REG - Just Group plc - INTERIM RESULTS FOR THE SIX MONTHS ENDED 30/6/2024
13/08/2024 07:00
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RNS Number : 1593A Just Group PLC 13 August 2024
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NEWS RELEASE www.justgroupplc.co.uk
13 August 2024
JUST GROUP PLC
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2024
CONSISTENTLY OUTPERFORMING OUR TARGETS
Just Group plc (the "Group", "Just") announces its results for the six months
ended 30 June 2024.
David Richardson, Group Chief Executive Officer, said:
"We are delighted with the strong momentum in our business driven by the
multiple opportunities available and structural growth in our chosen
markets. Our DB and retail businesses both contributed to this excellent
performance, reflecting our continuing investment in technology and talent.
We have never been more confident in our ability to deliver sustainable and
compounding growth. 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. This formula is delivering sustained growth in the value
of the business.
Given the strong first half outcome, the positive market dynamics, and our
forward-looking pipeline, we expect to substantially exceed previous 2024
guidance of doubling 2021's £211m operating profit in three years."
Profitable and sustainable growth
· Underlying operating profit(1) up 44% to £249m (H1 23: £173m), driven by new
business sales growth, higher recurring in-force profit and operational
gearing.
· Retirement Income sales(1) have grown by 30% to £2.5bn (H1 23: £1.9bn).
Pricing discipline and risk selection in buoyant markets have led to an
increased margin of 9.0% (H1 23: 8.5%). These combined to drive a 38% increase
in new business profits to £222m (H1 23: £161m).
· Momentum remains strong as we enter the second half of 2024. We forecast
second half new business volumes to be similar to the excellent performance in
the first half, albeit with slightly lower margins due to business mix. We
expect the strong structural growth drivers of our markets to continue well
into the future.
Strong Solvency II and IFRS
· Capital coverage ratio is a resilient and stable 196%(2) (31 December 2023:
197%(2)). The interest rate sensitivity has further reduced together with a
continued reduction in our exposure to residential property, as we
increasingly diversify the investment portfolio.
· New business strain(1) at 1.5% (H1 23: 1.6%) is once again well inside our
target of below 2.5% of premium. Cash generation before new business strain is
broadly unchanged at £49m (H1 23: £48m). Our sustainable growth is driven
by a low capital intensity new business model, further augmented by management
actions and availability of surplus capital.
· Adjusted profit before tax(1) was £267m (H1 23: £246m), driven by strong
growth in underlying operating profit and positive non-operating items. Of
this £267m, £193m of profit is deferred to the CSM(3) , leaving an IFRS
profit before tax of £74m (H1 23: £117m).
Delivering shareholder value
· Improved return on equity(1) to 15.6% (annualised) and tangible net assets per
share(1) to 240p (H1 23: 13.0% and 31 December 2023: 224p respectively). This
is a rapidly growing store of long-term value.
· Interim dividend of 0.7p per share - achieving 20% growth and one third of the
2023 full year dividend, in line with stated policy.
Notes
(1 ) 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 and
reconciled to IFRS measures in the Business Review and Segmental note.
(2 ) The 30 June 2024 Solvency II capital coverage ratio includes
a notional recalculation of TMTP, and is estimated. The 31 December 2023
Solvency II capital coverage ratio includes a formal recalculation of TMTP.
(3 ) 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, Sam Livingstone
paul.kelly@wearejust.co.uk Telephone: +44 (0) 20 7183 1190
just@templebaradvisory.com
For those analysts who have registered, a presentation will take place today
at 1 Angel Lane, London, EC4R 3AB, commencing at 09:30 am. The presentation
will also be available via a live webcast.
FINANCIAL CALENDAR DATE
Ex-dividend date for interim dividend 22 August 2024
Record date for interim dividend 23 August 2024
Payment of interim dividend 4 October 2024
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
CAUTIONARY STATEMENT AND FORWARD-LOOKING STATEMENTS
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 (including, without
limitation, climate-related plans and goals). Statements containing the words:
'believes', 'intends', 'expects', 'plans', 'seeks', 'targets', 'continues',
'future', 'outlook', 'potential' 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 (such as the
longer-term impact from the COVID-19 outbreak or the impact of other
infectious diseases, climate change, the conflict in the Middle East, and the
continuing situation in Ukraine); 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 or
the transition to net-zero; the impact of inflation and deflation; market
competition; failure to efficiently and effectively respond to climate change
related risks and the transition to a net zero economy; 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
including cybersecurity threats and the rapid pace of technological change;
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, 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
We have had another very strong six months and we are continually setting our
sights higher, with increased confidence about what the Group can achieve over
the long term.
Sales have grown by 30% to £2.5bn. DB and retail businesses both contributed
to this excellent performance and both are operating in markets that are
benefitting from long-term structural growth drivers. We are committed to
compounding the growth in value of the business and over this reporting period
we have increased the Group's tangible net asset value, by 16p to 240p per
share.
Defined Benefit De-risking business sales up 31%
Our DB business generated another record first half, growing sales by 31% to
£1.9bn. We completed 55 transactions, which is a substantial increase from 35
completed in H1 23. Over the past 18 months we have written over one third, by
number, of all DB transactions in the market, more than any other provider. We
have used technology to meet growing market demand as appetite amongst pension
scheme trustees grows to use insurance solutions to secure the long term
future of members' pensions. Pension scheme de-risking is helping to support
growth in the UK economy by enabling UK corporates to focus on growing their
businesses and by investing the assets in productive finance.
Use of our bulk quotation and price monitoring service, ("Beacon"), continues
to increase, and is now being used by all major employee benefit consultants
("EBC"). Beacon has the capacity to provide services to every DB pension
scheme in the UK, and its powerful capability is helping to develop a vibrant
market for schemes of all sizes, while generating a consistent flow of
business for Just. As well as extending our leadership position in the smaller
transaction size segment, we will also drive growth by securing larger
transactions and have been actively quoting on deals in excess of £1bn.
Retail business sales up 28%
After a very strong return to growth in 2023, I am delighted that our retail
business has shown further excellent progress in H1 24, with sales up 28% to
£0.6bn. Market demand has been strong as the appetite of advisers to lock-in
security for their clients continues to grow. Strong consumer demand is also
evidenced by the activity levels in our GIfL broking business, the largest in
the UK. The number of advisers sourcing quotes from Just has increased over
the last two years and continues to provide increased opportunities to utilise
our medical underwriting intellectual property to select the most attractive
risks.
Our purpose and our customers
We help people achieve a better later life, that's our purpose and why we
exist. We fulfil that purpose by delivering market-leading products and
award-winning services to our customers. We provide people with a guaranteed
income for life, which is often used to cover the essential expenditure of the
household. We provide customers with peace of mind by establishing resilience
in their household balance sheets. We can't resolve all the challenges faced
by our customers, but we are helping where we are able to, and remain focused
on living up to the purpose we set out many years ago.
Sustainability
We are committed to a sustainable strategy that protects our communities and
the planet we live on. The most material impact we can make to reduce carbon
emissions is through the decisions we take with our £25bn investments
portfolio which account for over 99% of our carbon footprint. Compared to our
2019 baseline, we have now reduced these emissions by 40%, a fantastic start
on our journey to Net Zero. We are even closer to achieving our intermediate
step of a 50% reduction in investment emissions, much earlier than the planned
date of 2030. I was also delighted that in July the Financial Reporting
Council announced that Just became a signatory of the UK Stewardship
Code. This sets high stewardship standards for those investing money on
behalf of UK savers and pensioners.
Our people
We are harnessing the power of our highly talented, ambitious and engaged
colleagues to deliver strong business growth and fulfil our purpose. Our focus
is on ensuring we have the right capabilities for today and the future,
delivering an exceptional colleague experience and enhancing the skills of our
people managers. I would like to thank all my colleagues for their significant
efforts in providing outstanding support for our customers - directly and
indirectly - and delivering these excellent results. It's always a team effort
and my colleagues make Just a brilliant place to work.
Financial performance, underlying operating profits up 44%
In H1 24, underlying operating profit is up 44% to £249m, driven by strong
new business performance, which has delivered a return on equity of 15.6%
annualised. Investment and economic profits were £23m, and, when combined
with a number of smaller non-operating items, led to an adjusted profit before
tax of £267m for H1 24 (H1 23: adjusted profit before tax £246m). Our
disciplined approach to risk selection means we can fund our growth ambitions
from our own resources, maintain a strong buffer of capital and reward
shareholders with a growing dividend. We will pay an interim dividend of 0.7
pence per share, in line with our stated policy, which represents 20% growth
over last year's interim dividend.
In conclusion
We are delighted with the strong momentum in our business driven by the
multiple opportunities available and structural growth in our chosen
markets. Our DB and retail businesses both contributed to this excellent
performance, reflecting our continuing investment in technology and talent. We
have never been more confident in our ability to deliver sustainable and
compounding growth. 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. This formula is delivering sustained growth in the value
of the business.
David Richardson
Group Chief Executive Officer
Business Review
DELIVERING COMPOUNDING GROWTH
The Group is uniquely positioned in attractive markets with strong structural
growth drivers. This enables us to maximise the opportunities available to us
to benefit from the significant boost in demand for our products, now and into
the future. 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 2024, including IFRS and Solvency II information.
The continued growth and success of the business is built on the foundation of
our low capital intensity new business model, supported by a strong and
resilient capital base. We remain focused on cost control across the business
whilst specifically targeting investment in proposition development, and to
enable the business to scale efficiently. We continue to diversify the asset
portfolio by originating a wide variety of high quality illiquid assets to
back the new business in line with our investment strategy.
SALES
In the first six months of 2024, Retirement Income new business sales grew 30%
to £2.5bn (H1 23: £1.9bn), driven by continued strong momentum in both the
DB (up 31% to £1.9bn) and Retail (up 28% to £0.6bn) business segments.
Over the past two years, rising interest rates have accelerated the closure
of, and in most cases eliminated, scheme funding gaps. During the first six
months of 2024, we wrote a record amount of DB new business for a first half,
up 31% to £1,874m from 55 transactions (H1 23: £1,429m from 35
transactions). This compares to 80 transactions for the whole of 2023, when
Just wrote over one third of all transactions in the market. This translated
into a c.20% market share by value of all transactions less than £1bn in
size, within the total DB market. Heightened and consistent demand in the
small and medium transaction size segments of the market (defined as less than
£100m and £100m-£1bn respectively), has continued from 2023, with the
strong momentum, combined with Just's strong pricing discipline, market
insight and business mix driven by our streamlined bulk quotation service all
contributing towards higher margins year on year.
The drivers behind this momentum remain and we expect a busy second half in
2024, and beyond, as we execute a pipeline of small, medium and larger
transactions, while maintaining capital flexibility. We estimate that 15% of
the £1.2tn DB market opportunity has transferred across to insurers thus far.
In October 2023, LCP(1) forecast that c.£600bn of DB Buy-in/Buy-out
transactions could transact over the decade to 2033, of which up to £360bn
could transact over the next five years (2024 to 2028 inclusive). This
compares to £180bn in the last five years.
Our GIfL business also had a very strong first half, as the market continues
to benefit from higher long-term interest rates, which directly increase the
customer rate on offer. This increases the attractiveness of a guaranteed
income relative to other forms of retirement income. The customer rate can be
further improved through bespoke medical underwriting, in which Just is a
market leader. During the six months to 30 June 2024, we wrote £600m of GIfL
new business, up 28% (H1 23: £470m), in a buoyant market that grew by even
more. The introduction of the FCA's Consumer Duty and findings from the FCAs
thematic review into retirement income advice, are leading to increased
adviser conversations on the importance of considering guaranteed solutions to
help customers achieve their objectives.
(1) LCP: "A seismic shift in buy-ins/outs: how is the market adapting?"-
October 2023
PROFIT
For the first six months of the year, underlying operating profit was £249m
(H1 23: £173m), up 44%. Given the strong performance in the first half, for
2024 as a whole, we expect to substantially exceed previous guidance of
doubling 2021's £211m operating profit in three years.
Continued momentum and strong demand for our products enabled us to write high
volumes of new business at an efficient capital strain. Shareholder funded
Retirement Income sales at £2,474m, were 30% higher (H1 23: £1,899m). New
business profit was up 38% at £222m (H1 23: £161m), translating to a new
business margin of 9.0% (H1 23: 8.5%) on shareholder funded premiums as
buoyant markets in both of our business lines supported active risk selection,
and we increasingly benefit from operational gearing and systems investment.
Continued higher and more normalised interest rates during 2024 boosted the
return on surplus assets, thereby increasing in-force operating profit, up 24%
to £114m (H1 23: £92m). Finance costs were unchanged at £33m, while
development expenses at £10m (H1 23: £10m) reflect our continued investment
in new systems.
In H1 2024 we delivered an adjusted profit before tax of £267m (H1 23:
£246m), of which £222m (H1 23: £161m) relates to new business profits.
Allowing for the deferral of profit into the CSM of £193m (H1 23: £129m),
the IFRS profit before tax is £74m (H1 23: £117m). This reduction primarily
reflects lower positive investment variances of £23m (H1 23: £71m) over the
period.
CAPITAL
The Group's estimated Solvency II capital position remains at a very robust
and stable 196% (31 December 2023: 197%) as we benefited from continued
positive organic capital generation and rising interest rates. Cash generation
was broadly unchanged at £49m (H1 23: £48m), but from 2025 onwards is
expected to grow in line with assets. Underlying organic capital generation
("UOCG") for the first six months of 2024 was £12m (H1 23: £18m), as we
continue to invest in new business growth. Within this, the £37m capital
strain from writing the increased level of new business was 1.5% of premium
(H1 23: £30m and 1.6% of premium), well within our target of 2.5% of premium
and in line with the average over the past four years. This low new business
strain reflects continued strong pricing discipline, risk selection and our
ability to originate increasing quantities of high-quality illiquid assets.
Management actions and other items contributed a further £30m (H1 23 £(4)m),
leading to £42m of organic capital generation (H1 23: £14m). In May, we paid
a £16m shareholder dividend. We continue to closely monitor and prudently
manage our risks, including interest rates, inflation, currency, residential
property and credit. Through management actions, property and interest rate
sensitivities remain much reduced compared to historical levels. The Solvency
II sensitivities are set out further down the Business Review in the Capital
Management section.
The 2023 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, the Prudential Regulation Authority ("PRA")
implemented the more straightforward items including risk margin for life
insurance business at the end of 2023. Following a consultation paper on the
matching adjustment ("MA") rules and the associated investment flexibility,
this part of the reforms took effect at the end of June. The final stage of
the reforms in relation to fundamental spread is expected to be implemented at
the end of 2024. We expect these MA changes to support HM Treasury's
expectations from the industry, whereby appropriate reforms could increase
insurer 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.
outlook
The outlook for the economy is positive, reflecting the expected trajectory of
central bank rates, now that inflation has reduced towards target levels,
while a new UK government received a strong mandate for the next five years.
The 2022/23 interest rate increases led to a flat lining of the economy in
2023, followed by a gradual recovery during 2024. We expect these macro forces
to have a negligible effect on the Group's business model, with the
normalisation of long-term interest rates continuing to drive demand for our
products. Sensitivities of our capital position to long-term interest rates is
included further down the Business Review.
The Group is closely monitoring developments regarding restriction of ground
rent for existing residential leases, which was included in the new
government's manifesto, and any adverse impact this may have on the Group's
£163m portfolio of residential ground rents. For further information on the
Group's approach to reflecting the uncertainty associated with the
Consultation in the valuation of residential ground rents see note 9.
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.
Alternative performance measures and key performance indicators
The Group uses a combination of alternative performance measures ("APMs") and
IFRS statutory performance measures. The Board believes that the use of APMs
gives a more representative view of the underlying performance of the Group.
The Directors have concluded that the principles used as a basis for the
calculation of the APMs remain appropriate. 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 under IFRS 17 which exclude the
profits from new business sales.
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, no
changes have been made in H1 2024. 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 31 December 2023 Change
30 June 2024 30 June 2023
%
Retirement Income sales(1) £2,474m £1,899m 30
New business profit(1) £222m £161m 38
Underlying operating profit(1) £249m £173m 44
IFRS profit before tax £74m £117m (37)
Return on equity(1) 15.6% 13.0% +2.6pp
Tangible net asset value per share(1,3) 240p 224p +16p
New business strain(1) (as % of premium) (1.5)% (1.6)% +0.1pp
New business strain(1) £37m £30m 23
Underlying organic capital generation(1) £12m £18m (33)
Solvency II capital coverage ratio(2,3) 196% 197% (1)pp
(1 ) Alternative performance measure, see glossary for
definition.
(2 ) The 30 June 2024 Solvency II capital coverage ratio
includes a notional recalculation of TMTP, and is estimated. The 31 December
2023 Solvency II capital coverage ratio includes a formal recalculation of
TMTP.
(3 ) Balance sheet metrics include comparatives as at 31
December 2023.
