts of the measurement
adjustments.
The impact of implementation of IFRS 9 has been minor, with the recognition of
an expected credit loss adjustment of £1m in the opening balance sheet.
Impact on Statement of comprehensive income
The Statement of comprehensive income has been re-presented for the year ended
31 December 2022 to reflect the changes in the opening balance sheet at 1
January 2022. The transitional requirements of IFRS 17 does not require a
reconciliation between the previous format of profit or loss and the new
format of profit or loss.
Notes 2, 3 and 5 are newly required by the adoption of IFRS 17.
Impact on Earnings per share
The loss per share for 31 December 2022 (both basic and diluted) has been
restated to 36.30 pence per share from 23.70 pence per share as a result of
the adoption of the standards (30 June 2022: 18.09 pence per share from 22.51
pence per share).
1.3. Adoption of IFRS 17
1.3.1. Insurance and reinsurance contracts - determination of transitional
amounts
The transition approach on initial adoption of IFRS 17 for the calculation of
the contractual service margin was determined for groupings of insurance and
reinsurance contracts either using the:
a) fully retrospective approach - the contractual service margin at
inception is calculated based on initial assumptions when groupings of
contracts were incepted, and rolled forward to the date of transition as if
IFRS 17 had always been applied; or the
b) fair value approach - the fair value CSM is calculated as the
difference between the fair value of the insurance (or reinsurance contracts)
and the value of the fulfilment cash flows at the date of transition.
The following table summarises the approaches outlined in 1.3.3 and 1.4 below
in order to transition from the previous standard, IFRS 4, to IFRS 17:
31 December 2021 Reclassifications Transitional 1 January 2022
(previously reported) £m adjustment (restated)
£m
£m £m
Insurance contract liabilities
- Fully Retrospective Approach (1.3.3) 2,283.7 (7.5) 335.2 2,611.4
- Fair Value Approach (1.3.4) 19,529.2 (49.5) 995.1 20,474.8
Total insurance contracts 21,812.9 (57.0) 1,330.3 23,086.2
Reinsurance contracts
Reinsurance contract assets - Fair Value Approach (2,808.2) 2,128.2 (36.2) (716.2)
Total reinsurance contract assets (2,808.2) 2,128.2 (36.2) (716.2)
Reinsurance contract liabilities
- Fully Retrospective Approach (1.3.3) 32.6 - (32.4) 0.2
- Fair Value Approach (1.3.4) 242.1 6.5 (84.1) 164.5
Total reinsurance contract liabilities 274.7 6.5 (116.5) 164.7
Net reinsurance contracts (assets) (2,533.5) 2,134.7 (152.7) (551.5)
1.3.2. Inputs used to determine best estimate and risk adjustment (IFRS 17
values) at date of transition for insurance and reinsurance contracts
1.3.2.1. Determination of best estimate and risk
adjustment
For insurance and reinsurance contracts where the fully retrospective approach
has been adopted, the best estimate and risk adjustment components of
fulfilment cash flows have been recognised and measured using the accounting
policies set out in Note 1.5 from the inception date of the contracts to the
date of transition (1 January 2022). For insurance and reinsurance contracts
where the fair value approach has been adopted, the best estimate and risk
adjustment components of fulfilment cash flows have been determined as at 1
January 2022. The longevity assumptions used are consistent with the basis
used in the Just Group plc Solvency and Financial Condition Report as at 31
December 2021, as follows:
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, and management's own
industry experience. The standard tables which underpin the mortality
assumptions are summarised in the table below.
Product Group
Individually underwritten Guaranteed Income for Life Solutions (JRL) Modified E&W Population mortality, with CMI 2019 model mortality
improvements
Individually underwritten Guaranteed Income for Life Solutions (PLACL) Modified E&W Population mortality, with CMI 2019 model mortality
improvements
Defined Benefit (JRL) Modified E&W Population mortality, with CMI 2019 model mortality
improvements for standard underwritten business; Reinsurer supplied tables
underpinned by the Self-Administered Pension Scheme ("SAPS ") S1 tables, with
modified CMI 2009 model mortality improvements for medically underwritten
business
Defined Benefit (PLACL) Modified E&W Population mortality, with modified CMI 2019 model mortality
improvements
Care Plans and other annuity products (JRL/PLACL) Modified PCMA/PCFA and with CMI 2019 model mortality improvements for Care
Plans; Modified PCMA/PCFA or modified E&W Population mortality with CMI
2019 model mortality improvements for other annuity products
Protection (PLACL) TM/TF00 Select
The long-term improvement rates in the CMI 2019 model are 1.5% for males and
1.25% for females. The period smoothing parameter in the modified CMI 2019
model has been set to 7.00. The addition to initial rates ("A") parameters in
the model varies between 0% and 0.25% depending on product. All other CMI
model parameters are the defaults.
1.3.2.2. Discount rates
All cash flows were discounted using investment yield curves adjusted to allow
for expected and unexpected credit risk (refer to 1.5 and Note 14(b)).
The overall reduction in yield to allow for the risk of defaults from all
non-LTM assets (including gilts, corporate bonds, infrastructure loans,
private placements and commercial mortgages) and the adjustment from LTMs,
which included a combination of the NNEG guarantee and the additional
reduction to future house price growth rate, was 61bps (Just Retirement
Limited "JRL") and 68bps (Partnership Life Assurance Company Limited "PLACL").
The discount rates used to calculate the value of the best estimate and risk
adjustment for the groups of contracts applying the fair value approach were
determined based on a reference portfolio as at the transition date.
The discount rates used for the determination of the fulfilment cash flows
(and the locked-in rates for the contracts transitioning to IFRS 17 under the
fair value approach) were:
JRL PLACL PLACL
DB/GIfL Care DB/GIfL
1 year 2.6% 0.8% 2.7%
5 years 3.0% 1.1% 3.0%
10 years 2.9% 1.0% 2.9%
20 years 2.8% 1.0% 2.9%
30 years 2.7% 0.9% 2.8%
1.3.3. Fully retrospective approach
On transition to IFRS 17, the Group has applied the fully retrospective
approach unless it has concluded it is impracticable (see sections 1.3.4 and
1.3.5). The Group has applied the fully retrospective approach on transition
for all insurance contracts issued on or after 1 January 2021 and prior to the
1 January 2023 effective date.
For all contracts issued after 1 January 2021, the Group has applied the
accounting policies (see Note 1.5) for the measurement and recognition of
insurance and reinsurance contracts and used the quantitative inputs described
in Note 1.3.2 to determine the best estimate and risk adjustment.
The locked-in discount rates for the 2021 cohort, which have been determined
on a fully retrospective basis are:
JRL JRL PLACL
GIfL DB Care
1 year 2.2% 2.2% 0.8%
5 years 3.1% 2.7% 1.1%
10 years 3.2% 2.7% 1.0%
20 years 2.9% 2.4% 1.0%
30 years 2.7% 2.4% 0.9%
For all groups of insurance and associated reinsurance contracts issued prior
to this, the fair value approach (see Note 1.3.4; 1.4) has been applied.
1.3.4. Fair value approach
Where the Group has concluded that the fully retrospective approach is
impracticable, it has applied the fair value approach on transition for all
groups of insurance and associated reinsurance contracts. For each legal
entity, fair value basis cohorts have been grouped across multiple
underwriting years into a single unit for each product type and reinsurance
treaty for measurement purposes, which is the unit of account applied.
The assumptions, models and the results of the determination of the fair value
of the insurance and reinsurance contracts under this approach are explained
in Note 1.4.
1.3.5. Impracticability assessment
IFRS 17 requires firms to apply the Standard fully retrospectively, unless it
is impracticable to do so, in which case either a modified retrospective
approach or fair value approach may be taken. For insurance and reinsurance
contracts where the effective date of the contract was prior to 1 January
2021, the Group concluded that it would be impracticable to apply the standard
on a fully retrospective basis due to the inability of determining the risk
adjustment, a new requirement in terms of IFRS 17, in earlier years without
the application of hindsight. Guidance contained in the IAS 8 accounting
standard 'Accounting Policies, Changes in Accounting Estimates and Errors'
requires that hindsight should not be applied in the application of an
accounting standard on a retrospective basis.
Impracticability of application of Risk Adjustment on the fully retrospective
approach (insurance contracts)
The most significant issue identified was the absence of an approved Group
Risk Adjustment framework, policy and methodology prior to 2021, with any
target setting to prior year information representing the application of
hindsight which is prohibited by the Standard.
The risk adjustment is a new requirement of IFRS 17 and represents the
compensation that an entity requires to take on non-financial risk. Defining
"compensation that the entity requires" to take on risk differs to any of the
risk-based allowances adopted for either existing regulatory or statutory
reporting purposes. A new framework and policy have been defined and
implemented to measure the risk adjustment.
The new risk adjustment policy was developed and adopted during 2021 with
calculation of the risk stresses to be applied from 1 January 2021. Under this
policy, the Group determines a target confidence level based upon an
assessment of the current level of risks that the business is exposed to and
the compensation required to cover the risks. Key factors for consideration
here include: the size of the business, products offered, reinsurance
structures, regulatory challenges and market competitiveness. These factors
are not necessarily stable from period to period, and today's understanding of
these aspects should be excluded from any historic assessment of risk as doing
so would be to apply hindsight.
The Group has assessed whether other information used in previous reporting
cycles, including pricing for new business, could be used to determine the
risk adjustment, but has concluded that none of these alternatives would be an
appropriate proxy for the risk adjustment. The development of the new approach
for IFRS 17 represents a significant enhancement in the approach used to
determine the Group's allowance for non-financial risk, with the use of a
target confidence interval and probability distributions providing a more
meaningful quantification of allowance for risk compared with IFRS 4
reporting.
Therefore, the Group has concluded that the Fully Retrospective Approach is
impracticable prior to 2021 in respect of risk adjustment as it would require
the use of hindsight.
Impracticability assessment for reinsurance contracts held
The risk adjustment for reinsurance contracts held in IFRS 17 reflects the
"amount of risk being transferred" to the reinsurer, so where the risk
adjustment for insurance contracts is impracticable then, by definition, the
reinsurance risk adjustment is also impracticable.
Approach adopted
After considering the severity of these factors, the Group concluded that it
was impracticable to determine the value of insurance and reinsurance
contracts on a fully retrospective approach basis for those years of business
transacted prior to 2021.
As a result of this impracticality, the IFRS 17 standard allows an accounting
policy choice of the fair value approach or modified retrospective approach
from which the Group elected to apply the fair value approach.
1.4. Determination of fair value
1.4.1. Fair value principles
The Group has used the principles contained in IFRS 13, Fair Value
Measurement, except the principles relating to demand features, to determine
the fair value of the insurance and reinsurance contracts.
The objective of a fair value measurement is to estimate the price at which an
orderly transaction to sell the asset or to transfer the liability would take
place between market participants at the measurement date under current market
conditions (i.e. an exit price at the measurement date from the perspective of
a market participant that holds the asset or owes the liability).
For certain assets and liabilities, observable market transactions or market
information may be available. For other assets and liabilities, such as
insurance obligations and associated reinsurance agreements, observable market
transactions and market information is not widely available. There is no
active market for the transfer of insurance liabilities and associated
reinsurance between market participants and therefore there is limited market
observable data. Although there may be transactions for specific books of
annuity business, the profile of the cash flows and nature of the risks of
each book of business is unique to each, with key inputs underlying the price
of these transactions not being widely available public knowledge, and
therefore it is not possible to determine a reliable market benchmark from
these transactions.
When a price for an identical asset or liability is not observable, the Group
measures fair value using an alternative valuation technique that maximises
the use of relevant observable inputs and minimises the use of unobservable
inputs. Because fair value is a market‑based measurement, it is determined
using the assumptions that market participants would use when pricing the
asset or liability, including assumptions about risk. As a result, an entity's
intention to hold an asset or to settle or otherwise fulfil a liability is not
relevant when measuring fair value.
The initial determination of the fair value was calculated on a gross and net
of reinsurance basis. The fair value of the reinsurance contracts was then
determined based on the difference between the gross and net of reinsurance
results.
In arriving at the definition of a "market participant" the Group has assumed
the following:
· A similar monoline, rather than a multi-product line insurer;
· The portfolios are transferred as closed books of business;
· Transferral of the associated reinsurance contracts currently in
place, as these would be expected to transfer at the point of sale alongside
the underlying insurance contracts; and
· Treatment of the business under a Solvency II Internal Model
approach, including a matching adjustment as it is expected that a market
participant would adopt this approach. This is regardless as to whether the
business as part of the Group today has an internal model and/or applies the
matching adjustment.
The measurement of the fair value of insurance contracts and associated
reinsurance contracts have therefore been classified, in terms of the
financial reporting fair value hierarchy as Level 3.
1.4.2. Aggregation of contracts for the determination of fair value
The Group has aggregated contracts issued more than one year apart when
determining groups of insurance and reinsurance contracts under the fair value
approach at transition as permitted by IFRS 17. For the application of the
fair value approach, the Group has used reasonable and supportable information
available at the transition date in order to identify groups of insurance and
reinsurance contracts.
All insurance contracts which are valued at the date of transition using the
fair value transition method have been allocated to the 'any remaining
contracts' profitability grouping (see note 1.5).
1.4.3. Overview of the fair value approach applied
The fair value approach adopted by the Group calculates the theoretical
premium (market premium approach) required by a market participant to accept
insurance liabilities. The quantification of the premium required for the
gross insurance liabilities and the associated reinsurance contracts was
determined separately.
The market premium required at the transition date has been determined as
follows:
• The premium required to earn the target rate of return on
capital ("RoC") on reserves held in respect of Solvency II Best Estimate
Liability, Risk Margin and Solvency Capital Requirements, adjusted for
associated Solvency II Transitional Measure on Technical Provisions ("TMTP")
benefits, for the relevant pre-2016 business;
• The level of Solvency Capital assumed to be required has been
determined as 140% of the solvency capital required under Solvency II
regulations, being based on an external benchmark of a market participant's
requirement for a closed book of business (refer 1.4.4.2); and
• The target Return on Capital has been determined as 8%, being
based on an external benchmark of a market participant's target return for a
closed book of business (refer to 1.4.4.3).
These assumptions and other key inputs into the fair value calculations have
been reviewed by an independent firm of accountants who have access to
industry surveys and other benchmarking, and their review conclusions were
made available to the Group Audit Committee. The fair value result has been
benchmarked against any publicly available and relevant market information as
well as an independent internal calculation based upon a Dividend Discount
Model ("DDM") approach used in industry for the valuation of insurance
business.
1.4.4. Principal inputs used to determine fair value
1.4.4.1. Best estimate and risk margin
The estimates for the best estimate and the risk margin are determined on a
basis consistent with Solvency II. The inputs used for JRL are based on its
Internal Model, and for PLACL are based on the assumed results that would be
derived from its internal model. An allowance for Solvency II TMTP benefits on
relevant pre-2016 business is reflected within the valuation.
The longevity assumptions used for the determination of the best estimate and
risk margin are consistent with the basis used in the Just Group plc Solvency
and Financial Condition Report as at 31 December 2021.
The discount rate assumption used for the determination of JRL and PLACL best
estimate liabilities is the prescribed Solvency II risk-free rate term
structure including a Matching Adjustment ("MA") based upon the JRL asset
portfolio as at 31 December 2021.
1.4.4.2. Solvency capital ratio ("SCR")
The target SCR coverage ratio assumed for the determination of fair value at
the date of transition is based on a market participant view for a closed book
of business. A target ratio of 140% is assumed in the fair value calculation
after consideration of the current ranges quoted by similar peers, notably
those principally operating closed books of business in the market and other
publicly available data. The fair value calculated is based on the purchase of
the insurance contracts liabilities and the associated reinsurance agreements
and does not include a premium associated with writing new business.
1.4.4.3. Return on capital - weighted average cost of
capital ("WACC")
The fair value measurement guidance within IFRS 13 requires that the Return on
Capital assumption should be based upon a WACC applicable to a "generic"
market participant, rather than the Group's specific WACC. Consequently, an
appropriate market participant WACC is computed for the Group's business based
on debt and equity cost of capital for companies that have closed books of
insurance business, using input from brokers, and the cost of external debt
sourced from an external pricing provider.
The market participant WACC determined was 8% and is applied to all books of
business irrespective of the expected duration of the underlying schemes.
1.4.5. Summary of fair value results
The following table summarises the fair value of insurance and reinsurance
contracts determined at the 1 January 2022 transition date.
Fair value Estimate of present value of future cashflows Risk Contractual service margin
£m
£m adjustment £m
£m
Insurance contract liabilities 20,474.8 18,342.9 905.1 1,226.8
Reinsurance contract assets 716.2 546.3 115.7 54.2
Reinsurance contract liabilities (164.5) (677.6) 394.7 118.4
Net reinsurance contracts (asset) 551.7 (131.3) 510.4 172.6
Insurance contract liabilities - net of reinsurance 19,923.1 18,474.2 394.7 1,054.2
The amounts previously reported under IFRS 4 on 1 January 2022 for insurance
contract liabilities and net reinsurance contracts, where the fair value
approach to transition has been adopted was £19,529.2m and £2,566.1m
respectively. Disclosure of the fair value component of the transition
approach can be found in Note 1.3.1.
1.4.6. Sensitivities
The following table provides sensitivities to changes in key inputs used to
determine the fair value of net insurance contract liabilities. Figures shown
in the table represent the estimated impact on the fair value of each
sensitivity in isolation. The Solvency Coverage Ratio and Return on Capital
sensitivities can be interpreted as the corresponding impact on the
contractual service margin. However, the Matching Adjustment sensitivity may
not display the same relationship as there may be linkages between the asset
portfolio referenced by a market participant in the calculation of the fair
value and the asset portfolio underlying the calculation of IFRS 17 best
estimate and risk adjustment liabilities. This linkage has not been allowed
for in the sensitivity.
Insurance contract liabilities Reinsurance contract (net) Insurance contract liabilities net of reinsurance
£m £m £m
(increase)/decrease increase/(decrease) (increase)/decrease
Reported balances 20,474.8 (551.7) 19,923.1
Solvency coverage ratio
+10% 103.4 (25.2) 78.2
-10% (103.3) 25.1 (78.2)
Return on capital
+1% 177.2 (60.0) 117.2
-1% (201.3) 68.4 (132.9)
Matching Adjustment
+10bps (49.2) 2.4 (46.8)
-10bps 50.0 (2.4) 47.6
1.5. IFRS 17 Accounting policies
The Group uses the General Measurement Model to measure all insurance and
reinsurance contracts and consequently does not apply the Variable Fee
Approach or the Premium Allocation Approach to the measurement of any of its
liabilities. IFRS 17 is only applied to insurance and reinsurance contracts
and not to any other ancillary agreements which represent the provision of
distinct non-insurance services.
1.5.1. Level of aggregation
Within each legal entity, the Group identifies portfolios of insurance
contracts which comprise contracts that are subject to similar risks, and are
managed together. Risks included in this assessment comprise both risks
transferred from the policyholder and other business risks. For this purpose,
Defined Benefit ("DB"), Guaranteed Income for Life ("GIfL"), and Care
contracts have been determined to represent a single portfolio that is managed
together and subject to primarily longevity and financial risk. Minor products
including the small protection portfolio that is in run-off have been included
in the same portfolio to simplify reporting.
The single annual portfolio for reporting purposes is divided into three
groups:
· any contracts that are onerous on initial recognition, if any;
· any contracts that have no significant likelihood of becoming
onerous, if any;
· any remaining contracts in the portfolio.
Contracts within the single portfolio that would fall into different groups
only because law or regulation specifically constrains the Group's practical
ability to set a different price or level of benefits for policyholders with
different characteristics are included in the same group. This applies to
contracts issued in the UK that are required by regulation to be priced on a
gender-neutral basis.
All GIfL and Care contracts are evaluated based on the margins that individual
contracts contribute when measured on a gender-neutral basis. The Group has
evaluated that these contracts all fall into the remaining contracts grouping
in the current year. DB contracts are allocated either to the grouping of
those contracts that have no significant likelihood of becoming onerous, or
the remainder, based on whether contracts are Solvency II capital generative
at inception. Each group of insurance contracts is further divided by year of
issue for calculation of the contractual service margin ("CSM"). The resulting
groups represent the level at which the recognition and measurement accounting
policies are applied. The groups are established on initial recognition and
their composition is not reassessed subsequently.
Reinsurance treaties are allocated to portfolios depending on whether they
transfer longevity and financial (inflation and / or investment) risk or
longevity risk alone. Reinsurance CSM is computed separately for each
reinsurance treaty for each underwriting year.
1.5.2. Recognition
The Group recognises a group of insurance contracts issued from the earliest
of the following dates (point of sale):
- The date of the beginning of the insurance coverage period of the
group of contracts.