Tangible net assets / Return on equity (UNDERLYING)
The return on equity in the six months to 30 June 2024 was 15.6% (H1 23:
13.0%), derived from annualised underlying operating profit after attributed
tax of £187m (H1 23: £132m) on average adjusted tangible net assets of
£2,400m (30 June 2023: £2,033m, 31 December 2023 £2,133m). Tangible net
assets are reconciled to IFRS total equity as follows:
30 June 2024 31 December 2023 30 June 2023
£m £m £m
IFRS total equity attributable to ordinary shareholders 908 883 850
Less intangible assets (41) (41) (45)
Tax on amortised intangible assets 2 2 3
Add back contractual service margin 2,152 1,959 1,740
Adjust for tax on contractual service margin (535) (488) (432)
Tangible net assets 2,486 2,315 2,116
Tangible net assets per share 240p 224p 204p
Return on equity % (underlying) 15.6% 13.5% 13.0%
Underlying operating profit
Underlying operating profit is the core performance metric on which we have
based our profit growth target. 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 2024, underlying operating profit grew
by 44% to £249m (H1 23: £173m), as we strongly outperformed on an annualised
basis against our near-term 2024 target. We set the 15% per annum profit
growth target from the 2021 baseline (£211m), and given the strong growth
since then, and our expectations for the second half of 2024, we are confident
of significantly outperforming a more than doubling of underlying operating
profit in three years instead of five.
Six months ended Six months ended Change
30 June 2024 30 June 2023
£m £m %
New business profit 222 161 38
CSM amortisation (33) (29) (14)
Net underlying CSM increase 189 132 43
In-force operating profit 114 92 24
Other Group companies' operating results (11) (8) (38)
Development expenditure (10) (10) -
Finance costs (33) (33) -
Underlying operating profit(1) 249 173 44
(1 ) See reconciliation to IFRS profit before tax further in this
Business Review.
New business profit
New business profit increased during the six months to £222m (H1 23: £161m)
driven by 30% increase in Retirement Income sales to £2.5bn (H1 23: £1.9bn).
The strong momentum from 2023 continued into the first half of 2024 as we
continued to focus on risk selection, which combined with strong pricing
discipline, market insight and our streamlined bulk quotation service all
contributed towards higher new business margin, which rose to 9.0% (H1 23:
8.5%). We are also increasingly benefiting from scale and strong cost control
leading to operating leverage.
CSM amortisation
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). £33m of net CSM amortisation (H1 23: £29m)
represents a £75m release of CSM into profit, offset by £42m of interest
accreted to the CSM.
The £75m CSM release into profit (H1 23: £56m) represents an annualised 6.7%
(H1 23: 6.2%) of the CSM balance immediately prior to release. The increase
during the period represents growth in the CSM reserve from an additional year
of new business profit, and the longevity assumption change at 31 December
2023 which was also deferred to the CSM reserve.
Accretion on the CSM balance amounted to £42m (H1 23: £27m), which
represents an annualised 3.8% (H1 23: 3.1%) 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
on the forward rates locked in curve at transition on 31 December 2021 for the
new business written pre-2021 as well as higher interest rates applicable to
the new business written since the end of 2021. The higher accretion is also
due to the increase in CSM balance following the longevity and other
assumption changes over the past two years.
Net Underlying CSM increase
This represents the net underlying increase of profit deferral to CSM during
the year before any transfers to CSM in respect of operating experience and
assumption changes recognised in the current year. The new business profit
deferred to CSM (£222m) to CSM in-force release (£75m) multiple of 3 times
reflects a healthy level of replacement profit, and demonstrates the value
of new business written during the year relative to the CSM release from
existing business. This strong growth dynamic increases the CSM store of
value, which predictably releases into the recurring in-force profit in future
years.
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 2024 30 June 2023
£m £m %
Investment return earned on surplus assets 64 45 42
Release of allowances for credit default 15 14 7
CSM amortisation 33 29 14
Release of risk adjustment for non-financial risk / Other 2 4 (50)
In-force operating profit 114 92 24
The in-force operating profit increased by 24% to £114m (H1 23: £92m),
driven by a significant increase in investment return, as a result of higher
interest rates, on a greater amount of surplus assets. The higher release of
allowance for credit default reflects the growth in the investment portfolio
that backs the insurance guarantees we provide to our customers. CSM
amortisation, reflects growth in the CSM release offset by the higher
accretion as noted earlier.
other group companies' operating results
The operating result for Other Group companies was a loss of £11m in the six
months ended 30 June 2024 (H1 23: loss of £8m). These costs arise from the
holding company, Just Group plc, and the HUB group of businesses. The increase
in losses was driven by upfront investment in various proposition and other
development initiatives.
Development expenditure
Development expenditure of £10m for the six months ended 30 June 2024 (H1 23:
£10m), relates mainly to investment in systems capability, in addition to
various business line and functional transformation.
finance costs
Finance costs were unchanged at £33m for the six months ended 30 June 2024
(H1 23: £33m). 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.
In 2022, the Group entered into a new £300m revolving credit facility.
Reflecting growth in the balance sheet and our ambitious growth plans for the
future, in June 2024, we exercised our ability to further increase the
facility to £400m, while extending it to June 2027. The facility has not been
drawn upon.
On a statutory IFRS basis, the Restricted Tier 1 coupon is accounted for as a
distribution of capital, consistent with the classification of the Restricted
Tier 1 notes as equity, but the coupon is included as a finance cost on an
underlying and adjusted operating profit basis.
Retirement income Sales
Six months ended Six months ended
30 June 2024
£m 30 June 2023 Change
£m %
Defined Benefit De-risking Solutions ("DB") 1,874 1,429 31
Guaranteed Income for Life Solutions ("GIfL") (1) 600 470 28
Retirement Income sales (shareholder funded) 2,474 1,899 30
DB Partner (funded reinsurance) - - -
Total Retirement Income sales 2,474 1,899 30
(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. We are extremely well positioned to take advantage of the growth
opportunities available in both of our chosen markets. Over the past two
years, rising interest rates have accelerated the closure of, and in most
cases eliminated, scheme funding gaps. 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 market is also
buoyant, driven by the customer rate available and advisers shopping around in
the Open market. The level of long-term interest rates directly influences the
customer rate we can offer, with higher rates persisting thus far in 2024,
further augmented by individual medical underwriting. This increases the
value of the guarantee to customers, making the product more attractive
relative to other forms of retirement income. We will take advantage of this
very strong market backdrop through our low-strain new business model, which
enables us to fund our ambitious growth plans through cash generation. When
combined with our proven ability to originate high-quality illiquid assets,
shareholder capital invested in new business adds substantially to increasing
the existing shareholder value.
Shareholder funded DB sales at £1,874m (H1 23: £1,429m) were up 31%, as
strong momentum in our business continued. In total, we completed 55 deals, of
which 50 were below £100m in transaction size. This compares to 80
transactions completed in 2023, which represented over one third of all
transactions in the market that year. We maintained our leadership position in
the less than £100m transaction size segment, writing £1.0bn of business
from this segment during the period. In 2023, our positioning resulted in a
c.20% market share by value in the up to £1bn transaction size part of the
market, a doubling over the past three years. In addition to expected growth
in the up to £1bn transaction size part of the market, we are actively
quoting in the large deal transaction size segment (£1bn plus). Our
proprietary bulk quotation service, ("Beacon"), continues to grow in
popularity with hundreds of DB schemes now onboarded. Demonstrating the
multiple benefits of the service, 17 EBCs (Employee benefit consultants)
completed a transaction during the period, reflecting its universal adoption
across the industry. Beacon provides access to the DB market for trustees,
accelerates transaction flow for EBCs by providing a streamlined process and
provides a steady source of completions for Just. Recent examples include a
£0.8m DB transaction with a charity whose main focus includes challenging
inequality and enabling social mobility, and a £8m scheme that had been
price monitored since 2021, before interest rates rose. We continue to develop
the service and have invested to allow us to significantly increase onboarding
capacity. As part of our proposition to EBCs, trustees, and scheme sponsors,
we are always available to quote for any credible transaction, as evidenced
from our consistently high activity levels.
GIfL sales were up 28% to £600m (H1 23: £470m). This strong foundation from
the first half, together with continued market strength in the second half
enables us to utilise our market leading medical underwriting to risk select
more profitable and niche segments of a larger individual annuity market.
These market dynamics, together with operational gearing due to tight cost
control contributed towards the strong margin performance.
Due to the higher customer rate 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 2023 and the findings from the
FCA's thematic review into retirement income advice published in March
2024 are likely to increase the importance of considering guaranteed
solutions to help customers achieve their objectives.
In recognition of our consistent level of customer service and excellence, in
November, at the FT Financial Adviser Service Awards ("FASA"), Just won its
19th consecutive five star in the Pensions and Protection Providers category,
five stars for the 14th time in the Mortgage Providers category, and were
awarded Outstanding Achievement of the Year, due to our overall scores and
ratings. This consistently high level of service was achieved even as business
volumes grew strongly in 2023, and is a testament to the dedication from the
customer service and business development teams.
RECONCILIATION OF UNDERLYING OPERATING PROFIT TO IFRS PROFIT BEFORE TAX
Six months ended Six months ended
30 June 2024 30 June 2023
£m £m
Underlying operating profit(1) 249 173
Operating experience and assumption changes (3) 1
Adjusted operating profit before tax(1) 246 174
Investment and economic movements 23 71
Strategic expenditure (13) (7)
Adjustment for transactions reported directly in equity in IFRS 11 8
Adjusted profit before tax(1) 267 246
Deferral of profit in CSM (193) (129)
Profit before tax 74 117
(1 ) Alternative performance measure, see glossary for
definition.
Investment and economic movements
Six months ended Six months ended
30 June 2024 30 June 2023
£m
£m
Change in interest rates 13 (6)
Narrower/(Wider) credit spreads - 7
Property growth experience 1 38
Other 9 32
Investment and economic movements 23 71
Investment and economic movements for the six months ended 30 June 2024 were
positive at £23m (H1 23: £71m). Movements in risk free rates have had a
relatively small effect due to the revised hedging strategy that was
implemented in the latter part of 2022 and across 2023. This includes the
purchase of £3.3bn (H1 24 £0.8bn, 2023 £2.5bn) of long dated gilts held at
amortised cost under IFRS. This approach has almost eliminated the IFRS
exposure whilst also containing our Solvency II sensitivity to future interest
rate movements (see estimated Group Solvency II sensitivities below).
Credit spread movement had a £nil effect (H1 23: credit spreads narrowed
leading to a positive movement of £7m). The LTM portfolio property growth
performed in line with the 3.3% annual long-term property growth assumption
(2023: 3.3% annual property growth assumption). Other includes positives from
corporate bond default experience and investment return on surplus assets
being above our assumption.
(1) See note 12 for interest rate sensitivities, with a 100 bps
increase in interest rates resulting in an increase in pretax profit of £14m
and a 100 bps decrease in interest rates resulting in a decrease in pretax
profit of £(19)m.
STRategic expenditure
Strategic expenditure was £13m for the six months ended 30 June 2024 (H1 23:
£7m). This included increased investment to scale and bring to market various
retail related propositions, corporate project costs, costs in relation to the
implementation of Consumer Duty, Solvency UK reforms and preparations for an
internal model update.
UNDERLYING Earnings per share
Underlying EPS (based on underlying operating profit after attributed tax) has
increased to 18.0 pence for the six months ended 30 June 2024 (H1 23: 12.9
pence).
Six months ended Six months ended
30 June 2023
30 June 2024
Underlying operating profit (£m) 249 173
Attributable tax (£m) (62) (41)
Underlying operating profit after attributable tax (£m) 187 132
Weighted average number of shares (million) 1,035 1,029
Underlying EPS(1) (pence) 18.0 12.9
(1 ) Alternative performance measure, see glossary for
definition.
Earnings per share
Earnings per share (based on net profit after tax, see note 6) has decreased
to 4.6 pence for the six months ended 30 June 2024 (H1 23: 7.3 pence). This
includes any operating experience and assumption changes, the non-operating
items and deferral of profit to the CSM reserve, and reflects the IFRS 17
statutory profit.
Six months ended Six months ended
30 June 2023
30 June 2024
Profit before tax (£m) 74 117
Attributable tax (£m) (20) (36)
Non-controlling interest - 1
Profit attributable to equity holders of Just Group Plc 54 82
Coupon payments in respect of Tier 1 notes (net of tax) (6) (6)
Earnings (£m) 48 76
Weighted average number of shares (million) 1,035 1,029
EPS (pence) 4.6 7.3
Capital management
The Group's capital coverage ratio was estimated to be 196% at 30 June 2024,
including a notional recalculation of transitional measures on technical
provisions ("TMTP") (31 December 2023: 197% 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 2024(1) 31 December 2023(2)
£m
£m
Own funds 3,040 3,104
Solvency Capital Requirement (1,552) (1,577)
Excess own funds 1,488 1,527
Solvency coverage ratio(1) 196% 197%
(1) Solvency II capital coverage ratios as at 30 June 2024 includes a
notional recalculation of TMTP and 31 December 2023 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 2023.
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").
In July 2024, the Group received approval to expand the scope of its revised
internal model, and apply it to include the Partnership business from 30
September 2024.
Movement in excess own funds(1)
The business is delivering sufficient cash generation, which augmented with
management actions, supports the deployment of capital to capture the
significant growth opportunity available in our chosen markets, provide
returns to our capital providers and further investment in the strategic
growth of the business.
The table below analyses the movement in excess own funds, in the six months
to 30 June 2024.
At 30 June At 30 June
2024 2023
£m £m
Excess own funds at 1 January 1,527 1,370
Operating
In-force surplus net of TMTP amortisation 85 84
Financing costs (24) (24)
Group and other costs (12) (12)
Cash generation 49 48
New business strain(2) (37) (30)
Underlying organic capital generation 12 18
Management actions and other items 30 (4)
Total organic capital generation(3) 42 14
Non-operating
Strategic expenditure (10) (5)
Dividends (16) (13)
Economic movements (55) 9
Excess own funds 1,488 1,375
(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 2024, we have delivered £12m of underlying organic
capital generation (H1 23: £18m), with the reduction driven by the increase
in new business strain as we wrote materially higher shareholder backed new
business volumes year on year. Management actions and other items increased
the capital surplus by £30m (H1 23: £(4)m). This led to a total of £42m
from organic capital generation (H1 23: £14m).
The Group is focused on sustainable growth, whereby the various costs of the
business including TMTP amortisation, finance and other costs, and new
business strain is funded through the capital generation from the existing
in-force book. The Group continues to maximise the growth opportunities
available to increase shareholder value. In the first six months of 2024, due
to writing £2.5bn of new business (H1 23: £1.9bn), new business strain
increased to £37m (H1 23: £30m), which represents 1.5% of new business
premium (H1 23: 1.6% of premium), well within our target of below 2.5% of
premium. This is due to a continued combination of focused risk selection,
pricing discipline, operational gearing and originating sufficient quantities
of high-quality illiquid assets. This continued outperformance is further
driven by our market insight, leading to an origination strategy focussed on
business mix within the DB and GIfL units. Cash generation was broadly
unchanged at £49m (H1 23: £48m), but is expected to grow in line with assets
growth from 2025 onwards.
In-force surplus after TMTP amortisation was £85m, as growth in assets was
offset by lower release from the risk margin reserve. The Solvency UK reforms
lead to a welcomed c.60% reduction in risk margin balance, which boosted the
surplus by an upfront £107m in 2023, however, that prudent margin is no
longer available to release annually into future capital generation. Group and
other costs including development and non-life costs were £12m (H1 23:
£12m), reflecting the non-insurance subsidiaries and systems investments
mentioned previously. Finance costs at £24m were unchanged.
NON-OPERATING items
Economic movements summed to a £55m reduction in the capital surplus. The
effect to the surplus from the increase in long term interest rates at the end
of the six-month period was £(45)m, but as the SCR fell more relative to the
Own Funds, it resulted in a 4 percentage point increase in the capital
coverage ratio. Property price growth at 1.5% for the first six months of 2024
(compared to our annual 3.3% long-term growth assumption) led to a minimal
£4m decrease in capital surplus, while various economic and timing variances
lead to a £6m decrease in capital surplus.
Payment of the 2023 final dividend in May cost £16m, while strategic expenses
reduced the capital surplus by a further £10m.
There were no capital restrictions in the 30 June 2024 capital position.
Estimated group Solvency II sensitivities(1,5)
The property sensitivity has remained stable at 10% (31 December 2023: 10%).
We expect that a reduced LTM backing ratio on new business will contain the
Solvency II sensitivity to house prices 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(3) 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 2024
CCR Excess own funds
% £m
Solvency coverage ratio/excess own funds at 30 June 2024(2) 196 1,488
-50bps fall in interest rates (with TMTP recalculation) (4) 55
+50bps increase in interest rates (with TMTP recalculation) 4 (52)
+100bps credit spreads (with TMTP recalculation) 12 110
Credit quality step downgrade(3) (6) (91)
-10% property values (with TMTP recalculation)(4) (10) (131)
-5% mortality (10) (144)
1 In all sensitivities the Effective Value Test ("EVT") deferment rate
is allowed to change subject to the minimum deferment rate floor of 3.0% as at
30 June 2024 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, long income
real estate/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. In addition, for residential ground rents, the
Group has identified that the impact of downgrading the entire portfolio to
BBB would reduce Excess own funds (the capital surplus) by £22m and CCR% by
two percentage points.
4 After application of NNEG hedges.
5 The results do not include the impact of capital tiering restriction,
if applicable.
Reconciliation of IFRS equity to Solvency II own funds
30 June 31 December 2023
£m
2024
£m
IFRS net equity 1,230 1,203
CSM 2,152 1,959
Goodwill (34) (34)
Intangibles (7) (7)
Solvency II risk margin (191) (196)
Solvency II TMTP(1) 548 637
Other valuation differences and impact on deferred tax (1,251) (1,059)
Ineligible items (2) (5)
Subordinated debt 613 619
Group adjustments (18) (13)
Solvency II own funds(1) 3,040 3,104
Solvency II SCR(1) (1,552) (1,577)
Solvency II excess own funds(1) 1,488 1,527
(1 ) Solvency II capital coverage ratios as at 30 June 2024
include a notional recalculation of TMTP and 31 December 2023 includes a
formal recalculation of TMTP.
Reconciliation from operating profit to ifrs consolidated statement of comprehensive income
The table below presents the reconciliation from the Group's APM income
statement view to the IFRS statement of comprehensive income for the Group.
Six months ending 30 June 2024
Alternative profit measure format Statutory accounts format
Reported Quote date difference CSM Adjusted Insurance service result Net investment result Other finance costs Other income, expenses and associates PBT
£m £m deferral total £m £m £m £m £m
£m £m
New business profit 222 4 (226) -
CSM amortisation (33) 33 -
Net underlying CSM increase 189 4 (193) -
In-force operating profit:
Investment return earned 64 64 64 64
on surplus assets
Release of allowances for credit default 15 15 15 15
CSM amortisation 33 33 75 (42) 33
Release of risk adjustment 2 2 2 2
for non-financial risk
Other Group companies' (11) (11) (11) (11)
operating results
Development expenditure (10) (10) (10) (10)
Finance costs (33) (33) (33) (33)
Underlying operating profit 249 4 (193) 60
Operating experience and (3) - (3) (6) 3 (3)
assumption changes
Adjusted operating profit before tax 246 4 (193) 57
Investment and economic movements 23 (4) 19 94 (70) (5) 19
Strategic expenditure (13) (13) (13) (13)
Adjustment for transactions reported directly in equity in IFRS 11 11 11 11
Adjusted profit before tax 267 (193) 74
Deferral of profit in CSM (193) 193 -
Profit before tax 74 74 71 134 (92) (39) 74
The rows and first numeric column of this table present the alternative profit
measure (APM) format as presented in the Underlying operating profit section
and Reconciliation of Underlying operating profit to IFRS profit before tax
section of this review.
The Quote date difference adjustment is made because Just bases its assessment
of new business profitability for management purposes on the economic
parameters prevailing at the quote date of the business instead of completion
dates as required by IFRS 17 (see new business profit reconciliation in the
additional information section towards the end of this announcement).
The CSM deferral column presents how elements of the APM basis result are
deferred in the CSM reserve held on the IFRS balance sheet consistent with the
table in the Deferral of profit in CSM section of this review. Under IFRS 17,
new business profits and the impact of changes to estimates of future cash
flows are deferred in the CSM reserve for release over the life of contracts.
The adjusted total column is then transposed in the columns on the right-hand
side into the IFRS statutory accounts Condensed consolidated statement of
comprehensive income format. Figures are presented on a net of reinsurance
basis.
Investment return on surplus assets, including the Group's amortised cost
portfolio of gilts, and Release of allowance for credit default are recognised
within the IFRS Net investment result. CSM amortisation includes recognition
of services provided within IFRS Insurance service result and the unwind of
discounting in the IFRS Net investment result.
The Insurance service result of £71m (H1 23: £54m) represents the excess of
insurance revenue over insurance service expenses, with the increase
attributable to a higher release from CSM reserve as an additional year of new
business is added.
The Net investment result of £134m (H1 23: £143m) represents the difference
between the total investment return and the finance charge in respect of
insurance reserves attributable to unwinding of discounting and changes in
discount rates. This net profit is attributable to the return on surplus
funds, the emergence of credit default margins, and the effects of investment
and economic movements.
Other finance costs of £92m (H1 23: £39m) represent the costs of servicing
tier 2 and tier 3 debt and repurchase agreements in connection with the
amortised cost gilt portfolio. Other income, expenses and associates of £39m
loss (H1 23: £41m loss) represent the results from the Group's non-insurance
businesses and expenses not attributed to insurance contracts in force.
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 2024 31 December 2023
£m £m
Assets
Financial investments 31,029 29,423
Reinsurance contract assets 1,108 1,143
Cash available on demand 570 546
Other assets 680 726
Total assets 33,387 31,838
Share capital and share premium 199 199
Other reserves 946 943
Retained earnings and other adjustments (237) (259)
Total equity attributable to ordinary shareholders of Just Group plc 908 883
Tier 1 notes 322 322
Non-controlling interest - (2)
Total equity 1,230 1,203
Liabilities
Insurance contract liabilities 24,794 24,131
Reinsurance contract liabilities 79 125
Payables and other financial liabilities(1) 6,520 5,608
Other liabilities 764 771
Total liabilities 32,157 30,635
Total equity and liabilities 33,387 31,838
(1) Other payables has been aggregated with other financial liabilities
in all periods presented.
The amounts reported in the Condensed Consolidated Statement of Financial
Position above for Insurance and Reinsurance contracts include our best
estimate, risk adjustment and contractual service margin "CSM". The analysis
of these as reported in note 12 is included below.
30 June 2024 December 2023
Gross Net Reinsurance Net Gross Net Reinsurance Net
£m
£m
£m
£m
£m
£m
Best estimate 21,266 20 21,286 20,758 64 20,822
Risk adjustment 944 (617) 327 924 (592) 332
CSM(1) 2,584 (432) 2,152 2,449 (490) 1,959
Net closing balance 24,794 (1,029) 23,765 24,131 (1,018) 23,113
(1) After tax, the closing CSM is £1,617m (31 December 2023: £1,471m)
Financial investments
During the period, financial investments increased by £1.6bn to £31.0bn (31
December 2023: £29.4bn). Excluding derivatives and collateral, and gilts
purchased in relation to the interest rate hedging, during the first half of
2024, the core Investments portfolio on which we take credit risk increased by
4% to £24.9bn. The increase in the portfolio has been driven by investment of
the Group's £2.5bn of new business premiums and credit spread tightening, but
offset by the increase in long-term risk-free rates at the end of the period
compared to 2023 year-end, which decreases the market value of the assets (and
matched liabilities). The credit quality of the Group's bond portfolio remains
resilient, with 57% rated A or above (31 December 2023: 54%), driven by an
increase in UK government gilts. 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. 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), energy and basic materials. The Group has
increased its infrastructure investments, driven by social housing and
private placement assets. The increase in government bonds and liquidity is
driven by the tighter corporate credit spreads, with excess cash and gilts
expected to be recycled into corporate credit and illiquid assets during the
second half of 2024 as opportunities arise. The BBB rated bonds
are weighted towards the most defensive sectors including
utilities, communications and technology, and infrastructure.
We prudently manage the balance sheet by hedging all foreign exchange and
inflation exposure, and continue to execute a revised interest rate hedging
strategy. This involves the purchase of £3.3bn 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 exposing
the IFRS position to interest rate volatility on these assets.
Illiquid assets
To support new business pricing, optimise back book returns, and to further
diversify its investments, the Group originates illiquid assets including
infrastructure, real estate investments, private placements and lifetime
mortgages. Income producing real estate investments are typically much longer
duration and hence the cash flow profile is very beneficial, especially to
match DB deferred liabilities.
In the first six months of the year, we funded £655m of illiquid assets,
which is a little below our expected run-rate, primarily due to discipline on
illiquidity premium and borrowers delaying drawdown until the second half of
the year, when base rates are expected to be lower. Other illiquid assets
(excluding LTMs) are originated via a panel of 14 specialist external asset
managers, each carefully selected based on their particular area of expertise.
Our illiquid asset origination strategy allows us to efficiently scale
origination of new investments, and to flex allocations between sectors
depending on market conditions and risk adjusted returns. In 2024 year to
date, we have funded or committed £1.1bn of illiquid assets, and are very
much on track to achieve our optimal illiquid asset backing ratio to new
business.
To date, Just has invested £5.6bn in other illiquid assets, representing 23%
of the investments portfolio
(31 December 2023: 21%), 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. Over the past year, we have invested in our Investments function, and
are originating particular illiquid asset classes directly (e.g. social
housing and specific private placements). We anticipate that the Solvency UK
reforms 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. The more complex changes to matching adjustment ("MA") rules
and the associated investment flexibility took effect on 30 June 2024, with
the final part of the reforms on fundamental spread to complete by year end.
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.
In addition, during the first half of 2024, shareholder funded lifetime
mortgages were £107m (H1 23, £66m). We continue to be selective, and 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 38.4%
(31 December 2023: 38.2%), reflecting continued performance across our
geographically diversified portfolio, which offsets the interest roll-up.
Lifetime mortgages at £5.6bn represent 22% of the investments portfolio,
which we expect to continue drifting lower over time as we originate fewer new
LTMs and diversify the portfolio with other illiquid assets. The 10% 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 2024 30 June 2024 31 December 2023 31 December 2023
£m
% £m %
AAA(1) 2,523 8 2,252 8
AA(1) and gilts 6,743 22 5,327 18
A(1,2) 7,331 23 7,239 24
BBB(1,2) 7,938 25 8,083 27
BB or below(1,2) 171 1 176 1
Lifetime mortgages 5,554 18 5,681 19
Unrated(1) 927 3 837 3
Total(1,2,3) 31,187 100 29,595 100
1 Includes units held in liquidity funds, derivatives and collateral
and gilts (interest rate hedging).
2 Includes investment in trusts which holds long income real estate
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 residential ground rent portfolio includes £163m rated AAA.
On 9 November 2023, the previous government published a consultation seeking
views on capping the maximum ground rent that residential leaseholders can be
required to pay. Although the previous government did not implement any reform
of residential ground rent, the new government may still consider reforming
the ground rent charges. The Group is closely monitoring the new government's
agenda, which remains uncertain following the recent King's Speech, and the
impact of this on the Group's £163m by market value (31 December 2023: £176m
market value) portfolio of residential ground rents. An adjustment was made at
year end 2023 and no changes have been made to that adjustment over half year
2024 to reflect the ongoing uncertainty.
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 2024 30 June 2024 31 December 2023 31 December 2023
£m % £m %
Basic materials 117 0.5 149 0.6
Communications and technology 1,199 4.8 1,334 5.6
Auto manufacturers 102 0.4 130 0.5
Consumer staples (including healthcare) 1,266 5.1 1,405 5.9
Consumer cyclical 183 0.7 197 0.8
Energy 335 1.3 378 1.6
Banks 1,389 5.6 1,606 6.7
Insurance 729 2.9 735 3.1
Financial - other 683 2.8 583 2.4
Real estate including REITs 596 2.4 660 2.8
Government 2,532 10.2 1,767 7.4
Industrial 460 1.9 543 2.3
Utilities 2,470 9.9 2,637 11.0
Commercial mortgages(1) 800 3.2 764 3.2
Long income real estate(2) 1,053 4.2 916 3.8
Infrastructure 2,971 12.0 2,473 10.3
Other 42 0.2 42 0.2
Bond total 16,927 68.1 16,319 68
Other assets 927 3.7 822 3.4
Lifetime mortgages 5,554 22.3 5,681 23.7
Liquidity funds 1,471 5.9 1,141 4.8
Investments portfolio 24,879 100.0 23,963 100
Derivatives and collateral 2,964 3,083
Gilts (interest rate hedging) 3,344 2,549
Total 31,187 29,595
1 Includes investment in trusts which are included in investment
properties in the IFRS consolidated statement of financial position.
2 Includes direct long income real estate and where applicable,
investment in trusts of £158m which are primarily included in investments
accounted for using the equity method in the IFRS consolidated statement of
financial position. Long income real estate includes £890m commercial ground
rents/income strips and £163m residential ground rents.
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.
Cash and other assets
Other assets (primarily cash) remained consistent at £1.3bn at 30 June 2024
(31 December 2023: £1.3bn). The Group holds significant amounts of assets in
cash, so as to protect against liquidity stresses.
Insurance contract liabilities
Insurance contract liabilities increased to £24.8bn at 30 June 2024 (31
December 2023: £24.1bn). The increase in liabilities reflects the new
business premiums written, offset by an increase to the valuation rate of
interest and policyholder payments over the period.
Payables and other financial liabilities
Payables and other financial liabilities increased to £6.5bn (31 December
2023: £5.6bn) due to an increase in repurchase agreements used to fund the
Group's amortised cost portfolio of Gilts which has increased by £0.8bn over
H1 24.
Other liabilities
Other liability balances decreased to £764m at 30 June 2024 (31 December
2023: £771m) due to a reduction in loans and other payables.
IFRS net assets
The Group's total equity at 30 June 2024 was £1.2bn (31 December 2023:
£1.2bn). 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 £908m (31 December 2023:
£883m).
Deferral of profit in CSM
As noted above, underlying operating profit is the core performance metric on
which we have based our profit growth target. 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 2024 Six months ended 30 June 2023
Gross insurance contracts Reinsurance contracts Total Gross insurance contracts Reinsurance contracts Total
£m
£m
£m
£m
£m
£m
CSM balance at 1 January 2,449 (490) 1,959 1,943 (332) 1,611
New Business initial CSM recognised 236 (10) 226 158 (10) 148
Accretion of interest on CSM 54 (12) 42 34 (7) 27
Changes to future cash flows at locked-in economic assumptions (69) 69 - (21) 31 10
Release of CSM (86) 11 (75) (67) 11 (56)
Net transfers to CSM 135 58 193 104 25 129
CSM balance at 30 June 2,584 (432) 2,152 2,047 (307) 1,740
Dividends
The Board has declared an interim dividend of 0.7 pence per share, or £7m,
(H1 23 interim dividend 0.58 pence per share, £6m). 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 2.08 pence per share.
MARK GODSON
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 have confidence in us. 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 identification, measurement, management, monitoring,
and reporting. 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. Climate-related transition and physical risks 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 both methodologies and data
quality improve.
The identification, disclosure and management of climate-related risks and
broader sustainability risks are embedded within Just's Enterprise Risk
Management Framework. This includes climate-related scenario analysis, based
on Network for Greening the Financial System scenarios, which is a key tool
for ensuring we have a deep understanding of the risks the Group faces over a
long-term time horizon.
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 an important 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 the Group's 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, and conduct,
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 continue to 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. Scale with technology
3. Reach new customers
4. Be recommended by our customers
5. Be proud to work at Just
Risks and uncertainties are presented in this report in two separate sections:
(1) the first section summarises the Group's ongoing core risks and how they
are managed in business as usual; and (2) the second section calls out the
risk outlook for 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 are invested to match asset and liability cash flows as closely
Market risk arises from changes in interest rates, residential property as 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 are managed within pre-defined limits aligned to
liabilities. The Group is not exposed to any material levels of equity risk. risk appetite for individual risks;
Some very limited equity risk exposure arises from investment into credit
funds which have a mandate that allows preferred equity to be held. • Exposure is managed using regulatory and economic metrics to achieve
desired financial outcomes;
• Balance sheet is 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 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 are 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 are mitigated by the reinsurer
depositing back premiums ceded and through collateral arrangements or
recapture plans;
· Credit risk associated with derivatives is managed through collateral
arrangements; and
· The external fund managers we use are subject to Investment Management
Agreements and additional credit guidelines.
C • Controls are maintained over insurance risks related to product
Insurance risk arises through exposure to longevity, mortality, morbidity development and pricing;
risks and related factors such as levels of withdrawal from lifetime mortgages
and management and administration expenses. • Approved underwriting requirements are adhered to;
• Medical information is developed and used for pricing and reserving to
assess longevity risk;
Strategic priorities
• Reinsurance is used to reduce longevity risk exposure, with oversight by
1, 3, 4 Just of overall exposures and the aggregate risk ceded;
• Group Board review and approve assumption used; and
• Regular monitoring, control and analysis of actual experience and expense
levels is conducted.
D • Stress and scenario testing and analysis is conducted: including
Liquidity risk is the risk of insufficient suitable assets available to meet collateral margin stresses, asset eligibility and haircuts under stress;
the Group's financial obligations as they fall due.
• Corporate collateral capacity to reduce liquidity demands and improve our
liquidity stress resilience is monitored;
Strategic priorities • Risk assessment reporting and risk event logs inform governance and enable
effective oversight; and
1, 3, 4
• Contingency funding plan is maintained with funding options and process
for determining actions.
E • Implement risk policies, controls, and mitigating activities to keep risks
Conduct and operational risks arise from inadequate internal processes, people within appetite;
and systems, or external events including changes in the regulatory
environment. Such risks can result in harm to our customers, the markets • Oversee risk status reports and any actions needed to bring risks back
in which we do business or our regulatory relationships as well as direct or within appetite;
indirect loss, or reputational impacts.
• Scenario-based assessment is in place to establish the level of capital
needed for conduct and operational risks;
Strategic priorities • Monitor conduct and customer risk indicators and their underlying drivers
prompting action to protect customers;
1, 2, 3, 4, 5
• Conduct risk management training and other actions to embed regulatory
changes; and
• Ensure 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 for their potential impact The matching adjustment, Solvency II reform and regulatory expectations are of
Political and regulatory on an ongoing basis. We seek to actively participate in all regulatory key importance to Just's business model.
initiatives which may affect or provide future opportunities for the Group.