- The date when the first payment from a policyholder in the group
becomes due.
- The date when facts and circumstances indicate that the group to
which an insurance contract will belong is onerous.
Premiums are considered to be due and the company 'on risk' only after a
contract with a policyholder has been completed. New contracts are added to
the annual cohort group when they are issued, provided that all contracts in
the group are issued in the same financial year.
Reinsurance is recognised from the start of the period during which the Group
receives coverage for claims arising from the reinsured portions of the
underlying insurance contracts and underlying insurance contracts are
incepted. From time to time the Group may transact reinsurance coverage in
respect of underlying contracts already in force, in which case recognition is
from the date of the reinsurance contract.
The Group recognises a group of contracts acquired as part of a business
transfer as at the date of acquisition.
1.5.3. Contract boundaries
The measurement of a group of contracts includes all of the future cash flows
within the boundary of each contract in the group. Cash flows are within the
boundary of a contract if they arise from substantive rights and obligations
that exist during the current reporting period under which the Group has a
substantive obligation to provide services or be compelled to pay reinsurance
premiums, or can compel reinsurers to pay claims.
1.5.4. Initial measurement
On initial recognition, the Group measures a group of profitable insurance
contracts as the total of:
(a) the fulfilment cash flows; and
(b) the CSM, if a positive value.
Fulfilment cash flows include payments to policyholders and directly
attributable expenses including investment management expenses. Investment
management expenses are considered to be directly attributable if they are in
respect of investment activities from which the expected investment returns
are considered in setting the price at outset for the policyholder benefits.
Fulfilment cash flows, which comprise estimates of current and future cash
flows, are adjusted to reflect the time value of money and associated
financial risks, and a risk adjustment for non-financial risk. Insurance
acquisition cash flows which are included in fulfilment cash flows at point of
sale are costs incurred in the selling, underwriting and starting a group of
contracts that are directly attributable to the portfolio of contracts to
which the group of contracts belongs.
The risk adjustment for non-financial risk for a group of insurance contracts
is the compensation required for bearing uncertainty regarding the amount and
timing of the cash flows that arise from non-financial risk. The measurement
of the fulfilment cash flows of a group of insurance contracts does not
reflect non-performance (own credit) risk of the Group.
The detailed policies and methodologies used for the determination of the
discount rate and the risk adjustment are included within Note 14.
The CSM of a group of insurance contracts represents the unearned profit that
the Group will recognise as it provides services under those contracts. A
group of insurance contracts is not onerous on initial recognition if the
total of the fulfilment cash flows, any derecognised assets for insurance
acquisition cash flows, and any cash flows arising at that date is a net
inflow. In this case, the CSM is measured as the equal and opposite amount of
the net inflow, which results in no income or expenses arising on initial
recognition.
If the total of the fulfilment cash flows is a net outflow, then the CSM
grouping of contracts is considered to be onerous. The full value of the
fulfilment cash flows is recognised as an insurance liability, and the net
outflow recognised as a loss component in profit or loss on initial
recognition. Reversals of loss components following re-projection of future
cash flows are recognised in profit or loss only to the extent that they
reverse the loss previously recorded in profit or loss, with any further
amounts recognised on the balance sheet by creation of a CSM. The value of the
run-off of the loss component as policyholder benefits are paid is excluded
from insurance revenue.
1.5.5. Subsequent measurement
The carrying amount of a group of insurance contracts at each reporting date
is the sum of the liability for remaining coverage and the liability for
incurred claims. The liability for remaining coverage comprises:
(a) the fulfilment cash flows that relate to services that will be provided
under the contracts in future periods, and
(b) any remaining CSM at that date.
The fulfilment cash flows of groups of insurance contracts are measured at the
reporting date using current estimates of future cash flows, current discount
rates and current estimates of the risk adjustment for non-financial risk.
Outstanding balances due from or to policyholders and intermediaries are also
included within this balance.
Payments of annuities made before due dates owing to the timing of non-working
days are included within insurance contract liabilities.
The CSM of each group of contracts is calculated on a cumulative year to date
basis, rather than being locked in at each interim reporting period.
For insurance contracts, the carrying amount of the CSM at the end of each
period is the carrying amount at the start of the period, adjusted for:
· the CSM of any new contracts that are added to the group in the
period;
· interest accreted on the carrying amount of the CSM during the
period, measured at the discount rates determined on initial recognition of
the group of contracts;
· changes in fulfilment cash flows that relate to future services,
except to the extent that:
o any increases in the fulfilment cash flows exceed the carrying amount of the
CSM, in which case the excess is recognised as a loss in the profit or loss
account and creates a loss component; or
o any decreases in the fulfilment cash flows are allocated to the loss
component, reversing losses previously recognised in profit or loss account;
o the changes are due to financial risk in policyholder cash flows compared
with expectations, for example inflation,
· the amount recognised as insurance revenue in respect of services
provided in the period.
Changes in fulfilment cash flows that relate to future services and
accordingly adjust the CSM comprise:
· premium adjustments, such as DB true-ups (which can be both
positive and negative) to the extent that they relate to future coverage;
· changes in estimates of the present value of future cash flows in
the liability for remaining coverage, except for those that relate to the
effects of the time value of money, benefit inflation, financial risk and
changes therein; and
· changes in the risk adjustment for non-financial risk that relate
to future services.
Adjustments to CSM for changes in fulfilment cash flows are measured at the
discount rates determined at initial recognition, i.e. are calculated using
'locked-in' discount rates. The allowance for benefit inflation within the CSM
calculation uses the locked-in inflation assumptions prospectively, with
actual inflation experience recognised in the period up to the measurement
date. The effect of changes to the related best estimate and risk adjustment
balances caused by changes in discount rates and benefit inflation are
recognised as insurance finance income or expenses within the profit or loss
account.
The standard requires that the CSM is recognised in profit and loss over the
period of the contracts issued. The recognition of amounts in profit and loss
is based on coverage units which represent the services that are received by
the customers.
The Group provides the following services to customers:
· Investment return service when a customer is in the deferred or
guarantee phase; and
· Insurance coverage services when an annuitant is in payment period
for annuitants.
By their nature, coverage units will vary depending on the type of service
provided. A weighting then needs to be applied to the different types of
coverage unit in order to calculate an aggregate value of the proportion of
the CSM balance that is to be released. The Group will use the probability of
the policy being in force in each time period for weighting the disparate
types of coverage units. This weighting reflects management's view that the
value of services provided to policyholders is broadly equivalent across the
different phases in the life of contracts.
The coverage units and the weightings used to combine coverage units are
discounted using the locked-in discount rates and financial risk assumptions
as at inception of the contracts. The weightings applied are updated each
period for changes in life expectancies to annuitants.
1.5.6. Reinsurance contracts
The Group applies consistent accounting policies to measure reinsurance
contracts as it does for the underlying contracts. Measurement of the
estimates of the present value of future cash flows uses assumptions that are
consistent with those used to measure the estimates of the present value of
future cash flows for the underlying insurance contracts, with an adjustment
for risk of non-performance by the reinsurer. The effect of the
non-performance risk of the reinsurer is assessed at each reporting date and
the effect of changes in the non-performance risk is recognised in profit or
loss.
The risk adjustment for non-financial risk represents the amount of the risk
transferred by the Group to the reinsurer. Allowance for non-performance risks
of reinsurers is made within the future cash flows.
On initial recognition, the CSM of a group of reinsurance contracts represents
the net cost or net gain on purchasing reinsurance. Reinsurance contracts
cannot be onerous. The initial CSM is measured as the equal and opposite
amount of the total of the reinsurance fulfilment cash flows recognised in the
period including any cash flows arising at that date. However, if any net cost
on purchasing reinsurance coverage relates to insured events that occurred
before the purchase, the cost is recognised immediately in profit or loss as
an expense.
The level of aggregation for CSM calculation purposes is at annual cohort
level for each treaty. The existing treaties for which the deposit back
arrangements were reported separately as financial liabilities under IFRS are
included within the value of the associated reinsurance contracts under IFRS
17. Reinsurance contracts are presented in the Statement of financial position
based on whether the portfolios of reinsurance contracts are an asset or
liability. The Group has identified that, for each entity, it has two
portfolios of reinsurance contracts based on whether the underlying contracts
transfer financial risk in addition to longevity risk, or not.
The carrying amount of the reinsurance CSM at the end of each period is the
carrying amount at the start of the year, adjusted for:
· the CSM of reinsurance ceded in the period;
· interest accreted on the CSM during the period, measured at the
discount rates determined on initial recognition;
· changes in fulfilment cash flows that relate to future services,
measured at the discount rates determined on initial recognition, except to
the extent that a change results from a change in fulfilment cash flows
allocated to a group of underlying insurance contracts that does not adjust
the CSM of the group of underlying contracts, in which case the change is
recognised in profit or loss;
· any reinsurance recovery, or reversal thereof, recognised in
connection with a loss component on underlying contracts calculated based on
the reinsurance quota share; and
· the amount representing either the cost or gain of services
received from reinsurance in the period.
The allowance for benefit inflation within the CSM calculation uses the
locked-in inflation assumptions prospectively, with actual inflation
experience recognised in the period up to the measurement date.
The coverage units for the release of the reinsurance CSM in profit and loss
are based on the 'variable leg' reinsurance claim cash flow values.
1.5.7. Derecognition and contract modification
The Group derecognises a contract when it is extinguished - i.e. when the
specified obligations in the contract expire or are discharged or cancelled.
It also derecognises a contract if its terms are modified in a way that would
have changed the accounting for the contract significantly had the new terms
always existed, in which case a new contract based on the modified terms is
recognised. If a contract modification does not result in derecognition, then
the Group treats the changes in cash flows caused by the modification as
changes in estimates of fulfilment cash flows.
The Group transacts two main types of contract modification which are not
normally expected to result in derecognition as they do not result in changes
to profitability groupings or accounting treatment:
- Transition of DB schemes from buy-in to buy-out is anticipated
within the original contracts and are therefore not treated as modifications;
- From time to time, fee charging terms and quota shares are amended
within reinsurance treaties however these do not have a significant impact on
the accounting for the treaties.
On the derecognition of a contract from within a group of contracts, the
fulfilment cash flows, CSM and coverage units of the group are adjusted to
reflect the removal of the contract that has been derecognised.
1.5.8. Presentation
The Group only writes types of annuity insurance business which are similar in
risk profile and are managed together. The small protection portfolio, which
is in run off, is considered immaterial and is aggregated with the annuity
business and reported as a single portfolio.
The Group holds proportional reinsurance cover that is designed to be similar
in longevity risk profile to the underlying contracts. The proportional
reinsurance cover is reported in separate portfolios depending on whether
treaties transfer financial risk. Aggregated reinsurance portfolio balances
may be either assets or liabilities in the statement of financial position.
Income and expenses from insurance contracts are presented separately from
income and expenses from reinsurance contracts. Income and expenses from
reinsurance contracts, other than insurance finance income or expenses, are
presented on a net basis as 'net expenses from reinsurance contracts' in the
insurance service result.
The Group has elected to disaggregate the change in the risk adjustment for
non-financial risk between the insurance service result and insurance finance
income or expenses.
1.5.8.1. Insurance revenue
The Group recognises insurance revenue as it satisfies its performance
obligations - i.e. as it provides coverage or other services under groups of
insurance contracts through the payment of annuities and expenses. Repayment
of investment components do not represent provision of services.
In addition, the Group allocates a portion of premiums that relate to recovery
of insurance acquisition cash flows to each period in a systematic way based
on CSM coverage units. The Group recognises the allocated amount as insurance
revenue and an equal amount as insurance service expenses.
The proportion of the CSM account balance recognised as insurance revenue in
each period is based on the proportion of insurance contract service margin
provided in the period compared with the value of services expected to be
provided in future periods. The proportion of CSM is based on 'coverage units'
which represent the quantity of insurance coverage provided by the contracts
in the group, determined by considering for each contract the quantity of
benefits provided and its expected coverage duration. Further information on
the calculation of CSM is given in Notes 2 and 14.
Policyholder cash flows that may occur regardless of an insurance event are
deemed to be 'investment components' or other non-insurance components (such
as a premium refund) or a combination. This includes the guarantees that the
Group offers to policyholders which provide for annuity payments to continue
after death until the policy reaches a predetermined anniversary of its start
date (the guarantee period), tax free cash payments that DB scheme members may
select at retirement and payments on surrenders and transfers to other
retirement schemes. Any investment components are regarded as non-distinct as
they only exist as a result of the underlying insurance contract.
The value of payments made within investment components and other
non-insurance payments are excluded from both insurance revenue and expenses.
1.5.8.2. Insurance service expenses
The Group recognises insurance service expenses arising from groups of
insurance contracts issued comprising incurred claims (excluding repayments of
investment components); and other non-insurance cash flows; maintenance
expenses; amortisation of insurance acquisition cash flows; and the impact of
changes that relate to either past service (changes in fulfilment cash flows
relating to the liability for incurred claims) or future service (loss
component).
1.5.8.3. Loss component
The Group establishes a loss component of the liability for remaining coverage
for onerous groups of insurance contracts, if any. The Group writes only
single premium contracts which are generally profitable, and hence loss
components are not expected to occur. The loss component represents the amount
of fulfilment cash outflows that exceed the premium income, and hence are
excluded from insurance revenue. Loss components are recognised in the
statement of comprehensive income within insurance service expenses when they
occur. The balance sheet disclosures in notes 14 present the allocation
between the loss component and the liability for remaining coverage excluding
the loss component, if any. This run off of the loss component element of the
liability for remaining coverage is determined based on coverage units (as
used for CSM amortisation) such that the loss component is nil at the end of
the contracts.
Once a loss component is established, subsequent decreases in fulfilment cash
flows relating to future services are allocated solely to the loss component.
If the loss component is reduced to zero, then any excess over the amount
allocated to the loss component creates a new CSM for the group of contracts.
1.6. IFRS 9 Financial instruments
1.6.1. Summary of impact of adoption of IFRS 9
1.6.1.1. Financial assets
The Group's business model is to manage the financial assets and liabilities
which back its net insurance contract fulfilment cash flows on a fair value
basis. The Group will therefore adopt the approach allowed within the standard
to continue to measure the majority of its financial assets at fair value
through profit or loss. On the adoption of the standards (IFRS17 and IFRS 9)
the Group will continue to classify the Lifetime Mortgages as financial
investments at fair value through profit and loss.
For the residual financial assets which are measured at amortised cost, IFRS 9
operates an expected credit loss model rather than an incurred credit loss
model. Providing for an expected credit loss on the existing financial assets
measured at amortised cost has not had a material impact on Group
shareholders' funds.
During 2023, the Group has acquired a portfolio of sovereign gilts which it
has classified at amortised cost due to the Group's intention to collect
solely payments of principal and interest. Further details have been provided
in Note 10 Financial Investments.
1.6.1.2. Financial liabilities
IFRS 9 retains the requirements in IAS 39 for the classification and
measurement of financial liabilities, and hence there are no changes required
in this area.
1.6.1.3. Hedge accounting
The Group does not currently apply hedge accounting and therefore was not
impacted by the requirements of IFRS 9.
1.6.1.4. Classification of financial assets and financial liabilities
The following table shows the original measurement category and carrying
amount under IAS 39 and the new measurement category and carrying amount under
IFRS 9 for each class of the Group's financial assets and financial
liabilities as at 31 December 2022. There has been no significant change in
the measurement basis (either fair value or amortised cost) as a result of the
adoption of IFRS 9. There is no change to the carrying about of financial
instruments for the opening balance sheet presented for the 1 January 2022.
2022 Original classification under IAS 39 New classification under IFRS 9 Carrying amount under IAS 39 New carrying amount under IFRS 9
£m £m
Financial assets
Financial investments fair value through profit and loss
- Derivative assets FVTPL FVTPL (mandatory) 2,277.0 2,277.0
(held for trading)
- Residential mortgages FVTPL (designated) FVTPL (mandatory) 5,305.9 5,305.9
- All other financial investments FVTPL (designated) FVTPL (business model) 15,768.5 15,768.5
Other receivables Loans & receivables Amortised cost 33.7 32.7
Cash available on demand Loans & receivables Amortised cost 482.0 482.0
Financial liabilities
Investment contracts FVTPL (designated) FVTPL (accounting mismatch) 32.5 32.5
Loans and Borrowings Amortised cost Amortised cost 699.3 699.3
Other financial liabilities Amortised cost Amortised cost 623.1 623.1
- Derivative liabilities FVTPL FVTPL (mandatory) 3,000.6 3,000.6
(held for trading)
Other payables Amortised cost Amortised cost 96.1 96.1
Amounts reported in this table include the amounts reported as at 31 December
2022 in the 2022 financial statements adjusted for the reclassifications of
certain balances as required by IFRS 17.
1.6.2. Classification of financial assets and financial liabilities
The Group classifies its financial assets into either the Amortised Cost or
Fair Value Through Profit and Loss (FVTPL) measurement categories. The Group
measures its financial assets according to the business model applied. This
reflects how the Group manages financial assets either in order to solely
collect the contractual cash flows from assets (measured at amortised cost),
or collect both the contractual cash flows and cash flows arising from the
sale of assets (measured at fair value).
1.6.2.1. Business model - measurement of financial investments at Fair Value
Through Profit and Loss
Financial investments which back the net insurance fulfilment cash flows are
classified as part of the fair value business model and measured at Fair Value
Through Profit and Loss. Factors considered by the Group in determining the
business model for a group of assets include past experience on how the cash
flows for these assets were collected, how the asset's performance is
evaluated and reported to key management personnel, how risks are assessed and
managed and how managers are compensated. To ensure that the contractual cash
flows from the financial assets are sufficient to settle those liabilities,
the Group undertakes significant buying and selling activity on a regular
basis to rebalance its portfolio of assets and to meet cash flow needs as they
arise. Investments are measured at fair value with any gains and losses
recognised in Net investment income in the Consolidated statement of
comprehensive income. Transaction costs are recognised in Other operating
expenses when incurred.
The Groups' investment in Lifetime Mortgages, which contain No Negative Equity
Guarantees, are included in financial investments measured at fair value
through profit and loss.
1.6.2.2. Derivative instruments
All derivative instruments, both assets and liabilities are classified as fair
value through profit and loss in accordance with IFRS 9. All derivatives are
carried as assets when the fair value is positive and liabilities when the
fair values are negative. The Group does not use hedge accounting.
1.6.2.3. Amortised cost
The Group has classified bank balances and other receivables at amortised
cost. These financial assets are eligible for this measurement as they contain
payments of solely payments of principal and interest and are not held for
trading purposes.
In addition, the Group has purchased a distinct portfolio of sovereign gilts
where the purpose of holding the instruments is to collect solely payments of
principal and interest. This portfolio is managed separately from the assets
that are held to back the insurance contract fulfilment cash flows (net of
reinsurance), financial liabilities measured at amortised cost, and equity
balances. The Group has policies and procedures which define the framework for
when disposals of these gilts can occur, which is expected to be in extremely
limited circumstances.
Transaction costs incurred on financial assets measured at amortised cost are
capitalised to the underlying instrument and are included in the determination
of the effective rate of interest.
1.6.3. Recognition and derecognition
Regular-way purchases and sales of investments are recognised on the trade
date, which is the date that the Group commits to purchase or sell the assets.
Amounts payable or receivable on unsettled purchases or sales are recognised
in other payables or other receivables respectively. Forward contracts to
enter into investments at a contracted date some time in the future are not
recognised until the settlement date; prior to that a derivative forward
contract is recognised.
Loans secured by residential mortgages, LTMs, are recognised when cash is
advanced to borrowers.
The Group receives and pledges collateral in the form of cash or securities in
respect of derivative, reinsurance or other contracts such as securities
lending. Cash collateral received that is not legally segregated from the
Group is recognised as an asset in the Consolidated statement of financial
position with a corresponding liability for the repayment in other financial
liabilities. Non-cash collateral received is not recognised in the
Consolidated statement of financial position unless it qualifies for
derecognition by the transferor. Certain reinsurance arrangements involve
premiums being deposited back with the Group. The recognition of such
collateral is assessed based on the terms of the arrangement, including
consideration of the Group's exposure to the economic benefits.
Non-cash collateral pledged continues to be recognised in the Consolidated
statement of financial position within the appropriate asset classification
when the Group continues to control the collateral and receives the economic
benefit. The Group's policy is to derecognise financial investments when our
rights to the contractual cash flows expire, or it is deemed that
substantially all the risks and rewards of ownership have been transferred.
Where non-cash collateral pledged continues to be recognised by the Group but
the counterparty is permitted to sell or re-pledge the collateral, the
non-cash collateral assets are classified separately within the Financial
instruments note. In the current year these include the new portfolio of
amortised cost gilts (See note 10).
1.6.4. Use of fair value
The Group uses current bid prices to value its investments with quoted prices.
Actively traded investments without quoted prices are valued using prices
provided by third parties. If there is no active established market for an
investment, the Group applies an appropriate valuation technique as described
below.
1.6.4.1. Determining the fair value of financial
investments when the markets are not active
The Group holds certain financial investments which are not quoted in active
markets and include loans secured by residential mortgages, derivatives and
other financial investments for which markets are not active. When the markets
are not active, there is generally no or limited observable market data that
can be used in the fair value measurement of the financial investments. The
determination of whether an active market exists for a financial investment
requires management's judgement.
Fixed maturity securities, in line with market practice, are generally valued
using an independent pricing service. These valuations are determined using
independent external quotations from multiple sources and are subject to a
number of monitoring controls, such as monthly price variances, stale price
reviews and variance analysis. Pricing services, where available, are used to
obtain the third-party broker quotes. When prices are not available from
pricing services, prices are sourced from external asset managers or internal
models and treated as level 3 under the fair value hierarchy. A third-party
fixed income liquidity provider is used to determine whether there is an
active market for a particular security.
If the market for a financial investment of the Group is not active, the fair
value is determined using valuation techniques. The Group establishes fair
value for these financial investments by using quotations from independent
third parties or internally developed pricing models. The valuation technique
is chosen with the objective of arriving at a fair value measurement which
reflects the price at which an orderly transaction would take place between
market participants on the measurement date. The valuation techniques include
the use of recent arm's length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis and option
pricing models. The valuation techniques may include a number of assumptions
relating to variables such as credit risk and interest rates and, for loans
secured by mortgages, mortality, future expenses, voluntary redemptions and
house price assumptions. Changes in assumptions relating to these variables
impact the reported fair value of these financial instruments positively or
negatively.
The financial investments measured at fair value are classified into the
three-level hierarchy described in note 11 on the basis of the lowest level of
inputs that are significant to the fair value measurement of the financial
investment concerned.
1.6.5. Financial assets measured at amortised cost
Financial assets held at amortised cost are measured using the effective
interest rate method and are impaired using an expected credit loss model. The
model splits financial assets into those which are performing, underperforming
and non-performing based on changes in credit quality since initial
recognition.
At initial recognition financial assets are considered to be performing. They
become underperforming where there has been a significant increase in credit
risk since initial recognition, and non-performing when there is objective
evidence of impairment. 12 months of expected credit losses are recognised
within expenses in the Statement of comprehensive income and netted against
the financial asset in the Statement of financial position for all performing
financial assets, with lifetime expected credit losses recognised for
underperforming and non-performing financial assets.
Expected credit losses are based on the historic levels of loss experienced
for the relevant financial assets, with due consideration given to
forward-looking information. The most significant categories of financial
assets held at amortised cost for the Group are its portfolio of investments
in sovereign gilts and cash available on demand, (see note 10). Investments
are reclassified from performing to under-performing when coupons become more
than 30 days past due, in line with the presumption set out in IFRS 9,
Financial Instruments, or when the financial institution is no longer
considered to be investment grade by the rating agents. Due to the nature of
the investment in sovereign gilts, it is assumed that these investments are
low credit risk and there has been no significant deterioration in credit risk
in the investments.
1.7. Material accounting policies and the use of judgements, estimates and assumptions
The preparation of financial statements requires the Group to select
accounting policies and make estimates and assumptions that affect items
reported in the Statement of comprehensive income, Statement of financial
position, other primary statements and Notes to the financial statements. The
adoption of IFRS 17 and IFRS 9 by the Group has resulted in changes to
significant accounting estimates and judgements and the major areas of
judgement used as part of accounting policy application are summarised below.
Note Item involving judgement Critical accounting judgement
1.3 Method of transition in the adoption of IFRS 17 The Group has concluded that is impracticable to apply the fully retrospective
approach to all insurance and reinsurance contracts prior to 1 January 2021
and has elected to adopt the fair value approach to these contracts.
1.5 Determination of whether the insurance contracts share similar risks and are The Group has concluded that each entity holds a single portfolio of insurance
managed together. contracts as all contracts share similar risks, primarily relating to
longevity and financial risk, and are managed together as a single portfolio.
The Group has also concluded that both JRL and PLACL hold portfolios of
reinsurance contracts that transfer only longevity risk, and that JRL holds a
portfolio that transfers longevity risk and financial risks.
1.5 Selection of method to determine the discount rate for insurance and The Group has elected to apply the top-down approach to determine the discount
reinsurance contracts rate.
The discount rate will be determined based on a reference portfolio of assets
and allow for deductions for credit risk (both expected and unexpected).
1.6 Selection of recognition and measurement basis of Lifetime Mortgages, The Group has elected to apply the option contained in paragraph 8A in IFRS
including the No Negative Equity Guarantees 17, Insurance Contracts to recognise and measure Lifetime Mortgages, including
the No Negative Equity Guarantee component, as financial instruments in terms
of IFRS 9, Financial Instruments.
1.6 Classification of financial assets held at fair value The Group has assessed its business model for the management of investments
backing the insurance contract fulfilment cash flows as fair value as it
manages those financial assets on a fair value basis.
1.6 Classification of financial assets held at amortised cost The Group has invested in a portfolio of sovereign gilts during 2023 that
should be measured at amortised cost as it intends to collect solely payments
of principal and interest.
The Group has concluded that it has the ability and intention to collect
solely payments of principal and interest, after due consideration of the
liquidity requirements of the Group.
1.6.4 Financial assets - valuation method Assessment of fair value hierarchy for financial investments, which considers
the market observability of valuation inputs. Where the market is not active,
such as for illiquid assets including commercial mortgages, infrastructure
loans and ground rents, management applies judgement in selecting the
appropriate valuation technique.
1.6 The selection of an appropriate measurement model to determine the fair value The Group has selected and used a variant of the Black Scholes option pricing
of loans secured by residential mortgages which includes the no-negative formula with real world assumptions to determine the fair value of the
equity guarantees clauses (judgement unchanged by changes in accounting no-negative equity guarantee component of the fair value of loans secured by
policies) residential mortgages. The Group has selected to use real world assumptions
instead of risk neutral assumptions due to the lack of relevant observable
market inputs to support a risk neutral valuation approach
This selected measurement approach is in line with common industry practice
and there does not appear to be an alternative approach that is widely
supported in the industry.
We acknowledge that there has been significant recent academic and market
debate concerning the valuation of no-negative equity guarantees and we intend
to continue to actively monitor this debate.
All estimates are based on management's knowledge of current facts and
circumstances, assumptions based on that knowledge and predictions of future
events and actions. Actual results may differ significantly from those
estimates.
The table below sets out those items the Group considers susceptible to
changes in critical estimates and assumptions together with the relevant
accounting policy.
Note Item involving estimates Critical estimates and assumptions
and assumptions
1.4 Determination of the fair value of insurance and reinsurance contracts issued The Group has determined the fair value of these insurance contracts on 1
prior to 1 January 2021. January 2022. The critical assumptions used as part of the determination of
fair value have included the selection of an appropriate weighted average cost
of capital, the appropriate level of solvency capital required, and the
selection of the asset portfolio to determine the discount rate. A
comprehensive description of the approach applied, and the inputs used in the
determination of fair value can be found in note 1.4.
11 Measurement of fair value of loans secured by residential mortgages, including The critical estimates used in valuing loans secured by residential mortgages
measurement of the no-negative equity guarantees (estimate unchanged by include the projected future receipts of interest and loan repayments, future
changes in accounting policies) house prices, and the future costs of administering the loan portfolio. The
key assumptions used as part of the valuation calculation include future
property prices and their volatility, mortality, the rate of voluntary
redemptions and the liquidity premium added to the swap curve and used to
discount the mortgage cash flows. Further details can be found in note 11
under 'Loans secured by residential mortgages'.
1.5, 14 Measurement of insurance contract liabilities - present value of future cash The critical estimates used in measuring insurance liabilities include the
flows projected future annuity payments and the cost of administering payments to
policyholders. The Group considers any expenses to be directly attributable if
they are required to be incurred to enable the insurance entities to continue
to operate as insurance companies selling and maintaining the contracts in
force.
The key assumptions used in the determination of future cash flows are the
mortality and annuity escalations assumptions and the level and inflation of
costs of administration. Mortality assumptions are derived from the
appropriate standard mortality tables, adjusted to reflect the future expected
mortality experience of the policyholders. Maintenance expenses are determined
from expense analyses and are assumed to inflate at market-implied rates.
Further detail can be found in note 14.
The present value of future cash flows are discounted based on discount rates
as at the valuation date.
1.5, 14 Determination of discount rate for insurance and reinsurance contracts Discount rates for gross insurance contract liabilities are based on the yield
of a reference portfolio after deducting allowances for expected and
unexpected credit default losses. The reference portfolio consisting of the
actual asset portfolio backing the net of reinsurance best estimate
liabilities and risk adjustment and is adjusted in respect of new contracts
incepting in the period to allow for a period of transition from the actual
asset holdings to the target portfolio where necessary. No adjustment for
liquidity differences between the reference portfolio and the liabilities is
made. For calculation of the CSM at the inception of contracts, discount rates
are based on the yields from a reference portfolio assumed to be represented
by the current target portfolio mix based on the latest investment strategy.
A weighted average discount rate curve is used for accreting interest on the
CSM and for calculating movements in the CSM due to changes in fulfilment cash
flows relating to future service. This separate 'locked-in' discount rate
curve is determined for each annual cohort at the end of the cohort's first
year and then does not change throughout the remainder of life of the group of
contracts.
1.5, Calibration of risk adjustment for insurance contract liabilities IFRS 17 requires that the future cashflows are adjusted by the risk adjustment
for non-financial risk. The risk adjustment for non-financial risks reflects
14 the adjustment to the best estimate cash flows required to provide a 70% level
of confidence that longevity, expense and insurance contract specific
operational risks will be covered by the liabilities when viewed over the
lifetime of the contracts. This represents the level of compensation that Just
requires for bearing the uncertainty regarding the amount and timing of the
cash flows that arises from non-financial risk and is used as a core parameter
within Just's pricing framework when assessing the profitability of new
business.
1.5, 14 Measurement of the fulfilment cash flows arising from reinsurance arrangements The critical estimates used in measuring the value of reinsurance assets and
liabilities include the projected future cash flows arising from reinsurers'
share of the Group's insurance liabilities including the risk adjustment.
The key assumptions used in the valuation include discount rates and mortality
experience, as described above, and assumptions around the reinsurers' ability
to meet their claims obligations.
In instances where reinsurance cover is in place when underlying contracts are
written, consistent discount rates are used for calculation of reinsurance CSM
as used for the underlying business. In instances where reinsurance is
transacted subsequently to the underlying business being written, the
reinsurance CSM is calculated using discount rates as at the start date of the
reinsurance treaty.
Allowance is made for reinsurer credit default risk within the expected cash
flows based on the net balance held with the reinsurer after allowing for
collateral arrangements.
The reinsurance risk adjustment, represents the extent to which non-financial
risks are transferred to reinsurers and is measured using the same
calibrations as applied to the underlying contracts.
1.5, 14 Subsequent measurement of contractual service margin (CSM) for insurance The CSM is recognised at point of sale based on the value of the fulfilment
contracts cash flows, including directly attributable acquisition expenses. The CSM is
recognised in profit and loss over the terms of services provided to
policyholders (coverage units).
Coverage units will vary depending on the type of service provided. The Group
uses the probability of the policy being in force in each time period for
weighting the disparate types of coverage unit. This weighting reflects
management's view that the value of services provided to policyholders is
broadly equivalent across the different phases in the life of contracts.
These weightings are applied to the coverage units which are defined as
follows:
· In the deferred phase of Defined Benefit policies, investment
return service coverage units are represented by the return on the funds
backing the future cash flow liability in this accumulation phase. Insurance
service in this phase is considered insignificant;
· In the guaranteed phase of Defined Benefit and Guaranteed Income
for Life policies, when payments outwards are being made regardless of any
insurance event, investment return service is represented by the payments to
annuitants; and
· In the life contingent phase of all policies, insurance service is
represented by payments to annuitants, as confirmed by the IASB Interpretation
Committee ("IFRIC") during 2022.
7 Recoverability of deferred tax The adoption of IFRS 17 has created tax losses on transition which can be
offset against future taxable profits. The Group has assessed that these tax
losses will be fully recoverable based on the Group's five-year business plan
and projection thereafter.
2. Insurance revenue
30 June 2023 30 June 2022
£m £m
Contractual service margin recognised for services provided 67.3 49.3
Change in risk adjustment for non-financial risk for risks expired 6.7 7.4
Expected incurred claims and other insurance service expenses 671.0 579.3
Recovery of insurance acquisition cash flows 8.3 3.3
Total insurance revenue 753.3 639.3
Contractual service margin recognised
The contractual service margin ("CSM") release of £67.3m (HY22 £49.3m) is
based on the coverage units, at cohort level, representing services provided
in the year as a proportion of current and future coverage units.
The CSM release represents 6.4% annualised (HY 22 6.3% annualised) of the CSM
reserve balance immediately prior to release. The six months 2023 release
includes the effects of the deferral in CSM of the demographic assumption
changes made at 31 December 2022 and the new business written in 2022.
Change in risk adjustment for non-financial risk for risks expired
The risk adjustment release of £6.7m (HY22 £7.4m) represents the value of
the release from risk as insurance coverage expires.
Expected incurred claims and other insurance service expenses
This amount represents the expected claims and maintenance expenses cash flows
in the period based on the assumptions within the opening liability for future
cash flows, reduced to exclude the value of investment components (and
other non-insurance) cash flows.
The increase in the value of expected claims and expenses in the period to
£671.0m (HY22 £579.3m) reflects the growth and maturity of the business. In
the current period 16% of payments to annuitants were still within the
guarantee period compared with 22% in the same period in 2022. This decline
reflects the run-off of historically longer guarantee periods in GIfL and the
change in the mix of business towards DB.
Recovery of insurance acquisition cash flows
Acquisition costs are deducted from the CSM at point of sale, with the result
that as the CSM release is recognised in the income statement, there will be
an implicit allowance for acquisition costs made each year over the life of
contracts. The amount recognised in each period represents the portion of past
and current acquisition expenses in respect of insurance contracts that are
allocable to the current period based on the services provided (coverage
units). Insurance revenue and insurance service expenses are grossed up by
this annual value of acquisition expenses so that the full value of the
premium is recognised as insurance revenue over the lifetime of contracts.
The significant growth in the value in the six months to £8.3m (HY22 £3.3m)
reflects the inclusion of an additional new business cohort. Only the cohorts
measured on a fully retrospective basis at transition to IFRS 17 and cohorts
of business written since transition (i.e. underwriting years 2021 onwards)
have insurance acquisition cash flows. The recovery percentage recognised in
the period is consistent with the CSM release percentages.
3. Insurance service expense
30 June 2023 30 June 2022
£m £m
Incurred expenses
Claims 652.2 563.2
Commission 14.5 26.8
Personnel expenses 59.0 49.6
Other costs 83.3 37.1
IFRS 17 treatment of acquisition costs
Amounts attributable to insurance acquisition cash flows (83.7) (46.2)
Amortisation of insurance acquisition cash flows 8.3 3.3
733.6 633.8
Represented by:
Actual claims and maintenance expenses 674.1 579.7
Amortisation of insurance acquisition cash flows 8.3 3.3
Insurance service expenses 682.4 583.0
Other operating expenses 51.2 50.8
733.6 633.8
The actual claims and expenses in the six months of £674.1m (HY22 £579.7m)
compare with an expected value of £671.0m (HY22 £579.3m). The difference of
£3.1m (HY22 £0.4m) is not considered significant. Claims exclude investment
components and other non-insurance cash flows as noted above for insurance
revenue. The fall in commission and increase in investment expenses (included
in other costs) reflects the switch in investment strategy from LTMs towards
more other illiquid investments.
The removal of insurance acquisition cash flows incurred in the period
represents costs that have been deferred on the balance sheet as part of the
new business CSM. Acquisition costs deferred are the incremental costs of
writing new business and relate to the costs associated with writing insurance
policies and related overheads. Amounts are amortised over the term of the
insurance policies, in line with the service provided (coverage units).
The other operating expenses of £51.2m (HY 2022: £50.8m) include the portion
of investment acquisition expenses of £10.4m which are not allocated to new
business sales, project and other one-off costs of £16.5m, and £17.3m of
costs in the non-life companies.
4. Net investment gains/(losses) from financial assets
30 June 2023 30 June 2022
£m £m
Interest income:
Assets at fair value through profit or loss 486.6 309.5
Assets at amortised cost 11.0 -
Movement in fair value:
Financial assets and liabilities designated on initial recognition at fair (642.5) (3,129.7)
value through profit and loss
Derivative financial instruments 143.6 (588.0)
Movement in amortised cost assets 1.2 -
Total net investment (expense)/revenue (0.1) (3,408.2)
The investment return is £0.1m loss (HY22: £3,408.2m loss). In the current
period, interest income and favourable movements on derivatives entirely
offset the fair value losses experienced on revaluation of the fixed-income
portfolio. Whereas in HY22, the £3.4bn loss was mainly driven by interest
rate increases reducing mark to market values offset by higher interest income
from the assets and increase in value of inflation swaps).
Interest income of £486.6m (HY22: £309.5m) mainly relates to corporate bonds
which have increased due to new business investment. Since June 2022, the
Group has invested £0.9m in purchases of debt and other fixed income
securities; the fair value of the portfolio at 30 June 2023 is £1.8bn (HY
2022 £1.4bn.)
A new amortised cost portfolio was created with £2.0bn of gilts during the
period as a means of backing the IFRS 17 CSM and shareholder funds reserves
with investments that do not expose the IFRS balance sheet to interest rate
movements. This portfolio is valued on a market value basis for Solvency II
reporting, where it is available to back the solvency capital requirement
which is interest rate sensitive. The income on this portfolio was £11.0m.
Movements in fair values of £(642.5)m (HY22: £(3,129.7)m) reflect the
continued increases in interest rates into the first half of 2023.
Net gains on derivatives of £143.6m (HY22 loss of £588.0m) primarily
reflected the increase in inflation. The prior year loss primarily relates to
FX swaps. The Group purchases non-GBP denominated assets to diversify and
maximise investment opportunities. As our liabilities are GBP denominated we
hedge the resulting foreign exchange exposure. The changes to the underlying
investment due to foreign exchange movement is therefore broadly offset by the
change in derivative value.
5. Net finance (expenses)/ income from insurance contracts
30 June 2023 30 June 2022
£m £m
Interest accreted (603.6) (261.2)
Effect of changes in interest rates and other financial assumptions 752.0 3,537.7
Effect of measuring changes in estimates at current rates and adjusting the 2.1 (2.2)
CSM at rates on initial recognition
Total net finance (expense)/income from insurance contracts 150.5 3,274.3
Interest accreted
Interest accreted of £603.6m (HY22 £261.2m) represents the effect of
unwinding of the discount rates on the future cash flow and risk adjustment
components of the insurance contract liabilities and the effect of interest
accretion on the CSM. The more than doubling of accretion in the current
period compared with the first six months of 2022 reflects the impact of
higher discount rates at the start of 2023 compared with the start of 2022,
combined with growth in the size of the insurance portfolio.
The future cash flows and risk adjustment are interest rate sensitive and
represent circa 90% of the total value of insurance contract liabilities. The
CSM is measured using historic 'locked-in' discount rate curves. The majority
of the CSM arises from the fair value approach on transition to IFRS 17 which
is measured using the locked-in discount rate curve as at 1 January 2022.
This curve is upward sloping in the early years which, combined with an
increasing CSM balance, has resulted in increased accretion.
Effect of changes in interest rates and other financial assumptions
The principal economic assumption changes favourably impacting the movement in
insurance liabilities during the period of £752.0m (HY22 £3,537.7m gain)
relate to discount rates and inflation. The CSM is held at locked-in discount
rates and benefit inflation, and hence the effect of the increase in interest
rates experienced in the period applies only to the future cash flows and risk
adjustment.
Effect of measuring changes in estimates at current rates and adjusting the CSM at rates on initial recognition
The difference in the measurement of changes in estimates relating to future
coverage at current discount rates compared to locked-in rates, is recognised
within net finance expenses. Significant assumption changes are usually made
at year end and therefore the impact at HY23 and HY22 is small (£2.1m gain
and £2.2m loss respectively).
6. Segmental reporting
Segmental analysis
The insurance segment writes insurance products for the retirement market -
which include Guaranteed Income for Life solutions, Defined Benefit De-risking
solutions and Care Plans - and invests the premiums received from these
contracts in debt and other fixed income securities, gilts, liquidity funds
and lifetime mortgage advances and other illiquid assets.