Changes in regulation and/or the political environment can impact the Group's Our aims are to implement any changes required effectively and deliver better The Group is assessing new matching adjustment eligible investment
financial position and its ability to conduct business. The financial services outcomes for our customers and a competitive advantage for the business. We opportunities resulting from the PS10/24 reform and is preparing for
industry continues to see a high level of regulatory activity. develop our strategy by giving consideration to planned political and implementation on 31 December 2024. We are assessing the financial impact
regulatory developments and allowing for contingencies should outcomes ahead of implementation.
differ from our expectations.
The Group has limited Funded Reinsurance. That which it has is collateralised.
Strategic priorities On 6 June 2024, the PRA published a new policy statement entitled "PS10/24 - The Group is aware of and manages recapture risks and correlated risks. The
Review of Solvency II: Reform of the Matching Adjustment". The policy Group is considering what changes may be required as a result of the
1, 3, 4, 5 statement introduces a number of changes to the MA rules, including on the publication of SS5/24 - Funded Reinsurance on 26 July 2024, including but not
eligibility of MA portfolios, justification of the MA taken, and firms' restricted to models, limits, capacity available and correlations between
Trend reporting. The precise standards required will emerge as the PRA reviews counterparties.
what is done by the Group and other firms.
Uncertain The FCA's rules for a new consumer duty sets higher and clearer standards for
consumer protection across financial services and require firms to put
customers' needs first. The Duty applied to new and existing products and
services that are open to sale (or renewal) from 31 July 2023 and to products
and services in closed books by 31 July 2024. This work has now been
completed and the annual Board report was submitted and approved in July 2024.
Following the PRA and FCA regulations on operational resilience from March
2022, Just identified its most important business services and set impact
tolerances for each. These are subject to regular scenario testing and an
annual self-Assessment is prepared for Board approval. Just continues to
evolve its operational resilience capability through the pillars that support
the delivery of business services.
The new Government has stated its intent to pursue leasehold reform which was
not implemented due to the election. The Group is closely monitoring the new
Government's agenda which remains uncertain following the recent King's Speech
and the possible impact of this on the Group's £163m portfolio of residential
ground rents. An adjustment was made at year end 2023 and no changes have been
made to that adjustment over half year 2024 to reflect the ongoing
uncertainty. For more information on the Group's exposure to residential
ground rents see the Business Review.
2 Our TCFD disclosures (pages 40 to 49 of the Just Group plc Annual Report and Just is proactive in pursuing its sustainability responsibilities and
Climate and ESG Accounts 2023) explain how climate-related risks and opportunities are recognises the importance of its social purpose. We have set targets for
embedded in Just's governance, strategy and risk management, with metrics to Scope 1, 2 and business travel to be carbon net zero by 2025. 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 Scope 3 including, but not limited to, our investment portfolio,
residential properties in our lifetime mortgage portfolio and the yields and stress-testing and scenario capabilities developed to date to assess the properties on which lifetime mortgages are secured and supply chain we have
default risk of our investment portfolios. Just's reputation could also be potential impact of climate risk on the Group's financial position. set net zero targets by 2050, with a 50% reduction in these emissions by 2030.
affected by missed emissions targets or inadequate actions on environmental
Performance against these targets is being monitored and reported.
issues or broader sustainability issues. The value of properties on which lifetime mortgages are secured can be
affected by: We continue to look to improve stress and scenario testing capabilities to
support the monitoring of potential climate change impact on our investment
(i) transition risk - such as potential government policy changes related to and LTMs portfolios with a particular focus on refining the quality of input
Strategic priorities the energy efficiency of residential properties; data.
1, 2, 3, 4, 5 (ii) physical risks - such as increased flooding due to severe rainfall, or The lifetime mortgage lending criteria will be kept under review and
more widespread subsidence after extended droughts. adjustments made as required.
Trend
A shortfall in property sale price against the outstanding mortgage could lead Under Just's Responsible Investment Framework, the ESG risks, including
Increasing to a loss due to the no-negative equity guarantee given to customers. climate change, are considered for liquid and illiquid assets. Risks arising
from flooding, coastal erosion and subsidence are taken into account in
The value of corporate bonds and illiquid investments can be affected by the lifetime mortgage lending decisions.
impact of climate risk on the assets or business models of corporate bond
issuers and commercial borrowers. Yields available from corporate bonds may The consideration of sustainability in investment decisions may restrict
also be affected by any litigation or reputational risks associated with the investment choice and the yields available; but may also create new
issuers' environmental policies or adherence to emissions targets. opportunities to invest in assets that are perceived to be more sustainable.
Following the BoE and PRA Climate and Capital Conference, in March 2023, the
BoE published a report setting out its thinking. This included consideration
of whether firms assess risks within the matching adjustment (MA) adequately
to allow for the capture of climate risk. They will also start to explore
whether it is appropriately reflected in external credit ratings (or firms'
own internal ratings) and if resulting MA benefits could be too large. The ABI
are maintaining engagement with key stakeholders including Just.
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 and to the financial management of the business. coming years and evolve in sophistication, especially with the increased
We maintain a framework of operational resilience and disaster recovery threat of sophisticated and expected high volumes of attacks resulting from
IT systems are key to serving customers and running the business. These capabilities so that we can continue to operate the business in adverse Artificial Intelligence. We will continue to closely monitor evolving external
systems may not operate as expected or may be subject to cyber-attack to steal circumstances. cyber threats to ensure our information security measures remain fit for
or misuse our data or for financial gain. Any system failure affecting the
purpose. Just's Chief Information Security Officer has recently implemented a
Group could lead to costs and disruption, adversely affecting its business and Protecting the personal information of our customers and colleagues is a key revised information security team structure and approach.
ability to serve its Customers, and reputational damage. priority.
2024 is seeing further investments in cyber-attack countermeasures, to enable
Internal controls and our people are integral to protecting the integrity of consistent delivery of required security standards, in line with our Cyber
our systems, with our multi-layered approach to information security strategy. We will continue to evaluate impacts of other new and emerging
Strategic priorities supported by training, embedded company policies and governance. technologies, such as Artificial Intelligence, during the year.
1, 2, 3, 4, 5 We continue to invest in strategic technologies. We also conduct severe but plausible cyber desktop scenarios exercises to
find gaps in our controls. To strengthen data security and overall resilience,
Trend in 2024, we are continuing to make enhancements to network architecture
and implementing data centre upgrades.
Stable
Our email system continues to be made more resilient to malicious attacks,
including detection of emerging types of phishing and malware.
A specialist security operations centre monitors all our externally facing
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,
including cloud, is continuously monitored 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.
In the long-term, the rates of mortality suffered by our customers may differ relate to business written prior to 2016.
from the assumptions made when we priced the contract.
Our views on the changes are updated annually taking into account recent data,
Reinsurance treaties include collateral to minimise exposure in the event of emerging best practice and expected trends. The assumptions about these
Strategic priorities a reinsurer default. Analysis of collateral arrangements can be found in Notes changes have been incorporated into Just's pricing across our Retirement
26 and 34 of the Just Group plc Annual Report and Accounts 2023. Income and Lifetime Mortgage products and will be updated as more information
1, 3, 4
becomes available.
Mortality experience continues to be volatile and remains above pre-pandemic
Trend levels. Changes in customer behaviour due to current higher interest rates have been
taken into account where appropriate.
Stable
5 Financial market volatility leads to changes in the level of market prices of Interest rates remain elevated and central banks affirm their intention to
Market and credit risk assets and liabilities. Our business model and risk management framework have lower rates slowly to ensure inflation hits and remains at target. Economic
been designed to remain robust against market headwinds. Our policy is to growth has been positive but low. The risks are that rates do not fall leading
Fluctuations in interest rates, residential property values, credit spreads, manage market risk within pre-defined limits. to wider difficulties from debt levels and refinancing. Given Financial
inflation and currency may result, directly or indirectly, in changes in the
markets are likely to remain volatile during this period.
level and volatility of market prices of assets and liabilities. Investment in fixed income investments exposes the Group to default risk and
subsequent losses should collateral and recovery be less than the expected Our investment assets may experience increased movements in downgrade and/or
investment value. Additionally, the Group is exposed to concentration risk and default experience.
to the downgrade of assets which shows an increased probability of default.
Investment credit risk is a result of investing to generate returns to meet
Sustained high interest rates may result in UK residential property price
our obligations to policyholders. Credit risk exposures arise due to the potential default by counterparties we falls, increasing the Group's exposure to the risk of shortfalls in expected
use to: repayments due to no-negative equity guarantee within its portfolio of
lifetime mortgages. Commercial property price falls would reduce the value of
• provide reinsurance to manage Group exposure to insurance risks, most collateral held within our loan portfolio secured against commercial
notably longevity risk; properties.
Strategic priorities • provide financial instruments to mitigate interest rate and currency risk Our balance sheet sensitivities to these risks can be found in note 9.
exposures; and
1, 3, 4
Credit risk on cash assets is managed by imposing restrictions over the credit
• hold our cash balances. ratings of third parties with whom cash is deposited.
Trend
To reduce risk, the Group ensures it trades with a wide range of
Increasing counterparties to diversify exposures.
All over-the-counter derivative transactions are conducted under standardised
International Swaps and Derivatives Association master agreements. The Group
has collateral agreements with relevant counterparties under each master
agreement.
Reinsurance transactions are collateralised to reduce the Group's exposure to
loss from default. The Group is aligned to SS5/24 - Funded Reinsurance in
respect of reinsurer counterparty risk measurement. An assessment of any
changes required is underway. Contracts offer protections against termination
due to various events.
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, Just is
• short term cash flow volatility leading to mismatches between cash flows experiencing strong market demand for defined benefit de-risking solutions
Having sufficient liquidity to meet our financial obligations as they fall due from assets and liabilities, particularly servicing collateral requirements from pension schemes.
requires ongoing management and the availability of appropriate liquidity of financial derivatives and reinsurance agreements;
cover. The liquidity position is stressed to reflect extremely volatile
Just's use of derivative positions is planned to increase in proportion to its
conditions such as those triggered by the September 2022 "mini-Budget". • 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
Increasing
7 Risks to the Group's strategy arise from regulatory change as the Group Regulation changes, such as Solvency II reform, have been agreed recently and
Strategic risk operates in regulated markets and has partners and distributors who are it is likely the Group's regulators will not make any significant change until
themselves regulated. Actions by regulators may change the shape and scale of these have been embedded. There is a risk that pension scheme regulation may
The choices we make about the markets in which we compete and the demand the market or alter the attractiveness of markets. change as a result of schemes' exposures. Demand for de-risking solutions is
for our product and service offering may be affected by external risks
expected to remain significant.
including changes to regulation, competition, or social changes. Changes in the nature or intensity of competition may impact the Group and
increase the risk the business model is not able to be maintained.
The actions of our competitors may increase the exposure to the risk from We expect the newly elected Labour government to introduce initiatives that
Strategic priorities regulation should they fail to maintain appropriate standards of prudence. will direct long-term investment in the UK, in part though initiatives arising
from a review of the pensions landscape. This may include initiatives to
1, 2, 3, 4, 5 consolidate and scale workplace pensions. There may also be changes to the
regulatory framework in a bid to drive innovation as the new Government embeds
Trend itself and decides any future policy. At the time of writing it is not
possible to judge the impact of these changes on the Group overall.
Stable
Statement of Directors' responsibilities
The Directors of the Company confirm that to the best of their knowledge, this
condensed consolidated financial information has been prepared in accordance
with UK-adopted International Accounting Standard 34 "Interim Financial
Reporting", and that the interim management report includes a fair review of
the information required by the Disclosure Guidance and Transparency Rules
("DTRs") sourcebook of the United Kingdom's Financial Conduct Authority,
paragraphs DTR 4.2.4R, DTR4.2.7R and DTR 4.2.8R, namely;
· the condensed set of financial statements gives a true and fair
view of the assets, liabilities, financial position and profit or loss of the
Company, or undertakings included in the consolidation;
· an indication of important events that have occurred during the
first six months and their impact on the condensed set of consolidated
financial statements, and a description of the principal risks and
uncertainties faced by the Company and the undertakings included in the
condensed consolidated set of financial information taken as a whole for the
remaining six months of the financial year; and
· material related party transactions and any material changes in
the related party transactions described in the last annual report.
There have been no changes to the Directors of Just Group plc to those listed
in the Just Group plc Annual Report for the year ended 31 December 2023. A
list of the current Directors is maintained on the Company's website:
www.justgroupplc.co.uk (http://www.justgroupplc.co.uk) .
By order of the Board:
David Richardson
Group Chief Executive Officer
12 August 2024
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 2024 (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 2024;
· 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
12 August 2024
Condensed consolidated statement of comprehensive income
for the period ended 30 June 2024
Note Six months ended Six months ended Year ended
30 June 2024
31 December 2023
£m 30 June 2023 £m
£m
Insurance revenue 859 753 1,555
Insurance service expenses (759) (682) (1,396)
Net expenses from reinsurance contracts (29) (17) (41)
Insurance service result 3 71 54 118
Investment return (180) - 2,173
Net finance income/(expense) from insurance contracts 348 151 (2,006)
Net finance (expense)/income from reinsurance contracts (34) (7) 108
Movement in investment contract liabilities - (1) (2)
Net investment result 4 134 143 273
Other income 8 12 21
Other operating expenses (40) (51) (104)
Other finance costs (92) (39) (122)
Share of results of associates accounted for using the equity method (7) (2) (14)
Profit before tax 74 117 172
Income tax expense 5 (20) (36) (43)
Profit for the period 54 81 129
Other comprehensive income:
Exchange differences on translating foreign operations (4) 1 -
Other comprehensive income for the period, net of income tax (4) 1 -
Total comprehensive income for the period 50 82 129
Profit attributable to:
Equity holders of Just Group plc 54 82 129
Non-controlling interest - (1) -
Profit for the period 54 81 129
Total comprehensive income attributable to:
Equity holders of Just Group plc 50 83 129
Non-controlling interest - (1) -
Total comprehensive income for the period 50 82 129
Basic earnings per share (pence) 6 4.6 7.3 11.3
Diluted earnings per share (pence) 6 4.6 7.2 11.2
The notes are an integral part of these financial statements.
Condensed consolidated statement of changes in equity
for the period ended 30 June 2024
Six months ended Share Share Other Retained Tier 1 Total Non- Total
capital
premium
reserves
earnings(1)
30 June 2024
£m
£m
£m
£m notes equity excluding NCI controlling interest £m
£m £m £m
At 1 January 2024 104 95 943 (259) 322 1,205 (2) 1,203
Profit for the period - - - 54 - 54 - 54
Other comprehensive income for the period, net of income tax - - - (4) - (4) - (4)
Total comprehensive income for the period - - - 50 - 50 - 50
Dividends - - - (16) - (16) - (16)
Interest paid on Tier 1 notes (net of tax) - - - (6) - (6) - (6)
Share-based payments - - 3 (3) - - - -
Total contributions and distributions - - 3 (25) - (22) - (22)
Acquisition of non-controlling interest - - - (3) - (3) 2 (1)
Total changes in ownership interests - - - (3) - (3) 2 (1)
At 30 June 2024 104 95 946 (237) 322 1,230 - 1,230
Six months ended Share Share Other Retained Tier 1 Total Non- Total
capital
premium
reserves
earnings(1)
30 June 2023
£m
£m
£m
£m notes equity excluding NCI controlling interest £m
£m £m £m
At 1 January 2023 104 95 938 (354) 322 1,105 (2) 1,103
Profit for the period - - - 82 - 82 (1) 81
Other comprehensive income for the period, net of income tax - - - 1 - 1 - 1
Total comprehensive income for the period - - - 83 - 83 (1) 82
Dividends - - - (13) - (13) - (13)
Interest paid on Tier 1 notes (net of tax) - - - (6) - (6) - (6)
Share-based payments - - 7 (4) - 3 - 3
Total contributions and distributions - - 7 (23) - (16) - (16)
At 30 June 2023 104 95 945 (294) 322 1,172 (3) 1,169
Year ended Share Share Other Retained Tier 1 Total Non- Total
capital
premium
reserves
earnings(1)
31 December 2023
£m
£m
£m
£m notes equity excluding NCI controlling interest £m
£m £m £m
At 1 January 2023 104 95 938 (354) 322 1,105 (2) 1,103
Profit for the year - - - 129 - 129 - 129
Total comprehensive income for the year - - - 129 - 129 - 129
Dividends - - - (19) - (19) - (19)
Interest paid on Tier 1 notes (net of tax) - - - (12) - (12) - (12)
Share-based payments - - 5 (3) - 2 - 2
Total contributions and distributions - - 5 (34) - (29) - (29)
At 31 December 2023 104 95 943 (259) 322 1,205 (2) 1,203
(1) Includes currency translation reserve of £5m (31 December 2023:
£1m, 30 June 2023: £0.1m).
The notes are an integral part of these financial statements.