The professional services business, HUB, is included with other corporate
companies in the Other segment. This business is not currently sufficiently
significant to separate from other companies' results. The Other segment also
includes the Group's corporate activities that are primarily involved in
managing the Group's liquidity, capital and investment activities.
The Group operates in one material geographical segment which is the United
Kingdom.
Underlying operating profit
The Group reports underlying operating profit as an alternative measure of
profit which is used for decision making and performance measurement. The
Board believes that underlying operating profit, which represents a
combination of both the future profit generated from new business written in
the period and additional profit emerging from the in-force book of business,
provides a better view of the development of the business. Moreover, the net
underlying CSM increase is added back when calculating the underlying
operating profit as the Board considers the value of new business is
significant in assessing business performance. Actual operating experience
where different from that assumed at the start of the period and the impacts
of changes to future operating assumptions applied in the period are then also
included in arriving at adjusted operating profit.
New business profits represent expected investment returns on the financial
instruments assumed to be newly purchased to back that business after
allowances for expected movements in liabilities and deduction of acquisition
costs. New business profits are based on valuation of investment returns as at
the date of quoting for new business whereas the CSM on new business is
computed as at the date of inception of new contracts. Profits arising from
the in-force book of business represent the expected return on surplus assets,
the expected unwind of allowances for credit default and the release of the
risk adjustment.
Underlying operating profit excludes the impairment and amortisation of
goodwill and other intangible assets arising on consolidation, and strategic
expenditure, since these items arise outside the normal course of business in
the year. Underlying operating profit also excludes exceptional items.
Exceptional items are those items that, in the Directors' view, are required
to be separately disclosed by virtue of their nature or incidence to enable a
full understanding of the Group's financial performance.
Variances between actual and expected investment returns due to economic and
market changes, including on surplus assets and on assets assumed to back new
business, and gains and losses on the revaluation of land and buildings, are
also disclosed outside underlying operating profit.
Segmental reporting and reconciliation to financial information
Six months ended 30 June 2023 Six months ended 30 June 2022
(restated)
Insurance Other Total Insurance Other Total
£m £m £m £m £m £m
New business profits 161.3 - 161.3 76.2 - 76.2
CSM amortisation(1) (28.7) - (28.7) (26.6) - (26.6)
Net underlying CSM increase(2) 132.6 - 132.6 49.6 - 49.6
In-force operating profit(3) 88.8 3.2 92.0 70.2 1.4 71.6
Other Group companies' operating results - (8.5) (8.5) - (7.5) (7.5)
Development expenditure (8.8) (0.8) (9.6) (7.3) (1.4) (8.7)
Finance costs (42.2) 8.7 (33.5) (44.4) 6.8 (37.6)
Underlying operating profit 170.4 2.6 173.0 68.1 (0.7) 67.4
Operating experience and assumption changes(4) 1.3 - 1.3 (3.6) - (3.6)
Adjusted operating profit/(loss) before tax 171.7 2.6 174.3 64.5 (0.7) 63.8
Investment and economic movement 63.7 6.0 69.7 (255.6) 0.8 (254.8)
Strategic expenditure (4.3) (2.4) (6.7) (2.8) - (2.8)
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity 14.0 (5.9) 8.1 14.0 (5.3) 8.7
Amortisation of acquired intangibles - (0.1) (0.1) - (0.1) (0.1)
Adjusted profit/(loss) before tax 245.1 0.2 245.3 (179.9) (5.3) (185.2)
Deferral of profit in CSM(5) (128.6) - (128.6) (52.2) - (52.2)
Profit/(loss) before tax 116.5 0.2 116.7 (232.1) (5.3) (237.4)
1: CSM amortisation represents the net release from the CSM reserve into
profit as services are provided. The figures are net of accretion (unwind of
discount), and the release is computed based on the closing CSM reserve
balance for the period.
2: Net underlying CSM increase excludes the impact of using quote date for
profitability measurement.
3: In-force operating profit represents profits from the in force portfolio
before investment and insurance experience variances, and assumption
changes. It mainly represents release of risk adjustment for non-financial
risk and of allowances for credit default in the period, investment returns
earned on shareholder assets, together with the value of the CSM amortisation.
4: Operating experience and assumption changes represent changes to cash flows
in the current and future periods valued based on end of period economic
assumptions.
5: Deferral of profit in CSM represents the total movement on CSM reserve in
the year. The figure represents CSM recognised on new business, accretion of
CSM (unwind of discount), transfers to CSM related to changes to future cash
flows at locked-in economic assumptions, less CSM release in respect of
services provided.
Year ended 31 December 2022 (restated)
Insurance Other Total
£m £m £m
New business profits 265.9 - 265.9
CSM amortisation (60.6) - (60.6)
Net CSM increase 205.3 - 205.3
In-force operating profit 152.7 3.0 155.7
Other Group companies' operating results - (16.0) (16.0)
Development expenditure (13.5) (1.4) (14.9)
Financing costs (87.5) 14.2 (73.3)
Underlying operating profit 257.0 (0.2) 256.8
Operating experience and assumption changes 104.4 - 104.4
Adjusted operating profit/(loss) before tax 361.4 (0.2) 361.2
Investment and economic movement (557.0) 19.3 (537.7)
Strategic expenditure (6.4) - (6.4)
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity 27.3 (11.3) 16.0
Amortisation of acquired intangibles - (0.1) (0.1)
Adjusted profit/(loss) before tax (174.7) 7.7 (167.0)
Deferral of profit in CSM (326.8) - (326.8)
Profit/(loss) before tax (501.5) 7.7 (493.8)
The reconciliation of the new business profit non-IFRS measure to the new
business contractual service margin (IFRS measure) is included in the Business
review.
Additional analysis of segmental profit or loss
Revenue, depreciation of property, plant and equipment, and amortisation of
intangible assets are materially all allocated to the insurance segment. The
interest adjustment in respect of Tier 1 notes in the other segment represents
the difference between interest charged to the insurance segment in respect of
Tier 1 notes and interest incurred by the Group in respect of Tier 1 notes.
Product information analysis
Additional analysis relating to the Group's products is presented below:
Six months Six months ended Year ended
31 December 2022
ended 30 June 2022 £m
30 June 2023
£m £m
Defined Benefit De-risking Solutions ("DB") 1,429.3 573.6 2,566.9
Guaranteed Income for Life contracts ("GIfL")(1) 470.1 305.5 563.8
Retirement Income sales 1,899.4 879.1 3,130.7
Defined Benefit De-risking partnering ("DB partnering") - - 258.6
Net change in premiums receivable 202.5 (358.4) (274.7)
Premium cash flows (note 14(c)) 2,101.9 520.7 3,114.6
1. GIfL includes UK GIfL, South Africa GIfL and Care Plans.
7. Income tax
Six months ended Six months Year ended
30 June 2023 ended 31 December
£m 30 June 2022 2022
(restated) (restated)
£m £m
Current taxation
Current year tax on current year profits 2.0 - -
Adjustments in respect of prior periods - 1.7 8.5
Total current tax 2.0 1.7 8.5
Deferred taxation
Deferred tax recognised for losses in the current period - (42.7) (128.5)
Deferred tax asset not recognised - - 0.2
Origination and reversal of temporary differences 9.4 0.2 (5.0)
Adjustments in respect of prior periods 6.2 - (8.4)
Tax relief on the transitional adjustment on IFRS 17 implementation 16.0 - -
Remeasurement of deferred tax - change in UK tax rate 1.8 (15.9) 1.2
Total deferred tax 33.4 (58.4) (140.5)
Total income tax recognised in profit or loss 35.4 (56.7) (132.0)
The deferred tax assets and liabilities at 30 June 2023 have been calculated
based on the rate at which they are expected to reverse. On 3 March 2021, the
Government announced an increase in the rate of corporation tax to 25% from
1 April 2023.
A deferred tax asset of £341.0m has been recognised on the adoption of IFRS
17 Insurance Contracts on 1 January 2023, which is fully recoverable, and
deferred tax has been recognised at 25%, reflecting the rate at which the
deferred tax asset is expected to unwind.
Reconciliation of total income tax to the applicable tax rate
Six months ended Six months Year ended
30 June 2023 ended 31 December
£m 30 June 2022 2022
(restated) (restated)
£m
£m
Profit/(loss) on ordinary activities before tax 116.7 (237.4) (493.8)
Income tax at 23.5% (30 Jun 2022: 19.0%, 31 Dec 2022: 19%) 27.4 (45.1) (93.8)
Effects of:
Expenses not deductible for tax purposes - 0.8 1.4
Remeasurement of deferred tax - change in UK tax rate 1.8 1.2 1.2
Impact of future tax rate on tax losses - (14.1) (33.9)
Adjustments in respect of prior periods 6.2 0.1 0.1
Deferred tax asset not recognised - - 0.2
Other - 0.4 (7.2)
Total income tax recognised in profit or loss 35.4 (56.7) (132.0)
Income tax recognised directly in equity
Six months ended Six months Year ended
30 June 2023 ended 31 December
£m 30 June 2022 2022
£m £m
Current taxation
Relief on Tier 1 interest - (1.7) -
Relief on cost of redeeming RT1 - - -
Other - - -
Total current tax - (1.7) -
Deferred taxation
Relief on Tier 1 interest (2.0) - (3.2)
Relief in respect of share-based payments (0.3) (0.7) (1.3)
Total deferred tax (2.3) (0.7) (4.5)
Total income tax recognised directly in equity (2.3) (2.4) (4.5)
8. Earnings per share
The calculation of basic and diluted earnings per share is based on dividing
the profit or loss attributable to ordinary equity holders of the Company by
the weighted average number of ordinary shares outstanding, and by the diluted
weighted average number of ordinary shares potentially outstanding at the end
of the period. The weighted average number of ordinary shares excludes shares
held by the Employee Benefit Trust on behalf of the Company to satisfy future
exercises of employee share scheme awards.
Six months ended Six months ended
30 June 2023 30 June 2022
(restated)
Earnings Weighted average number of shares million Earnings per share pence Earnings Weighted average number of shares million Earnings per share pence
£m £m
Profit/(loss) attributable to equity holders of Just Group plc 81.6 - - (180.4) - -
Coupon payments in respect of Tier 1 notes (net of tax) (6.1) - - (7.0) - -
Profit/(loss) attributable to ordinary equity holders of Just Group plc 75.5 1,029.0 7.34 (187.4) 1,035.7 (18.09)
(basic)
Effect of potentially dilutive share options(1) - 23.8 (0.17) - - -
Diluted profit/(loss) attributable to ordinary equity holders of Just Group 75.5 1,052.8 7.17 (187.4) 1,035.7 (18.09)
plc
(1) The weighted-average number of share options for the six months ended
30 June 2022 and year ended 31 December 2022 that could have potentially
diluted basic earnings per share in the future but are not included in diluted
EPS because they would be antidilutive was 22.2 million and 23.3 million share
options respectively.
Year ended
31 December 2022
(restated)
Earnings Weighted average number of shares million Earnings per share pence
£m
Loss attributable to equity holders of Just Group plc (361.2) - -
Coupon payments in respect of Tier 1 notes (net of tax) (13.6) - -
Loss attributable to ordinary equity holders of Just Group plc (374.8) 1,032.4 (36.30)
Effect of potentially dilutive share options(1) - - -
Diluted (loss)/profit attributable to ordinary equity holders of Just Group (374.8) 1,032.4 (36.30)
plc
9. Dividends and appropriations
Dividends and appropriations paid were as follows:
Six months Six months ended Year ended
31 December 2022
ended 30 June 2022
30 June 2023
£m
£m
£m
Final dividend
Final dividend in respect of prior year end 12.8 10.4 10.4
Interim dividend in respect of current year - - 5.2
Total dividends paid 12.8 10.4 15.6
Coupon payments in respect of Tier 1 notes(1) 8.1 8.7 16.9
Total distributions to equity holders in the period 20.9 19.1 32.5
(1 ) Coupon payments on Tier 1 notes are treated as an
appropriation of retained profits and, accordingly, are accounted for when
paid.
Dividends are paid out of the reserves of Just Group plc, the Company, who at
30 June 2023 had total reserves of £459.7m. Distributions by the Company are
not impeded by the accumulated loss reflected in the consolidated financial
statements.
In addition to the amounts recognised in the Interim financial statements
above, subsequent to 30 June 2023, the Directors approved an interim dividend
for 2023 of 0.58 pence per ordinary share (2022: 0.5 pence), amounting to £6m
(2022: £5.2m) in total, which will be paid on 4 October 2023.
10. FINANCIAL INVESTMENTS
The Group's financial investments that are measured at fair value through the
profit or loss, are either managed within a fair value business model or
mandatorily measured at fair value.
The Group's financial investments that are measured at amortised cost are held
within a business model where the intention of holding the instruments is to
collect solely payments of principal and interest.
In the current year, the Group acquired UK sovereign gilts with a total
invested value of £2.0bn that act as an economic hedge to liabilities and
components of equity that are not sensitive to interest rate movements. At the
point of investment, these investments had contractual maturities of between
14 and 30 years, with an average invested yield of 4.1%. The Group has
financed the purchase of these gilts through a series of repurchase ("repo")
agreements whereby a fixed amount is repayable at a certain date. At the
inception of these agreements they had tenors of between 12 and 21 months.
Fair value
30 June 2023 Amortised cost Mandatory Designated Total
£m
£m £m £m
Cash available on demand 572.8 - - 572.8
Financial investments - fair value - 7,542.3 16,647.9 24,190.2
Financial investments - amortised cost 1,970.6 - - 1,970.6
Other receivables 48.1 - - 48.1
Total financial assets 2,591.5 7,542.3 16,647.9 26,781.7
Underlying assets
- Investment contracts - - 29.3 29.3
- Other 2,591.5 7,542.3 16,618.6 26,752.4
Total financial assets 2,591.5 7,542.3 16,647.9 26,781.7
Investment contract liabilities - - 29.3 29.3
Loans and borrowings 709.9 - - 709.9
Other financial liabilities 2,640.8 2,713.3 - 5,354.1
Other payables 197.7 - - 197.7
Total financial liabilities 3,548.4 2,713.3 29.3 6,291.0
Fair value
31 December 2022 Amortised cost Mandatory Designated Total
£m
£m £m £m
Cash available on demand 482.0 - - 482.0
Financial investments - 7,582.9 15,768.5 23,351.4
Other receivables 32.7 - - 32.7
Total financial assets 514.7 7,582.9 15,768.5 23,866.1
Underlying assets
- Investment contracts - - 32.5 32.5
- Other 514.7 7,582.9 15,736.0 23,833.6
Total financial assets 514.7 7,582.9 15,768.5 23,866.1
Investment contract liabilities - - 32.5 32.5
Loans and borrowings 699.3 - - 699.3
Other financial liabilities 623.1 3,045.8 - 3,668.9
Other payables 96.1 - - 96.1
Total financial liabilities 1,418.5 3,045.8 32.5 4,496.8
Fair value
30 June 2022 Amortised cost Mandatory Designated Total
£m
£m £m £m
Cash available on demand 544.4 - - 544.4
Financial investments - 7,577.4 15,211.2 22,788.6
Other receivables 22.5 - - 22.5
Total financial assets 566.9 7,577.4 15,211.2 23,355.5
Underlying assets
- Investment contracts - - 29.8 29.8
- Other 566.9 7,577.4 15,181.4 23,325.7
Total financial assets 566.9 7,577.4 15,211.2 23,355.5
Investment contract liabilities - - 29.8 29.8
Loans and borrowings 774.7 - - 774.7
Other financial liabilities 480.0 2,017.4 - 2,497.4
Other payables 110.3 - - 110.3
Total financial liabilities 1,365.0 2,017.4 29.8 3,412.2
Analysis of financial investments
30 31 December 2022 30
June (restated) June
2023 £m 2022
£m
£m
Units in liquidity funds 1,205.6 1,174.4 958.7
Investment funds 439.8 421.0 315.1
Debt securities and other fixed income securities 11,780.4 11,352.9 11,238.7
Deposits with credit institutions 749.4 907.6 750.5
Loans secured by residential mortgages 5,176.7 5,305.9 5,897.3
Loans secured by commercial mortgages 629.2 583.7 616.0
Loans secured by ground rents 647.1 246.9 236.6
Infrastructure loans 1,057.0 947.8 968.8
Other loans 139.4 134.2 126.8
Derivative financial assets 2,365.6 2,277.0 1,680.1
Total investments measured at fair value through profit and loss 24,190.2 23,351.4 22,788.6
Gilts - subject to repurchase agreements 1,970.6 - -
Total investments measured at amortised cost 1,970.6 - -
Total financial investments 26,160.8 23,351.4 22,788.6
The majority of investments included in debt securities and other fixed income
securities are listed investments.
Units in liquidity funds comprise wholly of units in funds which invest in
short dated liquid assets.
Deposits with credit institutions with a carrying value of £733.5m (31
December 2022: £892.4m / 30 June 2022: £750.5m) have been pledged as
collateral in respect of the Group's derivative financial instruments. Amounts
pledged as collateral are deposited with the derivative counterparty.
11. FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
This note explains the methodology for valuing the Group's financial assets
and liabilities measured at fair value, including financial investments, and
provides disclosures in accordance with IFRS 13, Fair value measurement,
including an analysis of such assets and liabilities categorised in a fair
value hierarchy based on market observability of valuation inputs.
(a) Determination of fair value and fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in
the financial statements are categorised within the fair value hierarchy
described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole.
Level 1
Inputs to Level 1 fair values are unadjusted quoted prices in active markets
for identical assets and liabilities that the entity can access at the
measurement date.
Level 2
Inputs to Level 2 fair values are inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either directly
or indirectly. If the asset or liability has a specified (contractual) term, a
Level 2 input must be observable for substantially the full term of the
instrument. Level 2 inputs include the following:
· quoted prices for similar assets and liabilities in active
markets;
· quoted prices for identical assets or similar assets in markets
that are not active, the prices are not current, or price quotations vary
substantially either over time or among market makers, or in which very little
information is released publicly;
· inputs other than quoted prices that are observable for the asset
or liability; and
· market-corroborated inputs.
Level 3
Inputs to Level 3 fair values include significant unobservable inputs for the
asset or liability. Unobservable inputs are used to measure fair value to the
extent that observable inputs are not available, thereby allowing for
situations in which there is little, if any, market activity for the asset or
liability at the measurement date. However, the fair value measurement
objective remains the same, i.e. an exit price at the measurement date from
the perspective of a market participant that holds the asset or owes the
liability. Unobservable inputs reflect the same assumptions as those that the
market participant would use in pricing the asset or liability.
Assessment of the observability of pricing information
All Level 1 and 2 assets continue to have pricing available from actively
quoted prices or observable market data.
Where the Group receives broker/asset manager quotes and the information is
given a low score by Bloomberg's pricing service (BVAL), the investments are
classified as level 3 as are assets valued internally.
Debt securities and financial derivatives which are valued using independent
pricing services or third party broker quotes are classified as Level 2.
The Group's assets and liabilities held at fair value which are valued using
valuation techniques for which significant observable market data is not
available and classified as Level 3 include loans secured by mortgages, loans
secured by ground rents, infrastructure loans, private placement debt
securities, investment funds, investment contract liabilities, and other
loans.