Condensed consolidated statement of financial position
as at 30 June 2024
Note 30 June 2024 31 December 2023 30 June 2023
£m
£m £m
Assets
Intangible assets 41 41 45
Property and equipment 24 22 21
Investment property 27 32 40
Financial investments 8 31,029 29,423 26,161
Investments accounted for using the equity method 139 149 161
Reinsurance contract assets 12 1,108 1,143 719
Deferred tax assets 5 392 406 418
Current tax assets 1 4 -
Prepayments and accrued income 16 12 17
Other receivables 40 60 48
Cash available on demand 570 546 573
Total assets 33,387 31,838 28,203
Equity
Share capital 10 104 104 104
Share premium 10 95 95 95
Other reserves 946 943 945
Retained earnings (237) (259) (294)
Total equity attributable to shareholders of Just Group plc 908 883 850
Tier 1 notes 11 322 322 322
Total equity attributable to owners of Just Group plc 1,230 1,205 1,172
Non-controlling interest - (2) (3)
Total equity 1,230 1,203 1,169
Liabilities
Insurance contract liabilities 12 24,794 24,131 20,606
Reinsurance contract liabilities 12 79 125 103
Investment contract liabilities 38 35 29
Loans and borrowings 13 687 686 710
Payables and other financial liabilities(1) 14 6,520 5,608 5,552
Current tax liabilities - - 1
Accruals and provisions 39 50 33
Total liabilities 32,157 30,635 27,034
Total equity and liabilities 33,387 31,838 28,203
(1) Other payables has been aggregated with other financial liabilities
in all periods presented.
The notes are an integral part of these financial statements.
The financial statements were approved by the Board of Directors on 12 August
2024 and were signed on its behalf by:
MARK GODSON
Director
Condensed consolidated statement of cash flows
for the period ended 30 June 2024
Note Six months ended Six months ended Year ended 31 December 2023
30 June 2024 30 June 2023 £m
£m
£m
(restated)
Cash flows from operating activities
Profit before tax 74 117 172
Adjustments for:
Depreciation / amortisation and impairment 3 3 8
Share of results from associates 7 2 14
Share-based payments - 2 1
Interest income (577) (498) (1,104)
Interest expense 92 39 122
Change in operating assets and liabilities:
Net increase in financial investments (1,241) (2,643) (6,069)
Decrease in investment properties 5 8 1
(Increase)/decrease in net reinsurance contracts(1) (11) 40 (363)
Increase in prepayments and accrued income (4) (6) (1)
Decrease in other receivables 19 14 3
Increase in insurance contract liabilities 663 958 4,484
Increase/(decrease) in investment contract liabilities 3 (3) 2
(Decrease)/increase in accruals and provisions (11) - 16
Increase in net derivatives liabilities, financial liabilities and other 845 1,648 1,774
payables(2)
Interest received 541 480 1,075
Taxation received - 6 6
Net cash inflow from operating activities 408 167 141
Cash flows from investing activities
Acquisition of property and equipment (5) - (2)
Dividends from associates 3 - -
Net cash outflow from investing activities (2) - (2)
Cash flows from financing activities
Decrease in borrowings (net of costs) - - (26)
Acquisition of non-controlling interests (1) - -
Dividends paid 7 (16) (13) (19)
Coupon paid on Tier 1 notes 7 (8) (8) (16)
Interest paid on borrowings (23) (24) (48)
Payment of lease liabilities - principal (1) (1) (1)
Net cash outflow from financing activities (49) (46) (110)
Net increase in cash and cash equivalents 357 121 29
Foreign exchange differences on cash balances (3) 1 2
Cash and cash equivalents at start of period 1,687 1,656 1,656
Cash and cash equivalents at end of period 2,041 1,778 1,687
Cash available on demand 570 573 546
Units in liquidity funds 1,471 1,205 1,141
Cash and cash equivalents at end of period 2,041 1,778 1,687
(1) Net reinsurance contracts has been restated by a £36m reduction,
which was previously reported under interest paid, related to fixed-leg
payments to reinsurers in HY23.
(2) Other payables has been aggregated with other financial liabilities
in all periods presented.
The notes are an integral part of these financial statements.
Notes to the Condensed consolidated interim financial statements
1. BASIS OF PREPARATION
These Condensed consolidated 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 2024.
These Condensed consolidated interim financial statements for the half-year
reporting period ended 30 June 2024 have 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 consolidated interim financial statements need to be read in
conjunction with the Annual Report and Accounts for the year ended 31 December
2023 which were prepared 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 consolidated 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 2023 have
been taken from the Group's 2023 Annual Report and Accounts. The Group's 2023
Annual Report and Accounts was approved by the Board of Directors on 7 March
2024 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 2023 have been taken from the Group's Interim Results for the six months
to 30 June 2023.
(a) Going concern
A going concern assessment has been undertaken and having completed this, 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 signing of this report and that there is no material uncertainty in
relation to going concern. Accordingly, the going concern basis continues to
be applied in preparing these Condensed consolidated interim financial
statements.
This assessment includes a current update on the previous annual assessment
performed earlier in the year which covered the period to 31 December 2025 and
considered of the Group's business plan approved by the Board, the projected
liquidity positions of the Company and the Group, impacts of economic
stresses, the Group's 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.
As part of that annual assessment the resilience of the solvency capital
position was 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 including
residential ground rents, mortality, and risk-free rates. More extreme
stresses and scenarios were also considered, including a scenario of the
worst case outcome of peppercorn rent from the previous Government
consultation regarding restriction of ground rent for existing residential
leases in 2023 (as explained in note 16), and also a reverse property stress.
Eligible own funds exceeded the minimum capital requirement in all of these
stressed scenarios and the Directors concluded that the Group continued to be
a going concern in all the scenarios described above.
The current update to this assessment considers performance in the period
against the business plan, the latest forward-looking forecast, the liquidity
position, Solvency position and the potential impact on solvency from stresses
in a scenario that the Group considers to represent a severe economic
downside.
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 Group and its insurance companies to protect policyholders and meet
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 Group has a robust liquidity framework designed to withstand a range of
"worst case" 1-in-200 year historic liquidity events. The Group liquid
resources includes the Parent Company's undrawn revolving credit facility of
up to £400m for general corporate and working capital purposes. The borrowing
facility is subject to financial covenants that are measured biannually as at
the end of 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 2024 was 22% (31 December 2023: 24%). 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.
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.
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. Accordingly, the going concern basis has been
adopted in the valuation of assets and liabilities.
(b) New accounting standards and new material accounting policies
The Group has applied UK-adopted IFRS for the preparation of these Condensed
consolidated interim financial statements. The accounting policies applied in
the preparation of these Condensed consolidated interim financial statements
are consistent with those applied in the preparation of the Group's
consolidated financial statements for the year ended 31 December 2023. There
have been no changes in accounting standards adopted in 2024 that have a
material impact on the Group.
The following new accounting standards are in issue but not endorsed yet.
These have not yet been adopted by the Group and are not expected to have a
significant impact on the results within the financial statements:
· IFRS 18 'Presentation and Disclosure in Financial Statements'
(effective 1 January 2027).
· IFRS 19 'Subsidiaries without Public Accountability: Disclosure'
(effective 1 January 2027).
(c) Material accounting policies and the use of judgements, estimates and
assumptions
The preparation of Condensed consolidated interim financial statements
requires the Group to select accounting policies and make estimates and
assumptions that affect items reported in the Condensed consolidated statement
of comprehensive income, Condensed consolidated statement of financial
position, other primary statements and notes to the Condensed consolidated
interim financial statements.
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. Sensitivities of investments and insurance contracts to reasonably
possible changes in significant estimates and assumptions are included in
notes 9(d) and 12(f) respectively.
The judgements, estimates and assumptions adopted by the Group are consistent
with those applied in the preparation of the Group's consolidated financial
statements for the year ended 31 December 2023. As explained in note 12(b)
the Group has made a small adjustment to the base mortality assumptions on
certain products in these financial statements.
2. SEGMENTAL REPORTING
Segmental analysis
The operating segments from which the Group derives income and incurs expenses
are as follows:
• Insurance segment: the writing of insurance products for distribution to
the at- or in-retirement market and the DB de-risking market;
• Advisory segments: the arranging of retirement income products through
regulated advice and intermediary services and the provision of licensed
software to financial advisers, banks, building societies, life assurance
companies and pension trustees.
The insurance segment writes insurance products for the retirement market -
which include Guaranteed Income for Life Solutions, Defined Benefit De-risking
Solutions, Care Plans and Protection - and invests the premiums received from
these contracts in debt and other fixed income securities, gilts, liquidity
funds, Lifetime Mortgage advances and other illiquid assets.
The advisory segments of the professional services business, HUB, represents
the other operating segments. The HUB Retirement solutions and Digital wealth
operating segments are not currently sufficiently significant to disclose
separately as a reportable segment. In the segmental profit table below, the
single reportable segment for Insurance is reconciled to the total Group
result by including an "Other" column which includes the non-reportable
segments plus the other companies' results. This 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.
The internal reporting used by the Chief Operating Decision Maker ("CODM")
includes segmental information regarding premiums and profit. Material product
information is analysed by product line and includes shareholder funded DB,
GIfL, DB Partnering, Care Plans, Protection, Lifetime mortgage ("LTM") and
Drawdown products. Further information on the DB partnering transactions is
included in the Business review. The information on adjusted operating profit
and profit before tax used by the CODM is presented on a combined product
basis within the insurance operating segment and is not analysed further by
product.
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 performance of the business. 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 an expected return on surplus assets
of 4% (HY23: 4%), the expected unwind of allowances for credit default and
the release of the risk adjustment.
Underlying operating profit excludes strategic expenditure, and where
applicable any impairments, exceptional items and amortisation of intangible
assets arising on consolidation, since these items arise outside the normal
course of business in the year.
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, within investment and
economic movements.
Segmental reporting and reconciliation to financial information
Six months ended 30 June 2024 Six months ended 30 June 2023
Insurance Other Total Insurance Other Total
£m
£m
£m
£m
£m
£m
New business profits 222 - 222 161 - 161
CSM amortisation(1) (33) - (33) (29) - (29)
Net underlying CSM increase(2) 189 - 189 132 - 132
In-force operating profit(1) 111 3 114 89 3 92
Other Group companies' operating results - (11) (11) - (8) (8)
Development expenditure (9) (1) (10) (9) (1) (10)
Finance costs (42) 9 (33) (42) 9 (33)
Underlying operating profit 249 - 249 170 3 173
Operating experience and assumption changes(1) (3) - (3) 1 - 1
Adjusted operating profit before tax 246 - 246 171 3 174
Investment and economic movements 22 1 23 65 6 71
Strategic expenditure (10) (3) (13) (4) (3) (7)
Adjustment for transactions reported directly in equity in IFRS 14 (3) 11 14 (6) 8
Adjusted profit before tax 272 (5) 267 246 - 246
Deferral of profit in CSM(1) (193) - (193) (129) - (129)
Profit before tax 79 (5) 74 117 - 117
Year ended 31 December 2023
Insurance Other Total
£m
£m
£m
New business profits 355 - 355
CSM amortisation(1) (62) - (62)
Net underlying CSM increase(2) 293 - 293
In-force operating profit(1) 185 6 191
Other Group companies' operating results - (22) (22)
Development expenditure (16) (1) (17)
Finance costs (84) 16 (68)
Underlying operating profit 378 (1) 377
Operating experience and assumption changes(1) 52 - 52
Adjusted operating profit before tax 430 (1) 429
Investment and economic movements 106 (14) 92
Strategic expenditure (8) (9) (17)
Adjustment for transactions reported directly in equity in IFRS 28 (12) 16
Adjusted profit before tax 556 (36) 520
Deferral of profit in CSM(1) (348) - (348)
Profit before tax 208 (36) 172
1: See glossary for definition
2: New business profitability is valued based on quotation date in the new
business profitability measure used by the Chief Operating Decision Maker. In
IFRS, new business is measured based on the completion date and therefore
there is a quotation date reconciling item between the segmental reporting
profit and IFRS profit.
The reconciliation of the non-GAAP new business profit 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 and equipment, and amortisation of
intangible assets are materially all allocated to the insurance segment. The
adjustment for transactions reported directly in equity in IFRS primarily
relates to interest on the Tier 1 notes. 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 2023
ended 30 June 2023 £m
30 June 2024
£m £m
Defined Benefit De-risking Solutions ("DB") 1,874 1,429 2,999
Guaranteed Income for Life contracts ("GIfL")(1) 600 470 894
Retirement Income sales (shareholder funded) 2,474 1,899 3,893
Defined Benefit De-risking partnering ("DB partnering") - - 416
Retirement Income sales 2,474 1,899 4,309
Premium adjustments to in-force policies 4 - (27)
Net change in premiums receivable (445) 203 212
Premium cash flows (note 12(c)) 2,033 2,102 4,494
(1) GIfL includes UK GIfL, South Africa GIfL and Care Plans.
3. INSURANCE SERVICE RESULT
Six months ended Six months ended Year ended
30 June 2024 30 June 2023 31 December 2023
£m £m £m
Insurance revenue
Contractual service margin recognised for services provided 86 67 156
Change in risk adjustment for non-financial risk for risks expired 5 7 11
Expected incurred claims and other insurance service expenses 753 671 1,369
Recovery of insurance acquisition cash flows 15 8 19
Total insurance revenue 859 753 1,555
Insurance service expenses
Actual claims and maintenance expenses (744) (674) (1,377)
Amortisation of insurance acquisition cash flows (15) (8) (19)
Total insurance service expenses (759) (682) (1,396)
Net expenses from reinsurance contracts (29) (17) (41)
Insurance service result 71 54 118
The contractual service margin ("CSM") release of £86m (HY23: £67m / FY23:
£156m) represents 6.4% annualised (HY23: 6.4% annualised / FY23: 6.0%) of the
CSM reserve balance immediately prior to release. On a net of reinsurance
basis, the CSM release of £75m into profit (HY 23: £56m) represents an
annualised 6.7% (HY 23: 6.2%) of the CSM balance immediately prior to release.
The release in the first six months of 2024 includes the effects of the
deferral in CSM of the demographic assumption changes made at 31 December 2023
and the new business written in 2024.
Expected incurred claims and other insurance service expenses of £753m (HY23:
£671m / FY23: £1,369m) is broadly in line with the actual claims and
maintenance expenses incurred of £744m (HY23: £674m / FY23: £1,377m). These
amounts exclude investment components such as payments within guarantee
periods. The continued increase reflects the growth and maturity of the
business, the increase in the proportion of DB business and the reduction in
the proportion of claims relating to guarantee periods as pre
pensions-freedoms policies exit guarantee periods in 2024.
Total incurred expenses in the period were £890m (HY23: £817m / FY23:
£1,683m) and are reported within: Insurance service expenses £759m (HY23:
£682m / FY23: £1,396m), Other operating expenses £40m (HY23: £51m / FY23:
£104m) and insurance acquisition costs deferred in the CSM of £91m (HY23
£84m / FY23 £183m) (see note 12(e)).
Other operating expenses include development and strategic expenses of £23m
(HY23: £17m / FY23: £34m), and investment maintenance expenses and costs
associated with non-insurance activities within the group totalling £17m
(HY23: £36m / FY23: £70m).
4. NET INVESTMENT RESULT
Six months Six months
ended ended Year ended
30 June 2024 30 June 2023 31 December 2023
£m £m £m
Investment return
Interest income on assets at amortised cost 59 11 54
Interest income on assets designated at FVTPL 416 357 806
Interest income on assets mandatorily measured at FVTPL: LTMs 102 130 244
Movement in fair value of financial assets designated at FVTPL (627) (464) 424
Movement in fair value of financial assets mandatorily measured at FVTPL: LTMs (172) (179) 278
Net gains on financial assets mandatorily measured at FVTPL: Derivatives 46 144 365
Foreign exchange (losses)/gains on amortised cost assets (4) 1 2
Total investment return (180) - 2,173
Net finance income/(expenses) from insurance contracts
Interest accreted (844) (603) (1,317)
Effect of changes in interest rates and other financial assumptions 1,173 752 (622)
Effect of measuring changes in estimates at current rates and adjusting the 19 2 (67)
CSM at rates on initial recognition
Total net finance income/(expenses) from insurance contracts 348 151 (2,006)
Net finance (expense)/income from reinsurance contracts (34) (7) 108
Movement in investment contract liabilities - (1) (2)
Net investment result 134 143 273
The Net investment result of £134m (HY23: £143m / FY23: £273m) is the net
impact on the Group from the movement in the insurance contracts and the
investment assets that back those contracts in the period, together with the
investment result on surplus assets. The principal driver over the period is
the changes in the value of the investment assets and net insurance
liabilities due to changes in long-term interest rates.
These amounts will not completely offset for a number of reasons, including:
• the term structures for financial investments held and net
insurance liabilities are not identical;
• the existence of surplus assets held on the balance sheet which do
not back insurance liabilities and the value of which are subject to changes
in interest rates; and
• the deduction of a credit default allowance from the interest rate
used to value insurance liabilities.
Investment return
Investment return includes interest on the Group's investment assets together with mark to market movements on portfolios held at fair value through profit or loss. The growth in interest income reflects both the Group's continued investment of new business premiums into additional holdings of fixed income investments and the growth in the amortised cost portfolio of Gilts. The amortised cost portfolio has been established in tranches over the past 15 months and now totals £3bn. The Group invested over £1bn into fixed income investments over H1 2024, and only £0.1bn in LTMs, amounting 5% of new business.