(b) Analysis of assets and liabilities held at fair value according to fair
value hierarchy
30 June 2023 31 December 2022
(restated)
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Assets held at fair value through profit or loss
Units in liquidity funds 1,200.0 5.6 - 1,205.6 1,169.8 4.6 - 1,174.4
Investment funds - 86.0 353.8 439.8 - 82.6 338.4 421.0
Debt securities and other fixed income securities 3,011.7 6,950.5 1,818.2 11,780.4 3,843.7 5,904.0 1,605.2 11,352.9
Deposits with credit institutions 733.5 15.9 - 749.4 892.4 15.2 - 907.6
Loans secured by residential mortgages - - 5,176.7 5,176.7 - - 5,305.9 5,305.9
Loans secured by commercial mortgages - - 629.2 629.2 - - 583.7 583.7
Loans secured by ground rents - - 647.1 647.1 - - 246.9 246.9
Infrastructure loans - - 1,057.0 1,057.0 - - 947.8 947.8
Other loans - 27.0 112.4 139.4 - 22.3 111.9 134.2
Derivative financial assets - 2,365.6 - 2,365.6 - 2,276.6 0.4 2,277.0
Financial investments 4,945.2 9,450.6 9,794.4 24,190.2 5,905.9 8,305.3 9,140.2 23,351.4
Investment property - - 39.7 39.7 - - 40.3 40.3
Gilts - subject to repurchase agreements (fair value) 1,965.4 - - 1,965.4 - - - -
Total financial assets 6,910.6 9,450.6 9,834.1 26,195.3 5,905.9 8,305.3 9,180.5 23,391.7
Liabilities held at fair value
Derivative financial liabilities - 2,699.9 13.4 2,713.3 - 3,004.1 41.7 3,045.8
Obligations for repayment of cash collateral received 654.2 43.1 - 697.3 592.8 30.3 - 623.1
Other financial liabilities 654.2 2,743.0 13.4 3,410.6 592.8 3,034.4 41.7 3,668.9
Investment contract liabilities - - 29.3 29.3 - - 32.5 32.5
Loans and borrowings at amortised cost (fair value) - 706.1 - 706.1 - 704.2 - 704.2
Repurchase obligation (fair value) - 1,915.2 - 1,915.2 - - - -
Total financial liabilities 654.2 5,364.3 42.7 6,061.2 592.8 3,738.6 74.2 4,405.6
30 June 2022
Level 1 Level 2 Level 3 Total
£m £m £m £m
Assets held at fair value through profit or loss
Units in liquidity funds 953.7 5.0 - 958.7
Investment funds - 64.8 250.3 315.1
Debt securities and other fixed income securities 3,346.4 6,507.6 1,384.7 11,238.7
Deposits with credit institutions 735.8 14.7 - 750.5
Loans secured by residential mortgages - - 5,897.3 5,897.3
Loans secured by commercial mortgages - - 616.0 616.0
Loans secured by ground rents - - 236.6 236.6
Infrastructure loans - - 968.8 968.8
Other loans - 14.5 112.3 126.8
Derivative financial assets - 1,680.1 - 1,680.1
Financial investments 5,035.9 8,286.7 9,466.0 22,788.6
Investment property - - 50.1 50.1
Total financial assets 5,035.9 8,286.7 9,516.1 22,838.7
Liabilities held at fair value
Derivative financial liabilities - 2,008.4 9.0 2,017.4
Obligations for repayment of cash collateral received 459.1 20.9 - 480.0
Other financial liabilities 459.1 2,029.3 9.0 2,497.4
Investment contract liabilities - - 29.8 29.8
Loans and borrowings at amortised cost (fair value) - 822.9 - 822.9
Total financial liabilities 459.1 2,852.2 38.8 3,350.1
(c) Level 3 assets and liabilities measured at fair value
Reconciliation of the opening and closing recorded amount of Level 3 assets
and liabilities held at fair value.
Six months ended Investment Debt securities and other fixed income securities Loans secured by residential mortgages Loans secured by commercial mortgages Loans secured by ground Infra- Other loans Derivative financial assets Investment contract liabilities Derivative financial liabilities
30 June 2023
rents
funds £m £m £m
structure £m £m £m £m
£m
£m loans
£m
At 1 January 2023 338.4 1,605.2 5,305.9 583.7 246.9 947.8 111.9 0.4 (32.5) (41.7)
Purchases/advances/ 36.3 320.4 86.5 96.3 433.9 138.5 6.8 - (4.7) -
deposits
Transfers from Level 2 - - - - - - - - - -
Sales/redemptions/ (16.0) (28.1) (162.3) (43.4) (2.7) (16.3) - - 0.2 -
payments
Recognised in profit or loss in net investment income
Realised gains and losses - - 56.5 - - - - (0.4) - 21.0
Unrealised gains and losses (4.9) (68.0) (237.5) (7.6) (31.0) (12.9) (6.3) - - 7.3
Interest accrued - (11.3) 127.6 0.2 - (0.1) - - - -
Change in fair value of liabilities recognised in profit or loss - - - - - - - - 7.7 -
At 30 June 2023 353.8 1,818.2 5,176.7 629.2 647.1 1,057.0 112.4 - (29.3) (13.4)
Year ended Investment Debt securities and other fixed income securities Loans secured by residential mortgages Loans secured by commercial mortgages Loans secured by ground Infra- Other loans Derivative financial assets Investment contract liabilities Derivative financial liabilities
31 December 2022
rents
funds £m £m £m
structure £m £m £m £m
(restated)
£m
£m loans
£m
At 1 January 2022 233.3 1,449.5 7,422.8 677.8 189.7 993.1 89.7 8.5 (33.6) (8.6)
Purchases/advances/ 106.6 698.8 538.3 91.5 217.6 233.2 - - (14.0) -
deposits
Transfers from Level 2 - (122.9) - - - - - - - -
Sales/redemptions/ (17.7) (101.1) (542.7) (134.4) (11.2) (21.6) (14.3) - 11.4 -
payments
Disposal of a portfolio of LTMs(1) - - (750.8) - - - - - - -
Recognised in profit or loss in net investment income
Realised gains and losses - - (87.0) (2.2) - - - - - -
Unrealised gains and losses 16.2 (303.7) (1,433.9) (49.1) (149.2) (258.5) 36.5 (8.1) - (33.1)
Interest accrued - (15.4) 159.2 0.1 - 1.6 - - - -
Change in fair value of liabilities recognised in profit or loss - - - - - - - - 3.7 -
At 31 December 2022 338.4 1,605.2 5,305.9 583.7 246.9 947.8 111.9 0.4 (32.5) (41.7)
Six months ended Investment Debt securities and other fixed income securities Loans secured by residential mortgages Loans secured by commercial mortgages Loans secured by ground Infra- Other loans Derivative financial assets Investment contract liabilities Derivative financial liabilities
rents
£m
30 June 2022 funds £m £m £m
structure £m £m £m
£m
£m loans
£m
At 1 January 2022 233.3 1,449.5 7,422.8 677.8 189.7 993.1 89.7 8.5 (33.6) (8.6)
Purchases/advances/ 49.5 126.6 284.9 47.8 112.9 150.1 - - (2.7) -
deposits
Transfers from Level 2 - - - - - - - - - -
Sales/redemptions/ - (41.7) (253.6) (83.5) (9.4) (11.3) (12.8) - 6.1 -
payments
Disposal of a portfolio of LTMs(1) - - (750.8) - - - - - - -
Recognised in profit or loss in net investment income
Realised gains and losses - - 87.9 - - - - - - -
Unrealised gains and losses(1) (32.5) (151.5) (963.0) (26.1) (56.6) (163.9) 35.4 (8.5) - (0.4)
Interest accrued - 1.8 69.1 - - 0.8 - - - -
Change in fair value of liabilities recognised in profit or loss - - - - - - - - 0.4 -
At 30 June 2022 250.3 1,384.7 5,897.3 616.0 236.6 968.8 112.3 - (29.8) (9.0)
(1) In February 2022 the Group disposed of a portfolio of loans
secured by residential mortgages with a fair value of £750.8m. The
transaction is part of the Group's strategy to reduce exposure and sensitivity
of the balance sheet to the UK property market following changes in the
regulatory environment in 2018.
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 10.0% (31
December 2022 and 30 June 2022: 7.0%).
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
investment funds is determined by reference to the movement in credit spreads.
The Group has estimated the impact on fair value to changes to these inputs as
follows:
Investment funds Credit spreads
net increase/(decrease) in fair value (£m) +100bps
30 June 2023 (10.0)
31 December 2022 (9.4)
30 June 2022 (10.6)
Debt securities and other fixed income securities
Fixed income securities, in line with market practice, are generally valued
using an independent pricing service. These valuations are determined using
independent external quotations from multiple sources and are subject to a
number of monitoring controls, such as monthly price variances, stale price
reviews and variance analysis. Pricing services, where available, are used to
obtain the third party broker quotes. When prices are not available from
pricing services, prices are sourced from external asset managers or internal
models and classified as Level 3 under the fair value hierarchy due to the use
of significant unobservable inputs. These include private placement bonds and
asset backed securities as well as less liquid corporate bonds.
Principal assumptions underlying the calculation of the debt securities and
other fixed income securities 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
bonds 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:
Debt securities and other fixed income securities Credit spreads +100bps
net increase/(decrease) in fair value (£m)
30 June 2023 (130.5)
31 December 2022 (138.1)
30 June 2022 (109.6)
Loans secured by residential mortgages
Methodology and judgement underlying the calculation of loans secured by
residential mortgages
The valuation of loans secured by residential mortgages is determined using
internal models which project future cash flows expected to arise from each
loan. Future cash flows allow for assumptions relating to future expenses,
future mortality experience, voluntary redemptions and repayment shortfalls on
redemption of the mortgages due to the NNEG. The fair value is calculated by
discounting the future cash flows at a swap rate plus a liquidity premium.
Under the NNEG, the amount recoverable by the Group on eligible termination of
mortgages is capped at the net sale proceeds of the property. A key judgement
is with regard to the calculation approach used. We have used the Black 76
variant of the Black Scholes option pricing model in conjunction with an
approach using best estimate future house price growth assumptions.
Cash flow models are used in the absence of a deep and liquid market for loans
secured by residential mortgages. The bulk sales of the portfolios of Just
LTMs over the past three years represented market prices specific to the
characteristics of the underlying portfolios of loans sold. In particular,
loan rates, loan-to-value and customer age. This was considered insufficient
to affect the judgement of the methodology and assumptions underlying the
discounted cash flow approach used to value individual loans in the remaining
portfolio. The methodology and assumptions used would be reconsidered if any
information is obtained from future portfolio sales that is relevant and
applicable to the remaining portfolio.
Principal assumptions underlying the calculation of loans secured by
residential mortgages
All gains and losses arising from loans secured by mortgages are largely
dependent on the term of the mortgage, which in turn is determined by the
longevity of the customer. Principal assumptions underlying the calculation of
loans secured by mortgages include the items set out below. These assumptions
are also used to provide the expected cash flows from the loans secured by
residential mortgages which determines the yield on this asset. This yield is
used for the purpose of setting valuation discount rates on the liabilities
supported, as described in Note 14.
Maintenance expenses
Assumptions for future policy expense levels are based on the Group's recent
expense analyses. The assumed future expense levels incorporate an annual
inflation rate allowance of 4.0% (31 December 2022: 3.9% / 30 June 2022:
4.0%).
Mortality
Mortality assumptions have been derived with reference to England & Wales
population mortality using the CMI 2021 model for mortality improvements.
These base mortality and improvement tables have been adjusted to reflect the
expected future mortality experience of mortgage contract holders, taking into
account the medical and lifestyle evidence collected during the sales process
and the Group's assessment of how this experience will develop in the future.
This assessment takes into consideration relevant industry and population
studies, published research materials and management's own experience. The
Group has considered the possible impact of the COVID-19 pandemic on its
mortality assumptions and has included an allowance for the expected future
direct and indirect impacts of this, which remains unchanged from 31 December
2022. Further details of the matters considered in relation to mortality
assumptions at 30 June 2023 are set out in Note 14.
Property prices
The approach in place at 30 June 2023, which is the same as at 31 December
2022, is to calculate the value of a property by taking the latest Automated
Valuation Model "AVM" result, or latest surveyor value if more recent,
indexing this to the balance sheet date using Nationwide UK house price
indices and then making a further allowance for property dilapidation since
the last revaluation date. To the extent that this reflects market values as
at 30 June 2023, no additional short-term adjustment is allowed for.
The appropriateness of this valuation basis is regularly tested on the event
of redemption of mortgages. The sensitivity of loans secured by mortgages to a
fall in property prices is included in the table of sensitivities below.
Future property price
In the absence of a reliable long-term forward curve for UK residential
property price inflation, the Group has made an assumption about future
residential property price inflation based upon available market and industry
data. These assumptions have been derived with reference to the long-term
expectation of the UK consumer price inflation, "CPI", plus an allowance for
the expectation of house price growth above CPI (property risk premium) less a
margin for a combination of risks including property dilapidation and basis
risk. An additional allowance is made for the volatility of future property
prices. This results in a single rate of future house price growth of 3.3%
(31 December 2022: 3.3% / 30 June 2022: 3.3%), with a volatility assumption
of 13% per annum (31 December 2022: 13% / 30 June 2022 13%). The setting of
these assumptions includes consideration of future long and short-term
forecasts, the Group's historical experience, benchmarking data, and future
uncertainties including the possible impacts of Brexit, the COVID-19 pandemic
and a higher interest and inflation rate economic environment on the UK
property market. House price reductions have been experienced across much of
the UK to date, albeit these have been more modest than some forecasts for the
period. As such, at this stage our view is that there is no clear indication
of a change in the long-term prospects of the housing market. In light of
this, the future house price growth and property volatility assumptions have
been maintained at the same level as assumed at 31 December 2022. The
sensitivity of loans secured by mortgages to changes in future property price
growth, and to future property price volatility, are included in the table of
sensitivities below.
Voluntary redemptions
Assumptions for future voluntary redemption levels are based on the Group's
recent analyses. The assumed redemption rate varies by duration and product
line between 0.5% and 4.1% for loans in JRL (31 December 2022: between 0.5%
and 4.1% / 30 June 2022: between 0.5% and 4.1%) and between 0.6% and 6.8% for
loans in PLACL (31 December 2022: between 0.6% and 6.8% / 30 June 2022:
between 0.6% and 6.8%).
Liquidity premium
The liquidity premium at initial recognition is set such that the fair value
of each loan is equal to the face value of the loan. The liquidity premium
partly reflects the illiquidity of the loan and also spreads the recognition
of profit over the lifetime of the loan. Once calculated, the liquidity
premium remains unchanged at future valuations except when further advances
are taken out. In this situation, the single liquidity premium to apply to
that loan is recalculated allowing for all advances. The average liquidity
premium for loans held within JRL is 3.09% (31 December 2022: 3.2% / 30 June
2022: 3.23%) and for loans held within PLACL is 3.44% (31 December 2022: 3.5%
/ 30 June 2022: 3.47%). The movement over the period observed in both JRL and
PLACL is a function of the liquidity premiums on new loan originations
compared to the liquidity premiums on those policies which have redeemed over
the period, both in reference to the average spread on the back book of
business.
Sensitivity analysis
Reasonably 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:
Loans secured by residential mortgages Maintenance expenses Base mortality Immediate property price fall Future property price growth Future property price volatility Voluntary redemptions +10% Liquidity premium +10bps
net increase/(decrease) in fair value (£m) +10% -5% -10% -0.5% +1%
30 June 2023 (5.7) (12.3) (83.5) (53.4) (34.8) 18.0 (50.2)
31 December 2022 (5.2) (13.9) (75.2) (48.5) (32.1) 19.7 (47.8)
30 June 2022 (5.6) 16.2 (89.5) (63.3) (41.2) 4.3 (62.2)
The sensitivity factors are applied via financial models either as at the
valuation date or from a suitable recent reporting period where appropriate to
do so. The analysis has been prepared for a change in each variable with other
assumptions remaining constant. In reality such an occurrence is unlikely due
to correlation between the assumptions and other factors. It should be noted
that some of these sensitivities are non-linear and larger or smaller impacts
should not be simply interpolated or extrapolated from these results. For
example, the impact from a 5% fall in property prices would be slightly less
than half of that disclosed in the table above. Sensitivities are generally of
a smaller magnitude compared to the prior period due to the discounting effect
of interest rate rises over the period. These interest rate rises also
underpin the directional change in the mortality and voluntary redemption
sensitivities.
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
14.
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 Credit spreads +100bps
net increase/(decrease) in fair value (£m)
30 June 2023 (19.9)
31 December 2022 (19.2)
30 June 2022 (20.3)
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 Credit spreads +100bps
net increase/(decrease) in fair value (£m)
30 June 2023 (142.8)
31 December 2022 (77.9)
30 June 2022 (60.2)
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:
Infrastructure loans Credit spreads +100bps
net increase/(decrease) in fair value (£m)
30 June 2023 (72.2)
31 December 2022 (71.7)
30 June 2022 (87.9)
Other loans
Other loans classified as Level 3 are mainly commodity trade finance loans.
These are valued using discounted cash flow analyses.
Principal assumptions underlying the calculation of other 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
The sensitivity of fair value to changes in credit spread assumptions in
respect of other loans is not material.
Investment contract liabilities
Investment contracts are valued using an internal model and determined on a policy-by-policy basis using a prospective valuation of future retirement income benefit and expense cash flows.
Principal assumptions underlying the calculation of investment contract
liabilities
Valuation discount rates
The valuation model discounts the expected future cash flows using a discount
rate derived from the assets hypothecated to back the liabilities. The
discount rate used for the fixed term annuity product treated as investment
business is based on a curve where 8.18% is the 1 year rate and 7.31% is the 5
year rate (31 December 2022: 5.67% / 30 June 2022: 4.45%).
Sensitivity analysis
The sensitivity of fair value to changes in the discount rate assumptions in
respect of investment contract liabilities is not material and is linked to
the value of the asset.
12. Share capital and share premium
The allotted, issued and fully paid ordinary share capital of Just Group plc
at 30 June 2023 is detailed below:
Number of £0.10 ordinary shares Share capital Share premium Total
£m £m £m
At 1 January 2023 1,038,702,932 103.9 94.7 198.6
At 30 June 2023 1,038,702,932 103.9 94.7 198.6
At 1 January 2022 1,038,537,044 103.9 94.6 198.5
In respect of employee share schemes 165,888 - 0.1 0.1
At 31 December 2022 1,038,702,932 103.9 94.7 198.6
At 1 January 2022 1,038,537,044 103.9 94.6 198.5
In respect of employee share schemes 16,589 - 0.1 0.1
At 30 June 2022 1,038,553,633 103.9 94.7 198.6
The company does not have a limited amount of authorised share capital.
13. Tier 1 notes
30 June 31 December 30 June
2022
2023
2022
£m
£m £m
At start and end of period 322.4 322.4 322.4
On 16 September 2021 the Group issued £325m 5.0% perpetual restricted Tier 1
contingent convertible notes, incurring issue costs of £2.6m.
During the period, interest of £8.1m was paid to holders of the Tier 1 notes,
(31 December 2022: £16.9m, 30 June 2022: £8.7m). The Tier 1 notes bear
interest on the principal amount up to 30 September 2031 (the first reset
date) at the rate of 5.0% per annum, and thereafter at a fixed rate of
interest reset on the first call date and on each fifth anniversary
thereafter. Interest is payable on the Tier 1 notes semi-annually in arrears
on 30 March and 30 September each year which commenced on 30 March 2022.
The Group has the option to cancel the coupon payment at its discretion and
cancellation of the coupon payment becomes mandatory upon non-compliance with
the solvency capital requirement or minimum capital requirement or where the
Group has insufficient distributable items. Cancelled coupon payments do not
accumulate or become payable at a later date and do not constitute a default.
In the event of non-compliance with specific solvency requirements, the
conversion of the Tier 1 notes into Ordinary Shares could be triggered.
The Tier 1 notes are treated as a separate category within equity and the
coupon payments are recognised outside of the profit after tax result and
directly in shareholders' equity.
14. Insurance contracts and related reinsurance
30 June 31 December 30 June
2023 2022 2022
£m restated restated
£m £m
Gross insurance liabilities 20,605.6 19,647.5 19,559.4
Reinsurance contract assets (718.6) (776.4) (599.0)
Reinsurance contract liabilities 103.1 120.7 145.9
Net reinsurance contracts (615.5) (655.7) (453.1)
Net insurance liabilities 19,990.1 18,991.8 19,106.3
(a) Terms and conditions of insurance contracts
The Group's long-term insurance contracts, written by the Group's life
companies, Just Retirement Limited ("JRL") and Partnership Life Assurance
Company Limited ("PLACL"), include Retirement Income (Defined Benefit ("DB"),
Guaranteed Income for Life ("GIfL"), and Care Plans), and whole of life and
term protection insurance.
Although the process for the establishment of insurance liabilities follows
specified rules and guidelines, the liabilities 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 estimation process used in determining insurance liabilities involves
projecting future annuity payments and the cost of maintaining the contracts.
(b) Measurement of insurance contracts
The Group's long-term insurance contracts include retirement annuities, namely
DB and GIfL products, and annuities to fund care fees (immediate needs and
deferred).
The value of insurance contracts in the financial statements comprises the
following components:
- estimates of future cash flows;
- an adjustment to reflect the time value of money and the financial
risks related to future cash flows, to the extent that the financial risks are
not included in the estimates of future cash flows;
- a risk adjustment for non-financial risk; and
- a contractual service margin.
Estimates of future cash flows
In estimating future cash flows, the Group incorporates, in an unbiased way,
all reasonable and supportable information that is available without undue
cost or effort at the reporting date. This information includes both internal
and external historical data about claims and other experience, updated to
reflect current expectations of future events. When estimating future cash
flows, the Group takes into account current expectations of future events that
might affect those cash flows.
Cash flows within the boundary of a contract relate directly to the fulfilment
of the contract, including those for which the Group has discretion over the
amount or timing. These include payments to (or on behalf of) policyholders,
insurance acquisition cash flows and other costs, including investment
expenses, that are incurred when fulfilling contracts. The valuation of future
policyholder payments is by its nature inherently uncertain, and is based on
recognised mortality assumptions (see the next section below).