The Group's fixed income and LTM portfolios are long dated and are all exposed
to changes in long term risk free rates. Mark to market losses incurred on the
Group's fixed income and LTM portfolios reflects increases in long-term
interest rates over the period. In the prior period, expectations of long-term
interest rates rose over H1 2023 and reduced over H2 2023, resulting in mark
to market losses in H1 2023, more than offset by mark to market gains over H2
2023.
Net finance income/(expenses) from insurance contracts
Interest accreted of £844m (HY23: £603m / FY23: £1,317m) 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 increase in accretion reflects the growth in the size of the insurance portfolio and rises in interest rates, which drives the locked-in accretion rate for new business written. The majority of the opening 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, resulted in increased accretion.
The principal economic assumption changes impacting the movement in insurance liabilities during the period of £1,173m gain (HY23: £752m gain / FY23: £622m loss) relate to discount rates and inflation. The CSM is held at locked-in discount rates and benefit inflation, and hence the effect of the change in interest rates experienced in the period applies only to the future cash flows and risk adjustment components of the insurance contract liabilities.
5. INCOME TAX
Six months ended Six months Year ended
30 June 2024
ended
31 December
£m
30 June 2023
2023
£m
£m
Current taxation
Current year tax on current year profits 2 2 -
Adjustments in respect of prior periods 4 - -
Total current tax 6 2 -
Deferred taxation
Deferred tax recognised for losses in the current period (3) - (2)
Origination and reversal of temporary differences 1 10 6
Adjustments in respect of prior periods (1) 6 3
Tax relief on the transitional adjustment on IFRS 17 implementation 17 16 34
Remeasurement of deferred tax - change in UK tax rate - 2 2
Total deferred tax 14 34 43
Total income tax recognised in profit or loss 20 36 43
The deferred tax assets and liabilities have been calculated at 25%, the
current corporation tax rate, and the rate at which they are expected to
reverse.
In accordance with Paragraph 4A of IAS 12 "Income taxes", the Group has not
recognised nor disclosed information about deferred tax assets and liabilities
related to Pillar Two income taxes. The Group does not currently expect the
effect of the Pillar Two legislation to have a material impact on the tax
position in future periods.
Reconciliation of total income tax to the applicable tax rate
Six months ended Six months Year ended
30 June 2024
ended
31 December
£m
30 June 2023
2023
£m
£m
Profit on ordinary activities before tax 74 117 172
Income tax at 25% (30 June 2023: 23.5%, 31 Dec 2023: 23.5%) 18 28 40
Effects of:
Expenses not deductible for tax purposes - - 2
Remeasurement of deferred tax - change in UK tax rate - 2 2
Adjustments in respect of prior periods 3 6 3
Other (1) - (4)
Total income tax recognised in profit or loss 20 36 43
Income tax recognised directly in equity
Six months ended Six months Year ended
30 June 2024
ended
31 December
£m
30 June 2023
2023
£m
£m
Current taxation
Relief on Tier 1 interest (2) - (4)
Total current tax (2) - (4)
Deferred taxation
Relief on Tier 1 interest - (2) -
Total deferred tax - (2) -
Total income tax recognised directly in equity (2) (2) (4)
6. EARNINGS PER SHARE
The calculation of basic and diluted Earnings Per Share "EPS" 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.
Earnings for the purposes of determining earnings per share and diluted
earnings per share is calculated by adjusting the profit or loss attributable
to ordinary equity holders of the Company for amounts in respect of the Tier 1
notes. This is based on the judgement that the rights associated with the Tier
1 notes are similar to preference shares. Adjustments include coupon payments
and any gains/losses on redemption where appropriate.
Six months ended - 30 June 2024 Six months ended - 30 June 2023
Earnings Weighted-average no. shares m EPS Earnings Weighted-average no. shares m EPS
£m pence £m pence
Profit attributable to equity holders of Just Group plc 54 n/a n/a 82 n/a n/a
Coupon payments in respect of Tier 1 notes (net of tax) (6) n/a n/a (6) n/a n/a
Profit attributable to ordinary equity holders of Just Group plc (basic) 48 1,035 4.6 76 1,029 7.3
Effect of potentially dilutive share options(1) - 12 - - 24 (0.1)
Diluted profit attributable to ordinary equity holders of Just Group plc 48 1,047 4.6 76 1,053 7.2
Year ended - 31 December 2023
Earnings Weighted- average no. shares m EPS
£m pence
Profit attributable to equity holders of Just Group plc 129 n/a n/a
Coupon payments in respect of Tier 1 notes (net of tax) (12) n/a n/a
Profit attributable to ordinary equity holders of Just Group plc (basic) 117 1,032 11.3
Effect of potentially dilutive share options - 17 (0.1)
Diluted profit attributable to ordinary equity holders of Just Group plc 117 1,049 11.2
7. DIVIDENDS AND APPROPRIATIONS
Dividends and appropriations paid in the period were as follows:
Six months Six months ended Year ended
31 December 2023
ended 30 June 2023
30 June 2024
£m
£m
£m
Final dividend
Final dividend in respect of prior year end 16 13 13
Interim dividend
Interim dividend in respect of current year end - - 6
Total dividends paid 16 13 19
Coupon payments in respect of Tier 1 notes(1) 8 8 16
Total distributions to equity holders in the period 24 21 35
(1) Coupon payments on Tier 1 notes are treated as an appropriation of
retained profits and, accordingly, are accounted for when paid.
A final dividend in respect of 2023 of 1.50 pence per ordinary share was
declared in March 2024 and paid on 15 May 2024. The final dividend recognised
within the HY and FY 2023 results above represented a dividend of 1.23 pence
per ordinary share and paid on 17 May 2023.
In addition to the amounts recognised in the Condensed consolidated interim
financial statements above, subsequent to 30 June 2024, the Directors approved
an interim dividend for 2024 of 0.7 pence per ordinary share, amounting to
£7m in total, which will be paid on 4 October 2024. The interim dividend
paid in 2023 was 0.58 pence per ordinary share, which resulted in a payment of
£6m on 4 October 2023.
8. 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.
The table below summarises the classification of the Group's financial assets
and liabilities.
Analysis of financial investments
30 June 2024 31 December 2023 30 June 2023
£m
£m
£m
Units in liquidity funds 1,471 1,141 1,205
Investment funds 510 495 440
Debt securities and other fixed income securities 14,358 13,654 11,781
Deposits with credit institutions 621 706 749
Loans secured by commercial mortgages 800 764 629
Long income real estate(1) 758 779 647
Infrastructure loans 1,088 1,113 1,057
Other loans 183 164 139
Total investments measured at FVTPL - designated 19,789 18,816 16,647
Loans secured by residential mortgages 5,554 5,681 5,177
Derivative financial assets 2,343 2,377 2,366
Total investments measured at FVTPL - mandatory 7,897 8,058 7,543
Gilts - subject to repurchase agreements 3,343 2,549 1,971
Total investments measured at amortised cost 3,343 2,549 1,971
Total financial investments 31,029 29,423 26,161
(1) Includes £163m (FY23: £176m) residential and £595m (FY23: 603m)
commercial ground rents at 30 June 2024.
Units in liquidity funds comprise wholly of units in funds which invest in
very short dated liquid assets. However as they do not meet the definition of
Cash available on demand, liquidity funds are reported within Financial
investments. Liquidity funds do however meet the definition of cash
equivalents for the purposes of disclosure in the Condensed consolidated
statement of cash flows.
The majority of investments included in debt securities and other fixed income
securities are listed investments. The Group also originates illiquid fixed
income assets including infrastructure, real estate and private placements.
Long income real estate investments are typically much longer duration and
hence the cash flow profile is more appropriate to match DB deferred
liabilities.
Deposits with credit institutions with a carrying value of £621m (31 December
2023: £706m / 30 June 2023: £734m) have been pledged as collateral in
respect of the Group's derivative and repurchase agreement financial
instruments. Amounts pledged as collateral are deposited with the derivative
or repurchase agreement counterparty.
Derivatives are reported within Financial investments where the derivative
valuation is in an asset position, or alternatively within Payables and other
financial liabilities where the derivative is in a liability position.
During H1 2023 the Group first established an amortised cost portfolio; the
Group has now invested over £3bn in long dated gilts that are held within
this portfolio, to significantly reduce the Solvency II coverage ratio
sensitivity to future interest rate movements, with a much reduced volatility
on the IFRS position.
9. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
This note explains the methodology for valuing the Group's financial assets
and liabilities 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 Condensed consolidated interim 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 including those
about risk.
The sensitivity of Level 3 investments to reasonably possible alternative
assumptions for unobservable inputs used in the valuation model that could
give rise to significant changes in the fair value of the assets is included
in section (d). The sensitivities in this note 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 assets and hence the valuation
discount rate used to determine insurance contract liabilities.
Assessment of the observability of pricing information
All assets classified as Level 1 and 2 are valued using observable market data
from standard market pricing sources such as Bloomberg.
Debt securities and financial derivatives categorised as Level 1 and Level 2
are valued using observable data, either directly (as prices) or indirectly
(derived from prices). The pricing data for the Level 2 instruments undergoes
expert review to determine its quality. For instance, the pricing data is
sourced from multiple external sources (such as Bloomberg and Thompson
Reuters) and is subject to several monitoring controls, such as monthly price
variances, stale price reviews and variance analysis. If the data quality is
not sufficiently high, the instrument is reassigned to Level 3.
If Bloomberg's pricing service (BVAL) assigns a low score to the pricing data
provided by brokers/asset managers, the instruments are then classified as
Level 3.
The Group's assets and liabilities held at fair value, which are valued using
valuation techniques for which observable market data are not available and
classified as Level 3, include loans secured by mortgages, long-income real
estate, infrastructure loans, private placement debt securities, investment
funds, other loans and also the Group's investment contract liabilities.
(b) Analysis of assets and liabilities held at fair value according to fair
value hierarchy
30 June 2024 31 December 2023
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 1,466 5 - 1,471 1,135 6 - 1,141
Investment funds - 112 398 510 - 97 398 495
Debt securities and other fixed income securities 5,701 5,212 3,445 14,358 4,941 5,799 2,914 13,654
Deposits with credit institutions 621 - - 621 706 - - 706
Loans secured by commercial mortgages - - 800 800 - - 764 764
Long income real estate - - 758 758 - - 779 779
Infrastructure loans - - 1,088 1,088 - - 1,113 1,113
Other loans - 53 130 183 - 41 123 164
Loans secured by residential mortgages - - 5,554 5,554 - - 5,681 5,681
Derivative financial assets - 2,343 - 2,343 - 2,377 - 2,377
Financial investments 7,788 7,725 12,173 27,686 6,782 8,320 11,772 26,874
Investment property - - 27 27 - - 32 32
Fair value of financial assets held at amortised cost
Gilts - subject to repurchase agreements (fair value) 3,213 - - 3,213 2,614 - - 2,614
Total financial assets and investment property 11,001 7,725 12,200 30,926 9,396 8,320 11,804 29,520
Liabilities held at fair value
Investment contract liabilities - - 38 38 - - 35 35
Derivative financial liabilities - 2,369 10 2,379 - 2,473 14 2,487
Fair value of financial liabilities at amortised cost
Obligations for repayment of cash collateral received (fair value) 690 - - 690 511 21 - 532
Loans and borrowings at amortised cost (fair value) - 706 - 706 - 694 - 694
Repurchase obligation (fair value) - 3,332 - 3,332 - 2,569 - 2,569
Total financial liabilities 690 6,407 48 7,145 511 5,757 49 6,317
30 June 2023
Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
Assets held at fair value through profit or loss
Units in liquidity funds 1,200 5 - 1,205
Investment funds - 86 354 440
Debt securities and other fixed income securities 3,012 6,951 1,818 11,781
Deposits with credit institutions 733 16 - 749
Loans secured by commercial mortgages - - 629 629
Long income real estate - - 647 647
Infrastructure loans - - 1,057 1,057
Other loans - 27 112 139
Loans secured by residential mortgages - - 5,177 5,177
Derivative financial assets - 2,366 - 2,366
Financial investments 4,945 9,451 9,794 24,190
Investment property - - 40 40
Fair value of financial assets held at amortised cost
Gilts - subject to repurchase agreements (fair value) 1,965 - - 1,965
Total financial assets and investment property 6,910 9,451 9,834 26,195
Liabilities held at fair value
Investment contract liabilities - - 29 29
Derivative financial liabilities - 2,700 13 2,713
Fair value of financial liabilities at amortised cost
Obligations for repayment of cash collateral received (fair value) 654 43 - 697
Loans and borrowings at amortised cost (fair value) - 706 - 706
Repurchase obligation (fair value) - 1,915 - 1,915
Total financial liabilities 654 5,364 42 6,060
(c) Transfers between levels
The Group's policy is to assess pricing source changes and determine transfers
between levels as of the end of each half-yearly reporting period. Transfers
between levels arise from changes in the pricing sources. During the period
there were the following transfers between levels:
· Transfers from Level 2 to Level 1 as a result of improved pricing
sources were £1,126m (31 December 2023: £1,492m / 30 June 2023: nil)
· Transfers from Level 1 to Level 2 due to a fall in pricing
quality were £314m (31 December 2023: £279m / 30 June 2023: nil)
(d) 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 commercial mortgages Long Infra- Other loans Loans secured by residential mortgages Investment contract liabilities Derivative financial liabilities
30 June 2024
funds £m £m income structure £m £m £m £m
£m real estate loans
£m £m
At 1 January 2024 398 2,914 764 779 1,113 123 5,681 (35) (14)
Purchases/advances/ deposits 20 1,027 117 24 25 - 115 (7) -
Transfers to Level 3 - 106 - - - - - - -
Transfers from Level 3 - (384) - - - - - - -
Sales/redemptions/ payments (38) (75) (68) (7) (22) - (167) 4 -
Recognised in profit or loss in investment return
- Realised gains and losses - - - - - - 66 - -
- Unrealised gains and losses 18 (146) (13) (38) (28) 2 (239) - 4
Interest accrued - 3 - - - 5 98 - -
Change in fair value of liabilities recognised in profit or loss - - - - - - - - -
At 30 June 2024 398 3,445 800 758 1,088 130 5,554 (38) (10)
Year ended Investment Debt securities and other fixed income securities Loans secured by commercial mortgages Long Infra- Other loans Loans secured by residential mortgages Investment contract liabilities Derivative financial liabilities
31 December 2023
funds £m £m income structure £m £m £m £m
£m real estate £m loans
£m
At 1 January 2023 338 1,605 584 247 948 112 5,306 (33) (42)
Purchases/advances/ 56 1,195 256 529 138 17 186 (12) -
deposits
Transfers to Level 3 - 157 - - - - - - -
Transfers from Level 3 - (15) - - - - - - -
Sales/redemptions/ 4 (116) (110) (4) (50) - (342) 1 23
payments
Recognised in profit or loss in investment return
- Realised gains and losses - - - - - - 122 - -
- Unrealised gains and losses - 93 32 7 72 (16) 164 - 5
Interest accrued - (5) 2 - 5 10 245 - -
Change in fair value of liabilities recognised in profit or loss - - - - - - - 9 -
At 31 December 2023 398 2,914 764 779 1,113 123 5,681 (35) (14)
Six months ended Investment Debt securities and other fixed income securities Loans secured by commercial mortgages Long Infra- Other loans Loans secured by residential mortgages Investment contract liabilities Derivative financial liabilities
30 June 2023 funds £m £m income structure £m £m £m £m
£m real estate £m loans
£m
At 1 January 2023 338 1,605 584 247 948 112 5,306 (33) (42)
Purchases/advances/ 36 320 96 434 138 6 87 (4) -
deposits
Sales/redemptions/ (16) (28) (43) (3) (16) - (162) - -
payments
Recognised in profit or loss in investment return
- Realised gains and losses - - - - - - 56 - 21
- Unrealised gains and losses(1) (4) (68) (8) (31) (13) (6) (238) - 8
Interest accrued - (11) - - - - 128 - -
Change in fair value of liabilities recognised in profit or loss - - - - - - - 8 -
At 30 June 2023 354 1,818 629 647 1,057 112 5,177 (29) (13)
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% (31
December 2023 and 30 June 2023: 10%).
Sensitivity analysis
The sensitivity of the fair value of investment funds to changes in the
discount rate assumptions is not material.
Debt securities and other fixed income securities
In line with market practice, fixed-income securities are generally valued
using independent pricing services such as Bloomberg and Thompson Reuters.
When pricing data is unavailable 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, asset backed securities and
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 2024 (271)
31 December 2023 (293)
30 June 2023 (131)
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. The Black 76 variant of the
Black Scholes option pricing model has been used 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 in recent years represented market prices specific to the characteristics
of the underlying portfolios of loans sold, in particular: loan rates;
loan-to-value ratios; 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 determine 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 12.
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 3.7% (31 December 2023: 3.6% / 30 June 2023:
4.0%).
Mortality
Mortality assumptions have been derived with reference to England and Wales
population mortality using the CMI 2022 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 and wider UK mortality trends, which
remains unchanged from 31 December 2023. Further details of the matters
considered in relation to mortality assumptions at 30 June 2024 are set out in
note 12.
Property prices
The approach in place at 30 June 2024, which is the same as at 31 December
2023, 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 2024, 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 index inflation metric, "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 2023: 3.3% / 30 June 2023: 3.3%),
with a volatility assumption of 13% per annum (31 December 2023: 13% / 30
June 2023: 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
the COVID-19 pandemic and a higher interest and inflation rate economic
environment on the UK property market. Increases in house price indices have
been observed over the year to date, albeit this only represents a short time
period in relation to the long-term assumption being considered here. 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 2023. The sensitivity of loans secured by
mortgages to changes in future property price growth is 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 Just Retirement Limited ("JRL") (31
December 2023: between 0.5% and 4.1% / 30 June 2023: between 0.5% and 4.1%)
and between 0.6% and 6.8% for loans in Partnership Life Assurance Company
Limited ("PLACL") (31 December 2023: between 0.6% and 6.8% / 30 June 2023:
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 3.2% (31 December 2023: 3.2% / 30 June
2023: 3.1%) and for loans held within PLACL is 3.4% (31 December 2023: 3.3% /
30 June 2023: 3.4%). 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 Base mortality Immediate property price fall Future property price growth Liquidity premium +10bps
net increase/(decrease) in fair value (£m) -5% -10% -0.5%
30 June 2024 (17) (80) (48) (47)
31 December 2023 (15) (83) (50) (49)
30 June 2023 (12) (84) (53) (50)
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.
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 2024 (29)
31 December 2023 (27)
30 June 2023 (20)
Long income real estate
Long income real estate is valued using discounted cash flow analysis using
assumptions based on the repayment of the underlying loan.
Principal assumptions underlying the calculation of long income real estate
In determining the credit spreads for the valuation of residential ground
rents, the Group has taken a market participant approach, which requires
consideration of the assumptions, including those about risk, that a market
participant would make at the balance sheet date for valuing such assets. The
Group notes the significant uncertainty regarding the outcome of the previous
Government consultation and recent King's Speech regarding restriction of
residential ground rents as explained in the Risk Management Risk Outlook
section and in note 16. The group included an adjustment to the valuation of
its residential ground rents portfolio in the 2023 Annual Report and Accounts
to reflect this uncertainty in the fair value that a market participant would
be willing to exchange such assets. The value of these assets was adjusted to
reflect an expected increase in credit spread and consequential increase the
credit risk deduction for defaults. The Group has not made any change to this
adjustment as at 30 June 2024.
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 long income real estate are a
+100 basis point change in credit spreads. As explained in note 16, the Group
continues to monitor the new Government's agenda regarding residential ground
rents. The Group has performed additional sensitivity analysis over the
residential ground rents within the long income real estate portfolio. The
sensitivity of residential ground rents to more significant adverse changes in
credit quality has been evaluated in light of the potential scenarios proposed
in the previous Government consultation. An additional sensitivity has been
performed under the scenario that the credit rating of the Group's holding in
residential ground rents reduces to BBB.
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:
Residential ground rent downgraded to BBB
Long income real estate Credit spreads
net increase/(decrease) in fair value (£m) +100bps
30 June 2024 (150) (11)
31 December 2023 (158) (11)
30 June 2023 (143) N/A
Infrastructure loans
Infrastructure loans are valued using discounted cash flow analyses.
Principal assumptions underlying the calculation of infrastructure loans
classified at 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 2024 (78)
31 December 2023 (78)
30 June 2023 (72)
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 at
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 written by JRL 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 6.93% (31 December 2023: 6.88% / 30 June
2023: 8.18%) is the 1 year rate and 5.99% (31 December 2023: 5.47% / 30 June
2023: 7.31%) is the 5 year rate.
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 contract.
10. SHARE CAPITAL AND SHARE PREMIUM
The allotted, issued and fully paid ordinary share capital of Just Group plc
is detailed below:
Number of £0.10 Share capital Share premium
£m £m
ordinary shares
At 1 January 2024 1,038,702,932 104 95
At 30 June 2024 1,038,702,932 104 95
At 1 January 2023 1,038,702,932 104 95
At 31 December 2023 1,038,702,932 104 95
At 1 January 2023 1,038,702,932 104 95
At 30 June 2023 1,038,702,932 104 95
The company does not have a limited amount of authorised share capital.
11. TIER 1 NOTES
31 December 2023 30 June 2023
30 June 2024 £m £m
£m
At start and end of period 322 322 322
On 16 September 2021 the Group issued £325m 5.0% perpetual restricted Tier 1
contingent convertible notes, incurring issue costs of £3m.
During the period, interest of £8m was paid to holders of the Tier 1 notes
(31 December 2023: £16m, 30 June 2023: £8m). 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 funds. 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 as a
deduction directly from shareholders' equity.
12. INSURANCE CONTRACTS AND RELATED REINSURANCE
30 June 2024 31 December 2023 30 June 2023
£m £m £m
Gross insurance liabilities 24,794 24,131 20,606
Reinsurance contract assets (1,108) (1,143) (719)
Reinsurance contract liabilities 79 125 103
Net reinsurance contracts (1,029) (1,018) (616)
Net insurance liabilities 23,765 23,113 19,990
Insurance liabilities and reinsurance assets and liabilities include valuation
of the Best estimate of the present value of future cash flows, the Risk
adjustment for non-financial risk and the Contractual service margin. A
summary of the movement in insurance liabilities and net reinsurance contracts
is presented below.
Six months ended 30 June 2024 Year ended 31 December 2023
Gross Net Reinsurance Net Gross Net Reinsurance Net
£m
£m
£m
£m
£m
£m
Best estimate 20,758 64 20,822 17,030 76 17,106
Risk adjustment 924 (592) 332 674 (399) 275
CSM 2,449 (490) 1,959 1,943 (332) 1,611
Net opening balance 24,131 (1,018) 23,113 19,647 (655) 18,992
CSM recognised for services provided (86) 11 (75) (156) 27 (129)
CSM accretion 54 (12) 42 79 (12) 67
Other movements in the CSM 167 59 226 583 (173) 410
Release from risk adjustment (5) 2 (3) (11) 4 (7)
Other movements in risk adjustment 25 (27) (2) 261 (197) 64
Movements in best estimate 508 (44) 464 3,728 (12) 3,716
Net closing balance 24,794 (1,029) 23,765 24,131 (1,018) 23,113
Best estimate 21,266 20 21,286 20,758 64 20,822
Risk adjustment 944 (617) 327 924 (592) 332
CSM 2,584 (432) 2,152 2,449 (490) 1,959
Net closing balance 24,794 (1,029) 23,765 24,131 (1,018) 23,113
Six months ended 30 June 2023
Gross Net Reinsurance Net
£m
£m
£m
Best estimate 17,030 76 17,106
Risk adjustment 674 (399) 275
CSM 1,943 (332) 1,611
Net opening balance 19,647 (655) 18,992
CSM recognised for services provided (67) 11 (56)
CSM accretion 34 (7) 27
Other movements in the CSM 137 21 158
Release from risk adjustment (7) 2 (5)
Other movements in risk adjustment 38 (40) (2)
Movements in best estimate 824 52 876
Net closing balance 20,606 (616) 19,990
Best estimate 17,854 128 17,982
Risk adjustment 705 (437) 268
CSM 2,047 (307) 1,740
Net closing balance 20,606 (616) 19,990
The detailed movements analysis of insurance liabilities and reinsurance
assets and liabilities are presented in note 12 (c) and (d) respectively. The
movements include the CSM split between contracts under the Fair Value
Approach ("FVA") and other contracts, including those measured under the Fully
Retrospective Approach ("FRA") at transition to IFRS 17 and new contracts
since transition to IFRS 17.
(a) Terms and conditions of insurance and reinsurance contracts
The Group's long-term insurance contracts include Retirement Income (Defined
Benefit, Guaranteed Income for Life, 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.
The Group uses reinsurance as an integral part of its risk and capital
management activities. New business is reinsured via longevity swap and quota
share arrangements. The percentage of new business reinsured over HY24 is
consistent with 2023:
- GIfL was reinsured using longevity swap reinsurance at 90%
- DB was reinsured using longevity swap reinsurance at c.90% for
future cashflows excluding tax free cash
(b) Measurement of insurance contracts
The estimation process used in determining insurance liabilities involves
projecting future annuity payments and the cost of maintaining the contracts.
Mortality assumptions
Mortality assumptions have been set by reference to appropriate standard CMI
2022 mortality improvements tables, 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. This
assessment takes into consideration relevant industry and population studies,
published research materials, and management's own industry experience.
The Group has made a small adjustment to the base mortality assumptions on JRL
GIfL PrognoSys™ annuities since 31 December 2023 reflecting emerging
mortality experience, as those lives with no medical conditions at
underwriting are showing slightly higher mortality experience than expected
and those lives with medical conditions at underwriting are showing lighter
mortality experience. These adjustments will be reviewed at the year end as
the Group considers the level and shape of excess mortality associated with
major medical conditions.
Mortality experience has been volatile and at times significantly higher in
aggregate than expected since March 2020 due to the COVID-19 pandemic. The
Group continues to make an explicit allowance in the Group's mortality
assumptions to reflect the emerging evidence of the future impacts of COVID
infections and continuing and likely long-lasting disruption to healthcare
services. This allowance is unchanged from 31 December 2023.
The Group will continue to follow closely the actual impact of COVID-19 on
mortality and separately consider the direct and indirect future impacts of
the pandemic. The Group will consider the conclusions of such analysis,
alongside assessment of other factors influencing mortality trends, in keeping
its assumptions under regular review.
Discount rates
All cash flows are discounted using investment yield curves adjusted to allow
for expected and unexpected credit risk. For non-lifetime mortgage assets,
this adjustment is comprised of an element based upon historic default
experience and an element based upon current spread levels where both elements
are relevant to the asset in question. The yields on lifetime mortgage assets
are derived using the assumptions described in note 9 with an additional
reduction to the future house price growth rate of 50bps (31 December 2023:
50bps / 30 June 2023: 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 and the additional reduction to
future house price growth rate, was 55bps for JRL (31 December 2023: 58bps /
30 June 2023: 59bps). During the period, for PLACL we have aligned the
presentation of this reduction in yield with that of the JRL assumption. The
PLACL assumption is 88bps (31 December 2023: 88bps / 30 June 2023: 86bps on an
equivalent basis).
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 calculating movements in the CSM relating to each group of
contracts.
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
using the yields from a reference portfolio based upon 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.
The tables below set 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. For 2023 and 2024 the reinsurance rates are not materially
different to the gross insurance discount rates. As such only the rates for
underlying business are presented below. Discount rates have been disclosed in
aggregate and have not been split according to their profitability groupings.
JRL Valuation rate at period end
All products
30 June 2024 31 December 2023 30 June 2023
1 year 6.9% 6.9% 8.2%
5 year 6.0% 5.5% 7.3%
10 year 5.9% 5.4% 6.5%
20 year 6.0% 5.5% 6.2%
30 year 5.9% 5.5% 5.9%
PLACL Valuation rate at period end Valuation rate at period end
GifL/DB business Care business
30 June 2024 31 December 2023 30 June 2023 30 June 2024 31 December 2023 30 June 2023
1 year 7.0% 6.8% 8.2% 5.5% 4.9% 5.9%
5 year 6.1% 5.5% 7.2% 4.5% 3.5% 4.9%
10 year 6.0% 5.4% 6.4% 4.4% 3.4% 4.1%
20 year 6.1% 5.5% 6.0% 4.6% 3.6% 3.8%
30 year 6.0% 5.5% 5.8% 4.5% 3.5% 3.5%
Inflation
Assumptions for annuity escalation are required for retail price index (RPI),
consumer price index (CPI) and limited price index (LPI) 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 2024 compared to the previous period.
Future expenses
Assumptions for future policy expense levels are determined from the Group's
recent expense analyses and incorporate an annual inflation rate allowance of
3.7% (31 December 2023: 3.6% / 30 June 2023: 4.0%) 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 Condensed consolidated statement
of comprehensive income.
The maintenance expense assumptions per policy, allowing for the relevant
level of expense inflation over the period, are unchanged from those reported
in the 2023 Annual Report and Accounts.
Risk adjustment
The best estimate liability represents the present value of future net cash
outflows to settle claims and expenses quantified at the 50th percentile
confidence interval. 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 risk
adjustment represents an additional reserve held that increases the ultimate
time horizon confidence interval up to the 70th percentile and amounts to
£0.3bn (31 December 2023: £0.3bn: 30 June 2023: £0.3bn) net of reinsurance.
Based upon the latest risk adjustment calibration exercise, a 5% increase in
the ultimate run-off confidence interval would increase the net of reinsurance
risk adjustment by c£0.1bn (31 December 2023: c£0.1bn / 30 June 2023:
c£0.1bn).
(c) Movements analysis - insurance contracts
Insurance contracts analysed by measurement component
(c)(i) Disclosure of movement by measurement component
Six months ended 30 June 2024 Estimate of present value of future cash flows Risk adjustment for non-financial risk CSM Total
£m £m £m £m
Opening insurance contract liabilities balance 20,758 924 2,449 24,131
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service provided - - (86) (86)
Change in risk adjustment for non-financial risk for risk expired - (5) - (5)
Experience adjustments (9) - - (9)
Changes that relate to future service
Contracts initially recognised in the period (329) 93 236 -
Changes in estimates that adjust the CSM 71 (2) (69) -
Insurance service result (267) 86 81 (100)
Net finance (income)/ expenses from insurance contracts (336) (66) 54 (348)
Exchange rate movement 6 - - 6
Total changes in the statement of comprehensive income (597) 20 135 (442)
Cash flows
Premiums received 2,033 - - 2,033
Claims and other insurance service expenses paid, including investment (837) - - (837)
components
Insurance acquisition cash flows (91) - - (91)
Total cash flows 1,105 - - 1,105
Closing insurance contract liabilities balance 21,266 944 2,584 24,794
Year ended 31 December 2023 Estimate of present value of future cash flows Risk adjustment for non-financial risk CSM Total
£m £m £m £m
Opening insurance contract liabilities balance (restated)(1) 17,030 674 1,943 19,647
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service provided - - (156) (156)
Change in risk adjustment for non-financial risk for risk expired - (11) - (11)
Experience adjustments 8 - - 8
Changes that relate to future service
Contracts initially recognised in the year (542) 162 380 -
Changes in estimates that adjust the CSM (292) 89 203 -
Insurance service result (826) 240 427 (159)
Net finance expenses from insurance contracts 1,917 10 79 2,006
Exchange rate movement (26) - - (26)
Total changes in the statement of comprehensive income 1,065 250 506 1,821
Cash flows
Premiums received 4,494 - - 4,494
Claims and other insurance service expenses paid, including investment (1,648) - - (1,648)
components
Insurance acquisition cash flows (183) - - (183)
Total cash flows 2,663 - - 2,663
Closing insurance contract liabilities balance 20,758 924 2,449 24,131
1 2023 opening balance is restated on adoption of IFRS 17.
Six months ended 30 June 2023 Estimate of present value of future cash flows Risk adjustment for non-financial risk CSM Total
£m £m £m £m
Opening insurance contract liabilities balance (restated) (1) 17,030 674 1,943 19,647
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service provided - - (67) (67)
Change in risk adjustment for non-financial risk for risk expired - (7) - (7)
Experience adjustments 3 - - 3
Changes that relate to future service
Contracts initially recognised in the period (230) 72 158 -
Changes in estimates that adjust the CSM 23 (2) (21) -
Insurance service result (204) 63 70 (71)
Net finance (income)/expenses from insurance contracts (153) (32) 34 (151)
Exchange rate movement (36) - - (36)
Total changes in the statement of comprehensive income (393) 31 104 (258)
Cash flows
Premiums received 2,102 - - 2,102
Claims and other insurance service expenses paid, including investment (801) - - (801)
components
Insurance acquisition cash flows (84) - - (84)
Total cash flows 1,217 - - 1,217
Closing insurance contract liabilities balance 17,854 705 2,047 20,606
1 2023 opening balance is restated on adoption of IFRS 17.
(c)(ii) Disclosure of movement in CSM by IFRS 17 Transitional approach
Below is the CSM movement split by Fair Value Approach ("FVA") on transition
to IFRS 17 and other contracts.
Six months ended 30 June 2024 Year ended 31 December 2023
Contracts under FVA Other contracts Total CSM Contracts under FVA Other Total CSM
£m
£m
£m
£m
contracts
£m
£m
Opening insurance contract liabilities balance(1) 1,437 1,012 2,449 1,354 589 1,943
Changes in the statement of comprehensive income
Changes that relate to current service -
CSM recognised for service provided (53) (33) (86) (109) (47) (156)
Changes that relate to future service -
Contracts initially recognised in the period - 236 236 - 380 380
Changes in estimates that adjust the CSM (22) (47) (69) 150 53 203
Insurance service result (75) 156 81 41 386 427
Net finance expenses from insurance contracts 23 31 54 42 37 79
Total changes in the statement of comprehensive income (52) 187 135 83 423 506
Closing insurance contract liabilities balance 1,385 1,199 2,584 1,437 1,012 2,449
1 2023 opening balance is restated on adoption of IFRS 17.