Insurance acquisition cash flows and other costs that are incurred in
fulfilling contracts comprise both direct costs and an allocation of fixed and
variable overheads. These may include costs incurred in providing the required
level of benefits; policy administration and maintenance costs;
transaction-based taxes and levies directly associated with the insurance
contract; payments by the insurer in a fiduciary capacity to meet tax
obligations incurred by the policyholder, and related receipts; costs the
entity will incur performing investment activities to the extent the entity
performs that activity to enhance benefits from insurance coverage for
policyholders; and an allocation of fixed and variable overheads.
Cash flows are attributed to acquisition activities, other fulfilment
activities and other activities using activity-based costing techniques. Cash
flows attributable to acquisition and other fulfilment activities are
allocated to groups of contracts using methods that are systematic and
rational and are consistently applied to all costs that have similar
characteristics. Other costs are recognised in profit or loss as they are
incurred.
Mortality assumptions
The COVID-19 pandemic has had a significant effect on mortality rates in
recent years. High COVID-19 mortality rates in 2020 and early 2021 contributed
significantly to positive mortality experience variances in those respective
reporting periods, whereas during 2022 rates were closer to expected levels,
for the UK population overall. The extent to which mortality rates may be
elevated in future, as a result of the pandemic, is subject to considerable
uncertainty.
An allowance for future effects of COVID-19 was implemented at 31 December
2022 through a combination of using the latest CMI 2021 improvement model and
applying an overlay to increase short term mortality rates but which tapers to
zero in the long-term. The CMI 2021 improvement model has been used with core
parameters, placing no weight on 2020 and 2021 experience. The overlay applies
multipliers to mortality rates for each calendar year, uniformly across all
ages. The Group will continue to follow closely the actual impact of COVID-19
on mortality and to analyse potential direct and indirect future impacts of
the pandemic, including the possibility there will be enduring influences on
the longevity of customers. The Group will consider the conclusions of such
analysis, alongside assessment of other factors influencing mortality trends,
in keeping its assumptions under regular review. Mortality assumptions have
been maintained at the same level as assumed at 31 December 2022.
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, and management's own
industry experience.
Discount rates
All cash flows are discounted using investment yield curves adjusted to allow
for expected and unexpected credit risk. The yields on lifetime mortgage
assets are derived using the assumptions described in Note 11 with an
additional reduction to the future house price growth rate of 50bps (30 June
2022 / 31 December 2022: 50bps) allowed for.
The overall reduction in yield to allow for the risk of defaults from all
non-LTM assets (including gilts, corporate bonds, infrastructure loans,
private placements and commercial mortgages) and the adjustment from LTMs,
which included a combination of the NNEG guarantee and the additional
reduction to future house price growth rate, was 59bps for JRL (31 December
2022 / 30 June 2022: 58bps) and 67bps for PLACL (31 December 2022: 69bps / 30
June 2022: 66bps).
Discount rates at the inception of each contract are based on the yields
within a hypothetical reference portfolio of assets which the Group expects to
acquire to back the portfolio of new insurance liabilities (the "target
portfolio"). A weighted average of these discount rate curves is determined
for the purpose of locking-in and calculating movements in the CSM relating to
each group of contracts.
Separate weighted average discount curves are calculated for each new business
product line. The point of sale discount curves are weighted by the value of
projected claims payments.
At each valuation date, the estimate of the present value of future liability
cash flows and the risk adjustment for non-financial risks are discounted
based on the yields from a reference portfolio consisting of the actual asset
portfolio backing the net of reinsurance best estimate liabilities and risk
adjustment. The reference portfolio is adjusted in respect of new contracts
incepting in the period to allow for a period of transition from the actual
asset holdings to the target portfolio where necessary. Typically, this period
of transition can be up to six months but is dependent on the volume of new
business transactions completed.
The target asset portfolio seeks to select the appropriate mix of assets to
match the underlying net insurance contract liabilities. The target asset
portfolio consists of listed bonds, unlisted illiquid investments and loans
secured by residential mortgages.
Except where there is a significant time difference between the date of
entering in the underlying contract and being subject to a reinsurance
agreement, the discount rates used for the gross insurance and reinsurance
contracts are consistent.
The table below sets out rates at certain points on the yield curves used to
discount the best estimate liability and risk adjustment reserves as at each
period end:
Discount rate - insurance and reinsurance contracts
30 June 2023 31 December 2022 30 June 2022
JRL PLACL JRL PLACL JRL PLACL
All business Care business GIfL/DB business All business Care business GIfL/DB business All business Care business GIfL/DB business
% % % % % % %
1 year 8.2 5.9 8.2 6.6 4.5 6.6 4.6 2.4 4.8
5 year 7.3 4.9 7.2 6.3 4.1 6.3 4.8 2.4 4.8
10 year 6.5 4.1 6.4 5.9 3.8 5.9 4.7 2.3 4.7
20 year 6.2 3.8 6.0 5.8 3.6 5.7 4.6 2.2 4.6
30 year 5.9 3.5 5.8 5.6 3.4 5.5 4.5 2.1 4.5
Discount rates have been disclosed in aggregate and have not been split
according to their profitability groupings.
Inflation
Assumptions for annuity escalation are required for RPI, CPI and LPI index
linked liabilities, the majority of which are within the Defined Benefit
business. The inflation curve assumed in each case is that which is implied by
market swap rates, using a mark to model basis for LPI inflation, taking into
account any escalation caps and/or floors applicable. This methodology is
unchanged at 30 June 2023 compared to the previous period.
For the purposes of calculating movements in the CSM relating to each group of
contracts, for JRL separate weighted average inflation curves for each index
are calculated and locked-in for each annual cohort. The inflation curves from
each day are weighted by the business volumes completed on that day to which
that inflation variant applies.
Future expenses
Assumptions for future policy expense levels, expressed as a per plan charge
for GIfL contracts and a per scheme member charge for DB, are determined from
the Group's recent expense analyses. The assumed future policy expense levels
incorporate an annual inflation rate allowance of 4.00% (31 December 2022:
3.90% / 30 June 2022: 4.00%) derived from the expected retail price and
consumer price indices implied by inflation swap rates and an additional
allowance for earnings inflation. The annual inflation rate allowance is
regarded as a financial assumption and therefore all changes in expense
inflation rates are recognised in the profit or loss account.
Risk adjustment
The risk adjustment for non-financial risk is determined to reflect the
compensation that the Group requires for bearing longevity, expense, and
insurance-contract specific operational risks.
The Group determines the risk adjustment for non-financial risk using a 'value
at risk' technique. On an annual basis, the Group uses the probability
distributions of the future net of reinsurance cash flows from insurance
contracts on a one-year time horizon as used within JRL's internal model for
Solvency II reporting, which are then converted to ultimate horizon
distributions in order to determine stress parameters at the target
percentile. The risk adjustment in PLACL uses the same risk adjustment stress
factors as determined for JRL as these represent the compensation the Group
requires in light of there being no standalone PLACL internal model for
Solvency II reporting.
The risk adjustment for non-financial risk is then calculated as the excess of
the value at risk at the target confidence level percentile over the expected
present value of the future cash flows. The Group targets an ultimate
confidence interval at the 70th percentile. At the point of calibration, this
calibration represents an approximately 1 in 10 year stress on a one-year
basis. The calibration is carried out on an annual basis ahead of the
financial reporting year end, therefore the actual confidence interval as at
the valuation date may differ slightly. For example, due to economic movements
in the intervening period.
The Group's IFRS risk adjustment for non-financial risk is considered by
management to provide an economic view of the profitability of new business
and is therefore used for pricing purposes as well as representing the basis
used within the new business profits KPI.
The confidence level is targeted on a net of reinsurance basis as this
reflects how insurance risk is managed by the Group. Reinsurance risk
adjustment represents the amount of risk being transferred by the holder of
the reinsurance contract to the issuer of that contract. Reinsurance contracts
held by the Group transfer longevity risk proportional to the underlying
insurance contract. Consequently, the same risk adjustment stresses for this
non-financial risk are applied to both gross and reinsurance contracts to
determine the respective risk adjustment for each. Expense and operational
risks are not transferred to reinsurers as part of the reinsurance contract
held by the Group and hence there are no stresses applied for these in the
reinsurance risk adjustment.
Allowance is made for diversification between risks within legal entities, but
not between the different legal entities within the Group.
(c) Movements analyses
Insurance contracts analysed by measurement component
Contractual service margin
Six months ended 30 June 2023 Estimate of PV of future cash flows Risk adjustment for non-financial risk Contracts under fully retrospective approach and general measurement model Contracts under Fair value approach Total
£m £m £m £m £m
Opening insurance contract liabilities balance (17,030.2) (674.0) (589.1) (1,354.2) (19,647.5)
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service provided - - 18.5 48.8 67.3
Change in risk adjustment for financial risk for risk expired - 6.7 - - 6.7
Experience adjustments (3.1) - - - (3.1)
Changes that relate to future service
Contracts initially recognised in the year 230.7 (72.5) (158.2) - -
Changes in estimates that adjust the CSM (23.2) 2.2 16.8 4.2 -
Insurance service result 204.4 (63.6) (122.9) 53.0 70.9
Net finance income/(expenses) from insurance contracts 152.2 32.3 (13.0) (21.0) 150.5
Exchange rate movements 36.8 - - - 36.8
Total changes in the statement of comprehensive income 393.4 (31.3) (135.9) 32.0 258.2
Cash flows
Premiums received (2,101.9) - - - (2,101.9)
Claims and other insurance service expenses paid, including investment 801.9 - - - 801.9
components
Insurance acquisition cash flows 83.7 - - - 83.7
Total cash flows (1,216.3) - - - (1,216.3)
Closing insurance contract liabilities balance (17,853.1) (705.3) (725.0) (1,322.2) (20,605.6)
Changes that relate to current service
CSM recognised in the period is computed based on the policy as outlined in
Note 1.7.
Experience adjustments represent the difference between the expected value of
claims and expenses projected as at the start of the year and the actual value
of claims and expenses due in the period.
Changes that relate to future service
Contracts initially recognised in the period
The amount recognised in the CSM represents the value of new business acquired
in the period valued based on point of sale economic and non-economic
assumptions. The expense loading is determined based on incremental marginal
costs including overheads that are attributable to the new contracts signed in
the current period and does not include costs which have been previously
allocated to existing contracts in prior years.
Changes in estimates that adjust the CSM
Changes in estimates that adjust the CSM represent changes in projected future
years cash flows that arise from experience in the period and non-economic
assumption changes:
· Experience variances - relates to change in mortality events that
result in changes to future cash flows.
· Non-economic assumption changes - relates to items such as
changes in projected longevity assumptions.
Net finance income and expense from insurance contracts are discussed in note
5.
Contractual service margin
Year ended 31 December 2022 Estimate of PV of future cash flows Risk adjustment for non-financial risk Contracts under fully retrospective approach and general measurement model Contracts under Fair value approach Total
£m £m £m £m £m
Opening insurance contract liabilities balance (20,573.8) (1,023.2) (262.4) (1,226.8) (23,086.2)
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service provided - - 18.4 101.5 119.9
Change in risk adjustment for financial risk for risk expired - 13.0 - - 13.0
Experience adjustments (4.0) - - - (4.0)
Changes that relate to future service
Contracts initially recognised in the year 469.1 (149.0) (320.1) - -
Changes in estimates that adjust the CSM 171.8 41.1 (16.2) (196.7) -
Insurance service result 636.9 (94.9) (317.9) (95.2) 128.9
Net finance income/(expenses) from insurance contracts 4,420.0 444.1 (8.8) (32.2) 4,823.1
Exchange rate movements (7.7) - - - (7.7)
Total changes in the statement of comprehensive income 5,049.2 349.2 (326.7) (127.4) 4,944.3
Cash flows
Premiums received (3,114.6) - - - (3,114.6)
Claims and other insurance service expenses paid, including investment 1,484.2 - - - 1,484.2
components
Insurance acquisition cash flows 124.8 - - - 124.8
Total cash flows (1,505.6) - - - (1,505.6)
Closing insurance contract liabilities balance (17,030.2) (674.0) (589.1) (1,354.2) (19,647.5)
Contractual service margin
Six months ended 30 June 2022 Estimate of PV of future cash flows Risk adjustment for non-financial risk Contracts under fully retrospective approach and general measurement model Contracts under FV approach Total
£m £m £m £m £m
Opening insurance contract liabilities balance (20,573.8) (1,023.2) (262.4) (1,226.8) (23,086.2)
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service provided - - 6.7 42.6 49.3
Change in risk adjustment for financial risk for risk expired - 7.4 - - 7.4
Experience adjustments (0.4) - - - (0.4)
Changes that relate to future service
Contracts initially recognised in the period 126.6 (38.5) (88.1) - -
Changes in estimates that adjust the CSM (21.0) (2.1) 5.2 17.9 -
Insurance service result 105.2 (33.2) (76.2) 60.5 56.3
Net finance income/(expenses) from insurance contracts 2,979.6 312.8 (3.5) (14.6) 3,274.3
Exchange rate movements (16.8) - - - (16.8)
Total changes in the statement of comprehensive income 3,068.0 279.6 (79.7) 45.9 3,313.8
Cash flows
Premiums received (520.7) - - - (520.7)
Claims and other insurance service expenses paid, including investment 687.5 - - - 687.5
components
Insurance acquisition cash flows 46.2 - - - 46.2
Total cash flows 213.0 - - - 213.0
Closing insurance contract liabilities balance (17,292.7) (743.6) (342.1) (1,181.0) (19,559.4)
(d) Reinsurance contracts
Reinsurance contracts analysed by measurement component
Reinsurance contracts consist of those in an asset and liability position
Contractual service margin
Six months ended 30 June 2023 Estimate of PV of future cash flows Risk adjustment for non-financial risk Contracts under fully retrospective approach and general measurement model Contracts under FV approach Total
£m £m £m £m £m
Opening reinsurance contract asset 589.0 80.4 32.5 74.5 776.4
Opening reinsurance contract liability (664.4) 318.6 87.9 137.2 (120.7)
Net opening balance (75.4) 399.0 120.4 211.7 655.7
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service received - - (1.1) (10.1) (11.2)
Change in risk adjustment for financial risk for risk expired - (2.2) - - (2.2)
Experience adjustments (3.9) - - - (3.9)
Changes that relate to future service
Contracts initially recognised in the year (72.2) 62.0 10.2 - -
Change in estimates that adjust the CSM 31.7 (1.2) (14.8) (15.7) -
Net expenses from reinsurance contracts (44.4) 58.6 (5.7) (25.8) (17.3)
Net finance expenses from reinsurance contracts 7.2 (20.8) 2.2 4.5 (6.9)
Total changes in the statement of comprehensive income (37.2) 37.8 (3.5) (21.3) (24.2)
Cash flows
Premiums paid 354.0 - - - 354.0
Claims received (370.3) - - - (370.3)
Expenses paid 0.3 - - - 0.3
Total cash flows (16.0) - - - (16.0)
Closing reinsurance contract asset 560.9 77.8 9.1 70.8 718.6
Closing reinsurance contract liability (689.5) 359.0 107.8 119.6 (103.1)
Net closing balance (128.6) 436.8 116.9 190.4 615.5
Contractual service margin
Year ended 31 December 2022 Estimate of PV of future cash flows Risk adjustment for non-financial risk Contracts under fully retrospective approach and general measurement model Contracts under FV approach Total
£m £m £m £m £m
Opening reinsurance contract asset 546.4 115.7 - 54.1 716.2
Opening reinsurance contract liability (803.1) 487.5 32.4 118.5 (164.7)
Net opening balance (256.7) 603.2 32.4 172.6 551.5
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service received - - (2.6) (22.0) (24.6)
Change in risk adjustment for financial risk for risk expired - (4.9) - - (4.9)
Experience adjustments (0.3) - - - (0.3)
Changes that relate to future service
Contracts initially recognised in the period (165.2) 115.4 49.8 - -
Change in estimates that adjust the CSM (60.0) (35.8) 39.6 56.2 -
Net expenses from reinsurance contracts (225.5) 74.7 86.8 34.2 (29.8)
Net finance expenses from reinsurance contracts 182.1 (278.9) 1.2 4.9 (90.7)
Total changes in the statement of comprehensive income (43.4) (204.2) 88.0 39.1 (120.5)
Cash flows
Premiums paid 803.8 - - - 803.8
Claims received (579.3) - - - (579.3)
Expenses paid 0.2 - - - 0.2
Total cash flows 224.7 - - - 224.7
Closing reinsurance contract asset 589.0 80.4 32.5 74.5 776.4
Closing reinsurance contract liability (664.4) 318.6 87.9 137.2 (120.7)
Net closing balance (75.4) 399.0 120.4 211.7 655.7
Contractual service margin
Six months ended 30 June 2022 Estimate of PV of future cash flows Risk adjustment for non-financial risk Contracts under fully retrospective approach and general measurement model Contracts under FV approach Total
£m £m £m £m £m
Opening reinsurance contract asset 546.4 115.7 - 54.1 716.2
Opening reinsurance contract liability (803.1) 487.5 32.4 118.5 (164.7)
Net opening balance (256.7) 603.2 32.4 172.6 551.5
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service received - - (0.3) (6.6) (6.9)
Change in risk adjustment for financial risk for risk expired - (1.9) - - (1.9)
Experience adjustments (0.6) - - - (0.6)
Changes that relate to future service
Contracts initially recognised in the period (34.4) 29.4 5.0 - -
Change in estimates that adjust the CSM 18.2 0.6 (6.1) (12.7) -
Net expenses from reinsurance contracts (16.8) 28.1 (1.4) (19.3) (9.4)
Net finance expenses from reinsurance contracts 119.0 (198.5) 0.3 1.9 (77.3)
Total changes in the statement of comprehensive income 102.2 (170.4) (1.1) (17.4) (86.7)
Cash flows
Premiums paid 272.9 - - - 272.9
Claims received (284.8) - - - (284.8)
Expenses paid 0.2 - - - 0.2
Total cash flows (11.7) - - - (11.7)
Closing reinsurance contract asset 462.9 85.6 - 50.5 599.0
Closing reinsurance contract liability (629.1) 347.2 31.3 104.7 (145.9)
Net closing balance (166.2) 432.8 31.3 155.2 453.1
(e) New insurance contracts issued and reinsurance contracts held
The tables below present the contractual service margin at point of inception
of new contracts sold in the year together with CSM for the related
reinsurance:
Six months ended Six months ended
30 June 30 June Year
2023 2022 ended
£m
£m
31 December
2022
£m
Insurance contracts issued
Estimate of present value of future cash inflows 1,918.6 891.7 3,391.1
Insurance acquisition cash flows (83.7) (46.2) (124.8)
Estimate of present value of future cash outflows (1,604.2) (718.9) (2,797.2)
Estimates of net present value of cash inflows 230.7 126.6 469.1
Risk Adjustment (72.5) (38.5) (149.0)
Contractual Service Margin 158.2 88.1 320.1
Six months ended Six months ended
30 June 30 June Year
2023 2022 ended
£m
£m
31 December
2022
£m
Reinsurance contracts held
Estimate of present value of future cash outflows (72.2) (34.4) (165.2)
Risk Adjustment 62.0 29.4 115.4
Contractual Service Margin (10.2) (5.0) (49.8)
A positive CSM for reinsurance reflects when an initial gain is made on
entering into a reinsurance contract, whereas a negative reinsurance CSM
reflect costs that will be incurred by the Group.
(f) Sensitivity analysis
The Group has estimated the impact on profit before tax for the period in
relation to insurance contracts and related reinsurance from reasonably
possible changes in key assumptions relating to financial assets and to
liabilities. The sensitivities capture the liability impacts arising from the
impact on the yields of the assets backing liabilities in each sensitivity.
The impact of changes in the value of assets and liabilities has been shown
separately to aid the comparison with the change in value of assets for the
relevant sensitivities in note 11.
The sensitivity factors are applied via financial models either as at the
valuation date or from a suitable recent reporting period where appropriate to
do so. The analysis has been prepared for a change in each variable with other
assumptions remaining constant. In reality, such an occurrence is unlikely,
due to correlation between the assumptions and other factors. It should also
be noted that these sensitivities are non-linear, and larger or smaller
impacts cannot necessarily be interpolated or extrapolated from these results.
The extent of non-linearity grows as the severity of any sensitivity is
increased. For example, in the specific scenario of property price falls, the
impact on IFRS profit before tax from a 5% fall in property prices would be
slightly less than half of that disclosed in the table below. Furthermore, in
the specific scenario of a mortality reduction, a smaller fall in fulfilment
cash flows than disclosed in the table below or a similar increase in
mortality may be expected to result in broadly linear impacts. However, it
becomes less appropriate to extrapolate the expected impact for more severe
scenarios. The sensitivity factors take into consideration that the Group's
assets and liabilities are actively managed and may vary at the time that any
actual market movement occurs. The sensitivities below cover the changes on
all assets and liabilities from the given stress. The impact of these
sensitivities on IFRS net equity is the impact on profit before tax as set out
in the table below less tax at the current tax rate.
A guide to the sensitivity table is provided below:
Abbreviation Title Impact
FCF Fulfilment Cash flows Positive values represent cash inflows or lower cash outflows resulting in
reductions in insurance contract liabilities or increase in reinsurance
contracts assets.
Negative values represent cash outflows or higher cash outflows resulting in
increased insurance contract liabilities or decrease in reinsurance contracts
assets.
CSM Contractual Service Margin Increase -Additional future profits recognised in the CSM.
(Decrease) - Lower future profits recognised in the CSM, or higher reinsurance
'cost' deferred in CSM.
P&L Profit and Loss Profit - increase in pre-tax profit
(Loss) - decrease in pre-tax profit
Sensitivities at 30 June 2023
£m Insurance contract liabilities Reinsurance contracts (net) held Net insurance contract liabilities Valuation of assets Net impact on profit and loss
Interest rate and investments + 1% FCF 1,721.6 (37.7) 1,683.9 - -
CSM - - - - -
P&L 1,721.6 (37.7) 1,683.9 (1,679.8) 4.1
Interest rate and investments -1% FCF (2,051.8) 48.6 (2,003.2) - -
CSM - - - - -
P&L (2,051.8) 48.6 (2,003.2) 2,011.5 8.3
Decrease in base mortality by 5% FCF (297.2) 169.5 (127.7) - -
CSM 443.7 (263.6) 180.1 - -
P&L 146.5 (94.1) 52.4 (11.8) 40.7
Immediate fall of 10% in house prices FCF (59.4) 2.8 (56.6) - -
CSM - - - - -
P&L (59.4) 2.8 (56.6) (69.7) (126.3)
Future property price growth reduces by 0.5% FCF (51.7) 2.4 (49.3) - -
CSM - - - - -
P&L (51.7) 2.4 (49.3) (41.0) (90.3)
Credit default allowance - increase by 10bps(1) FCF (187.3) 5.6 (181.7) - -
CSM - - - - -
P&L (187.3) 5.6 (181.7) - (181.8)
Sensitivities at 31 December 2022
£m Insurance contract liabilities Reinsurance contracts (net) held Net insurance contract liabilities Valuation of assets Net impact on profit and loss
Interest rate and investments + 1% FCF 1,555.0 (37.3) 1,517.7 - -
CSM - - - - -
P&L 1,555.0 (37.3) 1,517.7 (1,545.4) (27.7)
Interest rate and investments -1% FCF (1,859.5) 46.9 (1,812.6) - -
CSM - - - - -
P&L (1,859.5) 46.9 (1,812.6) 1,837.6 25.0
Decrease in base mortality by 5% FCF (268.8) 156.6 (112.2) - -
CSM 428.4 (255.9) 172.5 - -
P&L 159.6 (99.3) 60.3 (13.4) 47.0
Immediate fall of 10% in house prices FCF (58.5) 2.5 (56.0) - -
CSM - - - - -
P&L (58.5) 2.5 (56.0) (62.6) (118.7)
Future property price growth reduces by 0.5% FCF (50.1) 2.0 (48.1) - -
CSM - - - - -
P&L (50.1) 2.0 (48.1) (37.1) (85.2)
Credit default allowance - increase by 10bps(1) FCF (170.3) 5.2 (165.1) - -
CSM - - - - -
P&L (170.3) 5.2 (165.1) - (165.2)
(1) over that included in the discount rate section in note 14(b).
15. Loans and borrowings
Carrying value Fair Value
30 31 December 2022 30 30 31 December 2022 30
June 2023 £m June 2022 June 2023 £m June 2022
£m £m £m £m
£250m 9.0% 10 year subordinated debt 2026 (Tier 2) issued by Just Group plc 176.2 173.6 249.3 187.2 187.8 278.7
(£174m principal outstanding)
£125m 8.125% 10 year subordinated debt 2029 (Tier 2) issued by Just Group 124.5 122.5 122.3 127.7 130.1 145.1
plc
£250m 7.0% 10.5 year subordinated debt 2031 non-callable 5.5 years (Green 252.3 248.5 248.5 244.7 244.7 252.0
Tier 2) issued by Just Group plc
£230m 3.5% 7 year subordinated debt 2025 (Tier 3) issued by Just Group plc 156.9 154.7 154.6 146.5 141.6 147.1
(£155m principal outstanding)
Total loans and borrowings 709.9 699.3 774.7 706.1 704.2 822.9
The Group also has an undrawn revolving credit facility of up to £300m for
general corporate and working capital purposes available until 13 June 2025.
Interest is payable on any drawdown loans at a rate of SONIA plus a margin of
between 1.50% and 2.75% per annum depending on the Group's ratio of net debt
to net assets.
16. Other financial liabilities
Note 30 June 2023 31 December 2022 (restated) 30 June 2022
£m
£m (restated)
£m
Repurchase obligation (a) 1,943.5 - -
Derivative financial liabilities (b) 2,713.3 3,045.8 2,017.4
Obligations for repayment of cash collateral received (c) 697.3 623.1 480.0
Total other financial liabilities 5,354.1 3,668.9 2,497.4
(a) Repurchase obligation
As described in Note 10, the Group has entered into a number of repurchase
agreements whereby a fixed amount is repayable at a certain date. At the
inception of these agreements they have durations of between 12 and 21 months.
The repurchase agreements are measured at amortised cost in the financial
statements. The fair value of these agreements is £1,915.2m (2022 not
applicable).
(b) Derivative financial liabilities
Derivative financial liabilities are classified as mandatorily fair value
through profit and loss.
(c) Obligations to pay cash collateral
Obligations to pay cash flow is measured at amortised cost and there is no
material difference between the fair value and amortised cost of the
instruments.
The restatement of the 'Other financial liabilities' due to the implementation
of IFRS 17 is explained in Note 1.2.
17. Derivative financial instruments
The Group uses various derivative financial instruments to manage its exposure
to interest rates, counterparty credit risk, inflation and foreign exchange
risk.
30 June 2023 31 December 2022
(restated)
Derivatives Asset fair value Liability fair value Notional amount Asset Fair value Liability fair value Notional Amount
£m £m £m £m £m £m
Foreign currency swaps 407.6 1,244.8 14,590.6 412.9 1,320.3 12,662.5
Interest rate swaps 1,366.4 1,376.6 14,041.3 1,407.6 1,580.0 13,647.9
Investment asset derivatives 0.5 3.0 58.0 0.4 22.6 148.4
Inflation swaps 573.6 71.9 4,654.8 437.5 79.7 4,293.4
Forward swaps 14.7 0.1 461.5 5.0 10.5 546.3
Total return swaps 2.8 2.8 - 13.6 13.5 -
Put options on property index (NNEG hedges) - 13.4 705.0 - 19.2 705.0
Interest rate options - 0.7 115.4 - - -
Total 2,365.6 2,713.3 34,626.6 2,277.0 3,045.8 32,003.5
30 June 2022
Derivatives Asset Fair value Liability fair value Notional Amount
£m £m £m
Foreign currency swaps 359.7 837.1 11,328.0
Interest rate swaps 981.8 1,003.6 13,865.5
Inflation swaps 336.1 148.0 4,803.5
Forward swaps 0.3 17.6 318.5
Total return swaps 2.2 2.2 -
Put options on property index (NNEG hedges) - 8.9 705.0
Total 1,680.1 2,017.4 31,020.5
The Group's derivative financial instruments are not designated as hedging
instruments and changes in their fair value are included in profit or loss.
All over-the-counter derivative transactions are conducted under standardised
International Swaps and Derivatives Association Inc. master agreements, and
the Group has collateral agreements between the individual Group entities and
relevant counterparties in place under each of these market master agreements.
As at 30 June 2023, the Company had pledged collateral of £1,166.9m (31
December 2022: £1,286.2m / 30 June 2022: £843.8m), of which £433.4m were
corporate bonds and European Investment Bank bonds (31 December 2022: £393.8m
/ 30 June 2022: £108.0m) which continue to be recognised in their relevant
asset class in the statement of financial position and had received cash
collateral of £697.3m (31 December 2022: £623.1m / 30 June 2022: £480.0m).
18. 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 Group's insurance risks include exposure to longevity, mortality and
morbidity and exposure to factors such as withdrawal levels and management and
administration expenses. 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.
Individually underwritten GIfL policies are priced using assumptions about
future longevity that are based on historic experience information, lifestyle
and medical factors relevant to individual customers, and judgements about the
future development of longevity improvements. In the event of an increase in
longevity, the actuarial reserve required to make future payments to customers
may increase.
Loans secured by mortgages are used to match some of the liabilities arising
from writing long term insurance policies. In the event that early repayments
on LTMs in a given period are higher than anticipated, less interest will have
accrued on the mortgages and the amount repayable will be less than assumed at
the time of sale. In the event of an increase in longevity, although more
interest will have accrued and the amount repayable will be greater than
assumed at the time of the sale, the associated cash flows will be received
later than had originally been anticipated. In addition, a general increase in
longevity would have the effect of increasing the total amount repayable,
which would increase the LTV ratio and could increase the risk of failing to
be repaid in full as a consequence of the no-negative equity guarantee. There
is also exposure to morbidity risk as the LTM is repayable when the customer
moves into long-term care.
Management of insurance risk
Underpinning the management of insurance risk are:
· the use of controls around the development of suitable products
and their pricing;
· adherence to approved underwriting requirements;
· the development and use of medical information including
PrognoSys™ for both pricing and reserving to provide detailed insight into
longevity risk;
· the use of reinsurance to reduce longevity risk. The Group
retains oversight of the overall exposures and monitors that the aggregation
of risk ceded is within the reinsurance counterparty risk appetite;
· the assessment and recalibration of adequacy of risk based
capital
· review and approval of assumptions used by the Board;
· regular monitoring and analysis of actual experience; and
· monitoring of expense levels.
Concentrations of insurance risk
Improved longevity arises from enhanced medical treatment and improved life
circumstances. Concentration risk to individuals groups whose longevity may
improve faster than the population is managed by writing business across a
wide range of different medical and lifestyle conditions to avoid excessive
exposure. Reinsurance is also an important mitigant to concentrations of
insurance risk.
(b) Market risk
Market risk is the risk of loss or of adverse change in the financial
situation from fluctuations in the level and in the volatility of market
prices of assets, liabilities and financial instruments, together with the
impact of changes in interest rates. Market risk is implicit in the insurance
business model and arises from exposure to interest rates, property markets,
inflation and exchange rates. The Group is not exposed to equity risk. Some
very limited equity risk exposure arises from investment into credit funds
which have a mandate which allows preferred equity to be held. Changes in the
value of the Group's investment portfolio will also affect the Group's
financial position. In addition, falls in the financial markets can reduce the
value of pension funds available to purchase Retirement Income products and
changes in interest rates can affect the relative attractiveness of Retirement
Income products.
In mitigation, Retirement Income product monies are invested to match the
asset and liability cash flows as closely as practicable. In practice, it is
not possible to eliminate market risk fully as there are inherent
uncertainties surrounding many of the assumptions underlying the projected
asset and liability cash flows.
Just has several EUR denominated bonds that have coupons linked to EURIBOR,
which are hedged into fixed GBP coupons. If EURIBOR were no longer produced,
there is a risk that the bond coupons would not match the swap EUR leg
payments. In mitigation, Just would restructure the related cross currency
asset swap to match the new coupon rate.
For each of the material components of market risk, described in more detail
below, the Group's Market Risk Policy sets out the Group's risk appetite and
management processes governing how each risk should be measured, managed,
monitored and reported.
(i) Interest rate risk
The Group is exposed to interest rate risk arising from the changes in the
values of assets or liabilities as a result of changes in risk-free interest
rates. The Group seeks to limit its exposure through appropriate asset and
liability matching and hedging strategies. The Group actively hedges its
interest rate exposure to protect balance sheet positions on both Solvency II
and IFRS bases in accordance with its risk appetite framework and principles.
The Group's main exposure to changes in interest rates is concentrated in the
investment portfolio, loans secured by mortgages and its insurance
obligations. Changes in investment and loan values attributable to interest
rate changes are mitigated by corresponding and partially offsetting changes
in the value of insurance liabilities. The Group monitors this exposure
through regular reviews of the asset and liability position, capital
modelling, sensitivity testing and scenario analyses. Interest rate risk is
also managed using derivative instruments e.g. swaps.
(ii) Property risk
The Group's exposure to property risk arises from the provision of lifetime
mortgages which creates an exposure to the UK residential property market. A
substantial decline or sustained underperformance in UK residential property
prices, against which the Group's lifetime mortgages are secured, could result
in the mortgage debt at the date of redemption exceeding the proceeds from the
sale of the property.
Demand for lifetime mortgage products may also be impacted by a fall in
property prices. It may diminish consumers' propensity to borrow and reduce
the amount they are able to borrow due to reductions in property values.
The risk is managed by controlling the loan value as a proportion of the
property's value at outset and obtaining independent third party valuations on
each property before initial mortgages are advanced. Lifetime mortgage
contracts are also monitored through dilapidation reviews. House prices are
monitored and the impact of exposure to adverse house prices (both regionally
and nationally) is regularly reviewed. Further mitigation is through
management of the volume of Lifetime Mortgages, including disposals, in the
portfolio in line with the Group's LTM backing ratio target, and the
establishment of the NNEG hedges. The Group has managed its property risk
exposure in the year via a reduction in the LTM backing ratio.
A sensitivity analysis of the impact of residential property price movements
is included in Note 11 and Note 14. These notes also mention the Group's
consideration of the possible impacts of Brexit, the COVID-19 pandemic and a
higher interest and inflation rate economic environment on property
assumptions at 30 June 2023.
The Group is also exposed to commercial property risk indirectly through the
investment in loans secured by commercial mortgages. Mitigation of such risk
is covered by the credit risk section below.
(iii) Inflation risk
Inflation risk is the risk of change in the value of assets or liabilities
arising from changes in actual or expected inflation or in the volatility of
inflation. Exposure to long term inflation occurs in relation to the Group's
own management expenses and its writing index-linked Retirement Income
contracts. Its impact is managed through the application of disciplined cost
control over management expenses and through matching inflation-linked assets
and inflation-linked liabilities for the long term inflation risk.
(iv) Currency risk
Currency risk arises from changes in foreign exchange rates which affect the
value of assets denominated in foreign currencies.
Exposure to currency risk could arise from the Group's investment in
non-sterling denominated assets. The Group invests in fixed income securities
denominated in US dollars and other foreign currencies for its financial asset
portfolio. All material Group liabilities are in Sterling. As the Group does
not wish to introduce foreign exchange risk into its investment portfolio,
derivative or quasi-derivative contracts are entered into to mitigate the
foreign exchange exposure as far as possible.
(c) Credit risk
Credit risk arises if another party fails to perform its financial obligations
to the Group, including failing to perform them in a timely manner.
Credit risk exposures arise from:
· Holding fixed income investments. The risk of default (where the
counterparty fails to pay back the capital and/or interest on a corporate
bond) is mitigated by investing only in higher quality or investment grade
assets. Concentration of credit risk exposures is managed by placing limits on
exposures to individual counterparties, sectors and geographic areas.
· Counterparties in derivative contracts - the Group uses financial
instruments to mitigate interest rate and currency risk exposures. It
therefore has credit exposure to various counterparties through which it
transacts these instruments, although this is usually mitigated by collateral
arrangements (see Note 16).
· Reinsurance treaties. Reinsurance is used to manage longevity
risk and to fund new business but, as a consequence, credit risk exposure
arises should a reinsurer fail to meet its claim repayment obligations. Credit
risk on reinsurance balances is mitigated by the reinsurer depositing back
more than 100% of premiums ceded under the reinsurance agreement and/or
through robust collateral arrangements.
· Cash balances - credit risk on cash assets is managed by imposing
restrictions over the credit ratings of third parties with whom cash is
deposited.
· Credit risk for loans secured by residential mortgages has been
considered within "property risk" above.
The following table provides information regarding the credit risk exposure
for financial assets of the Group, which are neither past due nor impaired at
30 June 2023, 31 December 2022 and 30 June 2022:
30 June 2023 AAA AA A BBB BB or below Unrated Total
£m £m £m £m £m £m £m
Units in liquidity funds 1,200.0 5.6 - - - - 1,205.6
Investment funds - - - - - 439.8 439.8
Debt securities and other fixed income securities 810.9 1,939.1 3,779.6 5,087.5 163.3 - 11,780.4
Deposits with credit institutions - 109.0 640.4 - - - 749.4
Loans secured by residential mortgages - - - - - 5,176.7 5,176.7
Loans secured by commercial mortgages - - - - - 629.2 629.2
Loans secured by ground rents - - - - - 647.1 647.1
Infrastructure loans 67.2 95.3 133.9 748.6 12.0 - 1,057.0
Other loans - - - - 27.0 112.4 139.4
Derivative financial assets - 0.4 1,665.5 699.2 - 0.5 2,365.6
Gilts - subject to repurchase agreements - 1,970.6 - - - - 1,970.6
Reinsurance(1) - 233.4 184.1 - - 199.7 617.2
Other receivables - - - - - 48.1 48.1
Total 2,078.1 4,353.4 6,403.5 6,535.3 202.3 7,253.5 26,826.1
(1) This is the net reinsurance asset position.
31 December 2022 AAA AA A BBB BB or below Unrated Total
(restated) £m £m £m £m £m £m £m
Units in liquidity funds 1,169.8 - - - 4.6 - 1,174.4
Investment funds - - - - - 421.0 421.0
Debt securities and other fixed income securities 698.2 1,888.5 3,260.6 5,105.0 400.6 - 11,352.9
Deposits with credit institutions - 99.4 773.0 20.0 15.1 0.1 907.6
Loans secured by residential mortgages - - - - - 5,305.9 5,305.9
Loans secured by commercial mortgages - - - - - 583.7 583.7
Loans secured by ground rents - - - - - 246.9 246.9
Infrastructure loans 71.2 97.4 141.7 625.3 12.2 - 947.8
Other loans - - - - 22.3 111.9 134.2
Derivative financial assets - - 1,669.9 607.1 - - 2,277.0
Reinsurance - 126.9 197.1 3.7 - 204.4 532.1
Other receivables - - - - - 32.7 32.7
Total 1,939.2 2,212.2 6,042.3 6,361.1 454.8 6,906.6 23,916.2
30 June 2022 AAA AA A BBB BB or below Unrated Total
(restated) £m £m £m £m £m £m £m
Units in liquidity funds 953.7 - - - 5.0 - 958.7
Investment funds - - - - - 315.1 315.1
Debt securities and other fixed income securities 811.8 2,067.1 3,055.0 4,965.9 338.9 - 11,238.7
Deposits with credit institutions - - 696.6 39.2 14.7 - 750.5
Loans secured by residential mortgages - - - - - 5,897.3 5,897.3
Loans secured by commercial mortgages - - - - - 616.0 616.0
Loans secured by ground rents - - - - - 236.6 236.6
Infrastructure loans 74.5 128.5 148.4 603.3 14.1 - 968.8
Other loans - - - - 14.7 112.1 126.8
Derivative financial assets - - 1,197.8 482.3 - - 1,680.1
Reinsurance - 214.8 250.0 5.1 - 0.4 470.3
Other receivables - - - - - 22.5 22.5
Total 1,840.0 2,410.4 5,347.8 6,095.8 387.4 7,200.0 23,281.4
There are no financial assets that are either past due or impaired.
The credit rating for Cash available on demand at 30 June 2023 was between a
range of AA and BB
(31 December 2022 and 30 June 2022: between a range of AA and BB).
The carrying amount of those assets subject to credit risk represents the
maximum credit risk exposure.
(d) Liquidity risk
Liquidity risk is the risk of loss because the Group, although solvent, does
not have sufficient financial resources available to it in order to meet its
obligations as they fall due.
The investment of cash received from Retirement Income sales into corporate
bonds, gilts and lifetime mortgages, and commitments to pay policyholders and
other obligations, requires liquidity risks to be taken.
Exposure to liquidity risk arises from:
· maintaining and servicing collateral requirements arising from
the changes in market value of financial derivatives used by the Group;
· needing to realise assets to meet liabilities during stressed
market conditions;
· increasing cash flow volatility in the short-term giving rise to
mismatches between cash flows from assets and requirements from liabilities;
· needing to support liquidity requirements for day-to-day
operations; and
· ensuring financial support can be provided across the Group.
Liquidity risk is managed by holding assets of a suitable maturity and
marketability to meet liabilities as they fall due. The Group's short-term
liquidity requirements to meet annuity payments are predominantly funded by
investment coupon receipts, and bond principal repayments. There are
significant barriers for policyholders to withdraw funds that have already
been paid to the Group in the form of premiums. Cash outflows associated with
Retirement Income liabilities can be reasonably estimated and liquidity can be
arranged to meet this expected outflow through asset-liability matching and
new business premiums.
The cash flow characteristics of the Lifetime Mortgages are reversed when
compared with Retirement Income products, with cash flows effectively
representing an advance payment, which is eventually funded by repayment of
principal plus accrued interest. Policyholders are able to redeem mortgages,
albeit at a cost. The mortgage assets are considered illiquid, as they are not
readily saleable due to the uncertainty about their value and the lack of a
market in which to trade them individually.
Cash flow forecasts over the short, medium and long term are regularly
prepared to predict and monitor liquidity levels in line with limits set on
the minimum amount of liquid assets required. Cash flow forecasts include an
assessment of the impact to a range of "worst case" to 1-in-200 historic
liquidity events on the Group's long term liquidity and the minimum cash and
cash equivalent levels required to cover enhanced stresses. Derivative
stresses have been revised to take into account market volatility and focus on
the worst observed movements over the last 40 years, in shorter periods from
one day up to and including one month.
During 2022 the Group replaced the existing revolving credit facility with a
new and undrawn revolving credit facility of up to £300m for general
corporate and working capital purposes available until 13 June 2025.
Interest is payable on any drawdown loans at a rate of SONIA plus a margin of
between 1.00% and 2.75% per annum depending on the Group's ratio of net debt
to net assets.
19. Capital
Group capital position
The Group's estimated capital surplus position at 30 June 2023 was as follows:
30 June 2023(1) 31 December 2022(2)
£m
£m
Capital resources
Eligible Own funds 2,698 2,757
Solvency Capital Requirement (1,323)(3) (1,387)(3)
Excess own funds 1,375(3) 1,370(3)
Solvency coverage ratio 204%(3) 199%(3)
(1) Solvency II capital coverage ratios as at 30 June 23 includes a
notional recalculation of TMTP and 31 December 2022 includes a formal
recalculation of TMTP.
(2 ) This is the reported regulatory position as included in the
Group's Solvency and Financial Condition Report as at 31 December 2022.
(3) Not covered by PwC's independent review opinion.
Further information on the Group's Solvency II position, including a
reconciliation between the regulatory capital position to the reported capital
surplus, is included in the Business Review. This information is estimated and
therefore subject to change.
The Group and its regulated insurance subsidiaries are required to comply with
the requirements established by the Solvency II Framework directive as adopted
by the Prudential Regulation Authority ("PRA") in the UK, and to measure and
monitor its capital resources on this basis. The overriding objective of the
Solvency II capital framework is to ensure there is sufficient capital within
the insurance company to protect policyholders and meet their payments when
due. They are required to maintain eligible capital, or "Own Funds", in excess
of the value of their Solvency Capital Requirements ("SCR"). The SCR
represents the risk capital required to be set aside to absorb 1-in-200 year
stress tests over the next one year time horizon of each risk type that the
Group is exposed to, including longevity risk, property risk, credit risk and
interest rate risk. These risks are all aggregated with appropriate allowance
for diversification benefits.
The capital requirement for Just Group plc is calculated using a partial
internal model. Just Retirement Limited ("JRL") uses a full internal model and
Partnership Life Assurance Company Limited ("PLACL") capital is calculated
using the standard formula.
Group entities that are under supervisory regulation and are required to
maintain a minimum level of regulatory capital include:
· JRL and PLACL - authorised by the PRA and regulated by the PRA
and FCA.
· HUB Financial Solutions Limited, Just Retirement Money Limited
and Partnership Home Loans Limited - authorised and regulated by the FCA.
The Group and its regulated subsidiaries complied with their regulatory
capital requirements throughout the first half of the year.
Capital management
The Group's objectives when managing capital for all subsidiaries are:
· to comply with the insurance capital requirements required by the
regulators of the insurance markets where the Group operates. The Group's
policy is to manage its capital in line with its risk appetite and in
accordance with regulatory expectations;
· to safeguard the Group's ability to continue as a going concern,
and to continue to write new business;
· to ensure that in all reasonably foreseeable circumstances, the
Group is able to fulfil its commitment over the short term and long term to
pay policyholders' benefits;
· to continue to provide returns for shareholders and benefits for
other stakeholders;
· to provide an adequate return to shareholders by pricing
insurance and investment contracts commensurately with the level of risk; and
· to generate capital from in-force business, excluding economic
variances, management actions, and dividends, that is greater than new
business strain.
The Group regularly assesses a wide range of actions to improve the capital
position and resilience of the business.
To improve resilience, the Group purchased long-term gilts in the first half
of 2023 to reduce the Group's capital exposure to interest rate risk.
In managing its capital, the Group undertakes stress and scenario testing to
consider the Group's capacity to respond to a series of relevant financial,
insurance, or operational shocks or changes to financial regulations should
future circumstances or events differ from current assumptions. The review
also considers mitigating actions available to the Group should a severe
stress scenario occur, such as raising capital, varying the volumes of new
business written and a scenario where the Group does not write new business.
EVT Compliance
At 30 June 2023, Just passed the PRA EVT with a buffer of 1.7% (unreviewed)
over the current minimum deferment rate of 3.0% (allowing for volatility of
13%, in line with the requirement for the EVT). At 31 December 2022, the
buffer was 1.5% (unaudited) compared to the minimum deferment rate of 2.0%.
The recent interest rate changes may lead to uncertainty in the PRA's minimum
deferment rate review in September 2023. Just will continue to monitor
long-term rate changes closely and expects to maintain sufficient headroom.
Regulatory developments
The Group is preparing to apply to the PRA to include the PLACL lifetime
mortgages in the matching adjustment portfolio (via a securitisation) and to
calculate the PLACL SCR using the internal model. This will not be applied for
the year ended 31 December 2023.
We continue to engage in the various developments (including Subject Expert
Groups and Consultation Papers) relating to the UK Solvency II Reforms. Later
in 2023 we expect to participate in the PRA's consultation relating to the
matching adjustment and investment flexibility, and will implement the Risk
Margin reforms on or before 31 December 2023, as agreed in final legislation.
20. Related parties
The nature of the related party transactions of the Group has not changed from
those described in the Group's annual report and accounts for the year ended
31 December 2022.
There were no transactions with related parties during the six months ended 30
June 2023 which have had a material effect on the results or financial
position of the Group.
21. Post balance sheet events
Subsequent to 30 June 2023, the Directors approved an interim dividend for
2023 of 0.58 pence per ordinary share amounting to £6m (2022: £5m) in total,
which will be paid on 4 October 2023.
There are no other material post balance sheet events that have taken place
between 30 June 2023 and the date of this report.
Additional financial information
The following additional financial information is not covered by PwC's
independent review opinion on pages 27 and 28.
Financial investments credit ratings
The sector analysis of the Group's financial investments portfolio by credit
rating is shown below:
Unaudited Total % AAA AA A BBB BB or Unrated
£m £m £m £m £m below £m
£m
Basic materials 207 1.0 - - 66 132 9 -
Communications and technology 1,289 6.1 125 233 241 688 2 -
Auto manufacturers 180 0.8 - - 154 19 7 -
Consumer (staples including healthcare) 1,245 5.9 122 232 400 363 47 81
Consumer (cyclical) 245 1.2 10 4 28 167 36 -
Energy 424 2.0 - 132 65 189 38 -
Banks 1,374 6.5 33 60 805 476 - -
Insurance 660 3.1 6 141 126 377 10 -
Financial - other 1,123 5.3 65 152 339 119 283 165
Real estate including REITs 510 2.4 29 15 104 329 33 -
Government 1,412 6.6 370 561 240 241 - -
Industrial 599 2.8 - 66 46 412 43 32
Utilities 2,216 10.4 - 109 729 1,328 50 -
Commercial mortgages 629 3.0 118 169 169 171 2 -
Ground rent 847 4.0 157 20 194 316 160 -
Infrastructure loans 1,868 8.8 67 161 598 996 46 -
Other 42 0.2 - - 42 - - -
Corporate/government bond total 14,870 69.9 1,102 2,055 4,346 6,323 766 278
Lifetime mortgages 5,177 24.4
Liquidity funds 1,205 5.7
Investments portfolio 21,252 100.0
Derivatives and collateral 3,099
Gilts (interest rate hedging) 1,970
Total 26,321
Glossary
Acquisition costs - comprise the direct costs (such as commissions and new
business processing team costs) of obtaining new business, together with
associated indirect costs.
Adjusted earnings per share (adjusted EPS) - this measures earnings per share
based on underlying operating profit after attributed tax, rather than IFRS
profit before tax. This measure is calculated by dividing underlying operating
profit after attributed tax by the weighted average number of shares in issue
by the Group for the period. For remuneration purposes (see Directors'
Remuneration Report), the measure is calculated as adjusted operating profit
before tax divided by the weighted average number of shares in issue by the
Group for the period.
Adjusted operating profit before tax - this is the sum of the new business
profit and in-force operating profit, operating experience and assumption
changes, other Group companies' operating results, development expenditure and
financing costs. The Board believes the combination of both future profit
generated from new business written in the year and additional profit from the
in-force book of business, provides a better view of the development of the
business. The net underlying CSM increase is added back as the Board considers
the value of new business is significant in assessing business performance.
Adjusted operating profit before tax excludes the following items that are
included in profit before tax: strategic expenditure, investment and economic
profits and amortisation and impairment costs of acquired intangible assets.
In addition, it includes Tier 1 interest (as part of financing costs) which is
not included in profit before tax (because the Tier 1 notes are treated as
equity rather than debt in the IFRS financial statements). Adjusted operating
profit is reconciled to IFRS profit before tax in the Business Review.
Adjusted profit/(loss) before tax - an APM, this is the profit/(loss) before
tax before deferral of profit in CSM and includes non operating items
(investment and economic movement, strategic expenditure, and interest
adjustment to reflect IFRS accounting for Tier 1 notes as equity).
Alternative performance measure ("APM") - in addition to statutory IFRS
performance measures, the Group has presented a number of non-statutory
alternative performance measures within the Annual Report and Accounts. The
Board believes that the APMs used give a more representative view of the
underlying performance of the Group. APMs are identified in this glossary
together with a reference to where the APM has been reconciled to its nearest
statutory equivalent. APMs which are also KPIs are indicated as such.
Buy-in - an exercise enabling a pension scheme to obtain an insurance contract
that pays a guaranteed stream of income sufficient to cover the liabilities of
a group of the scheme's members.
Buy-out - an exercise that wholly transfers the liability for paying member
benefits from the pension scheme to an insurer which then becomes responsible
for paying the members directly.
Capped Drawdown - a non-marketed product from Just Group previously described
as Fixed Term Annuity. Capped Drawdown products ceased to be available to new
customers when the tax legislation changed for pensions in April 2015.
Care Plan ("CP") - a specialist insurance contract contributing to the costs
of long-term care by paying a guaranteed income to a registered care provider
for the remainder of a person's life.
Confidence interval - the degree of confidence that the provision for future
cash flows plus the risk adjustment reserve will be adequate to meet the cost
of future payments to annuitants.
Contractual Service Margin ("CSM") - represents deferred profit earned on
insurance products. CSM is recognised in profit or loss over the life of the
contracts.
CSM amortisation - represents the net release from the CSM reserve into profit
as services are provided. The figures are net of accretion (unwind of
discount), and the release is computed based on the closing CSM reserve
balance for the period.
Deferral of profit in CSM - the total movement on CSM reserve in the year. The
figure represents CSM recognised on new business, accretion of CSM (unwind of
discount), transfers to CSM related to changes to future cash flows at
locked-in economic assumptions, less CSM release in respect of services
provided.
Defined benefit deferred ("DB deferred") business - the part of DB de-risking
transactions that relates to deferred members of a pension scheme. These
members have accrued benefits in the pension scheme but have not retired yet.
Defined benefit de-risking partnering ("DB partnering") - a DB de-risking
transaction in which a reinsurer has provided reinsurance in respect of the
asset and liability side risks associated with one of our DB Buy-in
transactions.
Defined benefit ("DB") pension scheme - a pension scheme, usually backed or
sponsored by an employer, that pays members a guaranteed level of retirement
income based on length of membership and earnings.
Defined contribution ("DC") pension scheme - a work-based or personal pension
scheme in which contributions are invested to build up a fund that can be used
by the individual member to provide retirement benefits.
De-risk/de-risking - an action carried out by the trustees of a pension scheme
with the aim of transferring investment, inflation and longevity risk from the
sponsoring employer and scheme to a third party such as an insurer.
Development expenditure - relates to development of existing products,
markets, technology, and transformational projects.
Drawdown (in reference to Just Group sales or products) - collective term for
investment products including Capped Drawdown.
Employee benefits consultant - an adviser offering specialist knowledge to
employers on the legal, regulatory and practical issues of rewarding staff,
including non-wage compensation such as pensions, health and life insurance
and profit sharing.
Equity release - products and services enabling homeowners to generate income
or lump sums by accessing some of the value of the home while continuing to
live in it - see Lifetime mortgage.
Finance costs - represent interest payable on the Group's Tier 2 and Tier 3
debt.
Gross premiums written - total premiums received by the Group in relation to
its Retirement Income and Protection sales in the period, gross of commission
paid.
Guaranteed Income for Life ("GIfL") - retirement income products which
transfer the investment and longevity risk to the company and provide the
retiree a guarantee to pay an agreed level of income for as long as a retiree
lives. On a "joint-life" basis, continues to pay a guaranteed income to a
surviving spouse/partner. Just provides modern individually underwritten GIfL
solutions.
IFRS profit before tax - one of the Group's KPIs, representing the profit
before tax attributable to equity holders.
In-force operating profit - represents profits from the in-force portfolio
before investment and insurance experience variances, and assumption changes.
It mainly represents release of risk adjustment for non-financial risk and of
allowance for credit default in the period, investment returns earned on
shareholder assets, together with the value of the (net) CSM amortisation.
Investment and economic movements - reflect the difference in the period
between expected investment returns, based on investment and economic
assumptions at the start of the period, and the actual returns earned.
Investment and economic profits also reflect the impact of assumption changes
in future expected risk-free rates, corporate bond defaults and house price
inflation and volatility.
Key performance indicators ("KPIs") - KPIs are metrics adopted by the Board
which are considered to give an understanding of the Group's underlying
performance drivers. The Group's KPIs are Return on equity, Retirement income
sales, Underlying organic capital generation, New business profit, Underlying
operating profit, IFRS profit before tax, New business strain, Solvency II
capital coverage ratio and Tangible net asset value per share.
Lifetime mortgage ("LTM") - an equity release product that allows homeowners
to take out a loan secured on the value of their home, typically with the loan
plus interest repaid when the homeowner has passed away or moved into
long-term care.
LTM notes - structured assets issued by a wholly owned special purpose entity,
Just Re1 Ltd. Just Re1 Ltd holds two pools of lifetime mortgages, each of
which provides the collateral for issuance of senior and mezzanine notes to
Just Retirement Ltd, eligible for inclusion in its matching portfolio.
Medical underwriting - the process of evaluating an individual's current
health, medical history and lifestyle factors, such as smoking, when pricing
an insurance contract.
Net asset value ("NAV") - IFRS total equity, net of tax, and excluding equity
attributable to Tier 1 noteholders.
Net claims paid - represents the total payments due to policyholders during
the accounting period, less the reinsurers' share of such claims which are
payable back to the Group under the terms of the reinsurance treaties.
Net investment income - comprises interest received on financial assets and
the net gains and losses on financial assets designated at fair value through
profit or loss upon initial recognition and on financial derivatives and
interest accrued on financial assets which are measured at amortised cost.
New business margin - the new business profit divided by Retirement Income
sales. It provides a measure of the profitability of Retirement Income sales.
New business profit - an APM and one of the Group's KPIs, representing the
profit generated from new business written in the year after allowing for the
establishment of reserves and for future expected cash flows and risk
adjustment and allowance for acquisition expenses and other incremental costs
on a marginal basis. New business profit is reconciled to adjusted profit
before tax, and adjusted profit before tax is reconciled to IFRS profit before
tax in the Business Review.
New business strain - one of the Group's KPIs, representing the capital strain
on new business written in the year after allowing for acquisition expense
allowances and the establishment of Solvency II technical provisions and
Solvency Capital Requirements.
No-negative equity guarantee ("NNEG") hedge - a derivative instrument designed
to mitigate the impact of changes in property growth rates on both the
regulatory and IFRS balance sheets arising from the guarantees on lifetime
mortgages provided by the Group which restrict the repayment amounts to the
net sales proceeds of the property on which the loan is secured.
Operating experience and assumption changes - represents changes to cash flows
in the current and future periods valued based on end of period economic
assumptions.
Organic capital generation/(consumption) - calculated in the same way as
Underlying organic capital generation/(consumption), but includes impact of
management actions and other operating items.
Other Group companies' operating results - the results of Group companies
including our HUB group of companies, which provides regulated advice and
intermediary services, and professional services to corporates, and corporate
costs incurred by Group holding companies and the overseas start-ups.
Pension Freedoms/Pension Freedom and Choice/Pension Reforms - the UK
government's pension reforms, implemented in April 2015.
PrognoSys™ - a next generation underwriting system, which is based on
individual mortality curves derived from Just Group's own data collected since
its launch in 2004.
Regulated financial advice - personalised financial advice for retail
customers by qualified advisers who are regulated by the Financial Conduct
Authority.
Retail sales (in reference to Just Group sales or products) - collective term
for GIfL and Care Plan.
Retirement Income sales (in reference to Just Group sales or products) - an
APM and one of the Group's KPIs and a collective term for GIfL, DB and Care
Plan. DB partner premium is not included in Retirement Income sales.
Retirement Income sales are reconciled in Note 2 to the consolidated financial
statements, to premiums included in the analysis of movement in insurance
liabilities in Note 14 to the consolidated financial statements.
Return on equity - an APM and one of the Group's KPIs. Return on equity is
underlying operating profit after attributed tax for the period divided by the
average tangible net asset value for the period and expressed as an annualised
percentage. Tangible net asset value is reconciled to IFRS total equity in the
Business Review.
Risk adjustment for non-financial risk ("RA") - allowance for longevity,
expense, and insurance specific operational risks representing the
compensation required by the business when managing existing and pricing new
business.
Secure Lifetime Income ("SLI") - a tax efficient solution for individuals who
want the security of knowing they will receive a guaranteed income for life
and the flexibility to make changes in the early years of the plan.
Solvency II - an EU Directive that codifies and harmonises the EU insurance
regulation. Primarily this concerns the amount of capital that EU insurance
companies must hold to reduce the risk of insolvency.
Solvency II capital coverage ratio - one of the Group's KPIs. Solvency II
capital is the regulatory capital measure and is focused on by the Board in
capital planning and business planning alongside the economic capital measure.
It expresses the regulatory view of the available capital as a percentage of
the required capital.
Strategic expenditure - Costs incurred for major strategic investment, new
products and business lines, and major regulatory projects.
Tangible net asset value ("TNAV") - IFRS total equity attributable to ordinary
shareholders, excluding goodwill and other intangible assets, and after adding
back contractual service margin, net of tax.
Tangible net asset value per share - an APM and one of the Group's KPIs,
representing tangible net asset value divided by the closing number of issued
ordinary shares excluding shares held in trust.
Trustees - individuals with the legal powers to hold, control and administer
the property of a trust such as a pension scheme for the purposes specified in
the trust deed. Pension scheme trustees are obliged to act in the best
interests of the scheme's members.
Underlying operating profit - an APM and one of the Group's KPIs. Underlying
operating profit is calculated in the same way as adjusted operating profit
before tax but excludes operating experience and assumption changes.
Underlying operating profit is reconciled to adjusted operating profit before
tax, and adjusted operating profit before tax is reconciled to IFRS profit
before tax in the Business Review.
Underlying organic capital generation/(consumption) - an APM and one of the
Group's KPIs. Underlying organic capital generation/(consumption) is the net
increase/(decrease) in Solvency II excess own funds over the year, generated
from ongoing business activities, and includes surplus from in-force, net of
new business strain, cost overruns and other expenses and debt interest. It
excludes strategic expenditure, economic variances, regulatory adjustments,
capital raising or repayment and impact of management actions and other
operating items. The Board believes that this measure provides good insight
into the ongoing capital sustainability of the business. Underlying organic
capital generation/(consumption) is reconciled to Solvency II excess own
funds, and Solvency II excess own funds is reconciled to shareholders' net
equity on an IFRS basis in the Business Review.
Value at Risk - a quantification of the extent of possible insurance losses
within a portfolio over a specific time frame.
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