Six months ended 30 June 2023
Contracts under FVA Other Total CSM
£m
contracts
£m
£m
Opening insurance contract liabilities balance(1) 1,354 589 1,943
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service provided (49) (18) (67)
Changes that relate to future service
Contracts initially recognised in the period - 158 158
Changes in estimates that adjust the CSM (4) (17) (21)
Insurance service result (53) 123 70
Net finance expenses from insurance contracts 21 13 34
Total changes in the statement of comprehensive income (32) 136 104
Closing insurance contract liabilities balance 1,322 725 2,047
1 2023 opening balance is restated on adoption of IFRS 17.
Changes that relate to current service
CSM recognised in the period is computed based on the proportion of insurance
contract services provided in the period compared with the value of services
expected to be provided in future periods. Experience adjustments represent
the difference between the expected value of claims and expenses projected as
at the start of the year included in insurance revenue, and the actual value
of claims and expenses due in the year included in insurance service expense.
The favourable experience adjustment of £9m in 2024 (HY23 £(3)m adverse / FY
23 £(8)m adverse) should be viewed in the context of £837m (HY23 £801m /
FY23 £1,648m) of claims and expenses paid.
Changes that relate to future service
The value of contracts initially recognised in the period is presented in note
12(e).
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, measured at locked-in discount rates. Apart from the small
adjustment mentioned in note 12(b), the most recent mortality basis change was
made in FY23, and as such the impact in HY24 and HY23 is less significant than
at FY23.
(d) Movements analysis - reinsurance contracts
Reinsurance contracts analysed by measurement component
(d)(i) Disclosure of movement by measurement component
Six months ended 30 June 2024 Estimate of present value of future cash flows Risk adjustment for non-financial risk CSM Total
£m £m £m £m
Opening reinsurance contract asset 937 106 100 1,143
Opening reinsurance contract liability (1,001) 486 390 (125)
Net opening balance (64) 592 490 1,018
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service received - - (11) (11)
Change in risk adjustment for non-financial risk for risk expired - (2) - (2)
Experience adjustments (16) - - (16)
Changes that relate to future service
Contracts initially recognised in the period (83) 73 10 -
Change in estimates that adjust the CSM 69 - (69) -
Net (expenses)/income from reinsurance contracts (30) 71 (70) (29)
Net finance (expenses)/income from reinsurance contracts - (46) 12 (34)
Total changes in the statement of comprehensive income (30) 25 (58) (63)
Cash flows
Premiums paid 459 - - 459
Claims received (385) - - (385)
Total cash flows 74 - - 74
Closing reinsurance contract asset 902 98 108 1,108
Closing reinsurance contract liability (922) 519 324 (79)
Net closing balance (20) 617 432 1,029
Estimate of present value of future cash flows
£m Risk adjustment for non-financial risk
£m
Year ended 31 December 2023 CSM Total
£m £m
Opening reinsurance contract asset (restated) (1) 589 80 107 776
Opening reinsurance contract liability (restated) (1) (665) 319 225 (121)
Net opening balance (76) 399 332 655
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service received - - (27) (27)
Change in risk adjustment for non-financial risk for risk expired - (4) - (4)
Experience adjustments (10) - - (10)
Changes that relate to future service
Contracts initially recognised in the year (168) 131 37 -
Change in estimates that adjust the CSM (200) 64 136 -
Net (expenses)/income from reinsurance contracts (378) 191 146 (41)
Net finance income from reinsurance contracts 94 2 12 108
Total changes in the statement of comprehensive income (284) 193 158 67
Cash flows
Premiums paid 1,196 - - 1,196
Claims received (900) - - (900)
Total cash flows 296 - - 296
Closing reinsurance contract asset 937 106 100 1,143
Closing reinsurance contract liability (1,001) 486 390 (125)
Net closing balance (64) 592 490 1,018
1 2023 opening balance is restated on adoption of IFRS 17.
Six months ended 30 June 2023 Estimate of present value of future cash flows Risk adjustment for non-financial risk CSM Total
£m £m £m £m
Opening reinsurance contract asset (restated) (1) 589 80 107 776
Opening reinsurance contract liability (restated) (1) (665) 319 225 (121)
Net opening balance (76) 399 332 655
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service received - - (11) (11)
Change in risk adjustment for non-financial risk for risk expired - (2) - (2)
Experience adjustments (4) - - (4)
Changes that relate to future service
Contracts initially recognised in the period (72) 62 10 -
Change in estimates that adjust the CSM 32 (1) (31) -
Net (expenses)/income from reinsurance contracts (44) 59 (32) (17)
Net finance income/(expenses) from reinsurance contracts 7 (21) 7 (7)
Total changes in the statement of comprehensive income (37) 38 (25) (24)
Cash flows
Premiums paid 354 - - 354
Claims received (369) - - (369)
Total cash flows (15) - - (15)
Closing reinsurance contract asset 561 78 80 719
Closing reinsurance contract liability (689) 359 227 (103)
Net closing balance (128) 437 307 616
1 2023 opening balance is restated on adoption of IFRS 17.
(d)(ii) Disclosure of movement in CSM by IFRS 17 Transitional approach
Below is the CSM movement split by Fair Value Approach ("FVA") on transition
to IFRS 17 and other contracts.
Six months ended 30 June 2024 Year ended 31 December 2023
Contracts under FVA Other contracts Total CSM Contracts under FVA Other contracts Total CSM
£m
£m
£m
£m
£m
£m
Opening reinsurance contract asset (restated) (1) 68 32 100 75 32 107
Opening reinsurance contract liability (restated) (1) 203 187 390 137 88 225
Net opening balance 271 219 490 212 120 332
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service received (8) (3) (11) (20) (7) (27)
Changes that relate to future service
Contracts initially recognised in the period - 10 10 - 37 37
Change in estimates that adjust the CSM (30) (39) (69) 73 63 136
Net (expenses)/income from reinsurance contracts (38) (32) (70) 53 93 146
Net finance income from reinsurance contracts 6 6 12 6 6 12
Total changes in the statement of comprehensive income (32) (26) (58) 59 99 158
Closing reinsurance contract asset 74 34 108 68 32 100
Closing reinsurance contract liability 165 159 324 203 187 390
Net closing balance 239 193 432 271 219 490
1 2023 opening balance is restated on adoption of IFRS 17.
Six months ended 30 June 2023
Contracts under FVA Other contracts Total CSM
£m
£m
£m
Opening reinsurance contract asset (restated) (1) 75 32 107
Opening reinsurance contract liability (restated) (1) 137 88 225
Net opening balance 212 120 332
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service received (10) (1) (11)
Changes that relate to future service
Contracts initially recognised in the period - 10 10
Change in estimates that adjust the CSM (16) (15) (31)
Net expenses from reinsurance contracts (26) (6) (32)
Net finance income from reinsurance contracts 4 3 7
Total changes in the statement of comprehensive income (22) (3) (25)
Closing reinsurance contract asset 71 9 80
Closing reinsurance contract liability 119 108 227
Net closing balance 190 117 307
1 2023 opening balance is restated on adoption of IFRS 17.
(e) New insurance contracts issued and reinsurance contracts held
The tables below present the CSM at point of inception of new contracts sold
in the year together with CSM for the related reinsurance:
Six months ended Year ended
30 June 2024 31 December 2023 Six months
£m
£m
ended
30 June 2023
£m
Insurance contracts issued
Insurance acquisition cash flows (91) (183) (84)
Estimate of present value of future cash outflows (2,056) (3,580) (1,605)
Estimate of present value of future cash inflows 2,476 4,305 1,919
Estimates of net present value of cash inflows 329 542 230
Risk Adjustment (93) (162) (72)
Contractual Service Margin 236 380 158
Insurance acquisition costs deferred in the CSM include £54m (HY23: £42m)
commission and other costs of originating insurance contracts, plus £37m
(HY23: £42m) of investment acquisition expenses.
The estimate of present value of future cash outflows of £2,056m (FY23:
£3,580m / HY23: £1,605m) reflects the increase in business sold in the
period, with premiums receivable increasing from £1,919 in HY23 to £2,476m
in HY24.
Six months ended Year ended
30 June 2024 31 December 2023 Six months
£m
£m
ended
30 June 2023
£m
Reinsurance contracts ceded
Estimate of present value of future cash outflows (83) (168) (72)
Risk Adjustment 73 131 62
Contractual Service Margin (10) (37) (10)
(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 9.
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. Parameters that have had limited
sensitivity both historically and currently are not included, such as
inflation for which the risk is substantially hedged. 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 an increase in reinsurance
contracts assets.
Negative values represent cash outflows or higher cash outflows resulting in
increased insurance contract liabilities or a decrease in reinsurance
contracts assets.
CSM Contractual service margin Positive values represent a reduction in the CSM
Negative values represent an increase in the CSM
P&L Profit /(loss) before tax Profit - increase in pre-tax profit
(Loss) - decrease in pre-tax profit
Sensitivities can result in an opposite impact on Profit/(loss) before and
after allowance for the CSM due to the impact of the use of locked-in rates
for the CSM.
Impact of sensitivities
30 June 2024 Insurance contract liabilities Reinsurance contracts (net) held Net insurance contract liabilities Valuation of assets Net impact on profit and loss
£m £m £m £m £m
Interest rate and investments + 1% FCF 2,060 (81) 1,978 - -
CSM - - - - -
P&L 2,060 (81) 1,978 (1,965) 14
Interest rate and investments -1% FCF (2,477) 102 (2,375) - -
CSM - - - - -
P&L (2,477) 102 (2,375) 2,356 (19)
Decrease in base mortality by 5% FCF (332) 203 (129) - -
CSM 477 (295) 182 - -
P&L 145 (91) 53 (17) 36
Immediate fall of 10% in house prices FCF (50) 3 (47) - -
CSM - - - - -
P&L (50) 3 (47) (66) (113)
Future property price growth reduces by 0.5% FCF (40) 2 (38) - -
CSM - - - - -
P&L (40) 2 (38) (36) (74)
Credit default allowance - increase by 10bps(1) FCF (221) 9 (212) - -
CSM - - - - -
P&L (221) 9 (212) - (212)
31 December 2023 Insurance contract liabilities Reinsurance contracts (net) held Net insurance contract liabilities Valuation of assets Net impact on profit and loss
£m £m £m £m £m
Interest rate and investments + 1% FCF 1,970 (77) 1,893 - -
CSM - - - - -
P&L 1,970 (77) 1,893 (1,933) (40)
Interest rate and investments -1% FCF (2,366) 100 (2,266) - -
CSM - - - - -
P&L (2,366) 100 (2,266) 2,316 49
Decrease in base mortality by 5% FCF (327) 196 (131) - -
CSM 476 (293) 182 - -
P&L 148 (97) 51 (14) 37
Immediate fall of 10% in house prices FCF (46) 2 (44) - -
CSM - - - - -
P&L (46) 2 (44) (68) (113)
Future property price growth reduces by 0.5% FCF (38) 2 (36) - -
CSM - - - - -
P&L (38) 2 (36) (38) (74)
Credit default allowance - increase by 10bps(1) FCF (213) 9 (204) - -
CSM - - - - -
P&L (213) 9 (204) - (204)
(1) Over that included in the discount rate section in note 12(b).
13. LOANS AND BORROWINGS
Carrying value Fair Value
30 31 December 2023 30 30 31 December 2023 30
June 2024 £m June 2023 June 2024 £m June 2023
£m
£m
£m
£m
£250m 9.0% 10-year subordinated debt 2026 (Tier 2) issued by Just Group plc 152 152 176 163 164 187
(£150m principal outstanding)
£125m 8.125% 10-year subordinated debt 2029 (Tier 2) issued by Just Group 126 126 125 133 127 128
plc
£250m 7.0% 10.5-year subordinated debt 2031 non-callable for first 5.5 years 252 251 252 256 252 245
(Green Tier 2) issued by Just Group plc
£230m 3.5% 7-year subordinated debt 2025 (Tier 3) issued by Just Group plc 157 157 157 154 151 146
(£155m principal outstanding) (1)
Total 687 686 710 706 694 706
(1) The Group's Tier 3 debt is repayable within one year.
Attestations are made in respect of the Loans and borrowings annually
following publication of the Annual Report and Accounts. There were no
breaches to report in the attestations made in March 2024 and there are no
indications that the Group may have difficulties complying with the covenants
over the forthcoming 12 months.
The Group has an undrawn Revolving Credit Facility for general corporate and
working capital purposes. During the period the size of the facility has been
increased from £300m to £400m. 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.
14. PAYABLES AND OTHER FINANCIAL LIABILITIES
30 June 2024 31 December 2023 30 June 2023
£m
£m
£m
Derivative financial liabilities 2,379 2,487 2,713
Repurchase obligation 3,332 2,569 1,944
Obligations for repayment of cash collateral received 690 532 697
Other payables(1) 119 20 198
Total 6,520 5,608 5,552
(1) Other payables has been aggregated with other financial liabilities
in all periods presented.
Derivative financial liabilities are classified as mandatorily FVTPL.
Derivative assets and liabilities primarily relate to interest rate, cross
currency and inflation swaps.
Repurchase agreements are measured at amortised cost in the Condensed
consolidated interim financial statements. The fair value of these agreements
is £3,332m (31 December 2023: £2,569m / 30 June 2023: £1,915m). Additional
repurchase agreements have been entered into during the period to fund
increases in the amortised cost portfolio of gilts.
Obligations to pay cash collateral are measured at amortised cost and there is
no material difference between the fair value and amortised cost of the
instruments.
15. FINANCIAL AND INSURANCE RISK MANAGEMENT
These Condensed consolidated interim financial statements provide an update on
the Group's principal risks at the half year and the outlook for the future
development of those risks in the risk management section. In addition any
significant changes to the Group's exposure to insurance, market, credit and
liquidity risk is included below.
(a) Insurance risk
The Group's insurance risks include exposure to longevity, mortality and
morbidity 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.
The Group has made a small adjustment to the base mortality assumptions on JRL
GIfL PrognoSys™ annuities since 31 December 2023 reflecting emerging
mortality experience, as those lives with no medical conditions at
underwriting are showing slightly higher mortality experience than expected
and those lives with medical conditions at underwriting are showing lighter
mortality experience. These adjustments will be reviewed at the year end as
the Group considers the level and shape of excess mortality associated with
major medical conditions.
The Group continues to manage its exposure to insurance risk through the use
of reinsurance; as explained in note 12(a) new business was reinsured at 90%
for GIfL and c.90% for DB over the period, consistent with the prior year.
(b) Market risk
The Group is exposed to market risk associated with any unmatched exposure
arising from the value of investments backing insurance liabilities, and the
consequential impact on the valuation interest rate used to discount insurance
liabilities. In addition the economic environment has a direct affect on the
propensity of potential customers to purchase retirement income products.
The Group continues to increase its gilt holdings over H1 2024 as part of
new business growth as well as to manage interest rate exposure on financial
metrics.
(i) Interest rate risk
The Group continues to actively hedge 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. This has led to the
establishment of an amortised cost portfolio during H1 2023; during H1 2024 an
additional £0.8bn was added to this portfolio, which stands at £3.3bn at 30
June 2024. Gilt-swap basis risk as a result is being actively managed.
(ii) Property risk
The Group's direct exposure to property risk arises from the provision of
lifetime mortgages which creates an exposure to the UK residential property
market. The Group has indirect exposure to commercial property through its
secured lending. A sensitivity analysis of the impact of residential and
commercial property price movements is included in note 9 and note 12.
(iii) Inflation risk
Exposure to long term inflation occurs in relation to the Group's own
management expenses and its writing of index-linked Retirement Income
contracts. The Group continues to manage inflation risk through the
application of disciplined cost control over management expenses and matching
inflation-linked assets including inflation swaps, and inflation-linked
liabilities for the long-term inflation risk.
(iv) Currency risk
The Group invests in non-sterling denominated assets; any foreign exchange
exposure is managed through foreign currency swaps in order to minimise this
risk exposure.
(c) Credit risk
Credit risk arises if another party fails to perform its financial obligations
to the Group and is managed through credit concentration limits and collateral
arrangements. The significant reinsurance collateral arrangements remain
unchanged from those described on note 34(c)(iii) of the 2023 Annual Report
and Accounts.
The credit ratings of the Group's investment portfolio is included in the
Additional financial information. The Group continues to actively monitor its
credit exposures and trades investments where appropriate. During the period
the Group divested itself of £563m of BBB assets and reinvested those funds
in A or better rated assets.
(d) Liquidity risk
The Group is exposed to liquidity risk as part of its business model and its
desire to manage its exposure to inflation, interest rates and currency risks
using derivatives.
Liquidity risk continues to be managed by holding assets of a suitable
maturity, collateral eligibility 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. 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 scenarios
including 1-in-200 shocks on the Group's long-term liquidity and the minimum
cash and cash equivalent levels required to cover enhanced stresses.
The Group increased its undrawn Revolving Credit Facility during the period
from £300m to £400m for general corporate and working capital purposes.
16. CAPITAL
(a) Group capital position
The Group's estimated capital surplus position at 30 June 2024 was as follows:
30 June 2024(1) 31 December 2023(2)
£m
£m
Eligible own funds 3,040 3,104
Capital requirement (1,552)(3) (1,577)(3)
Excess own funds 1,488(3) 1,527(3)
Solvency II Capital coverage ratio 196%(3) 197%(3)
1 Solvency II capital coverage ratios as at 30 June 2024 includes a
notional recalculation of TMTP and 31 December 2023 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 2023.
3 Not covered by PwC's independent review report.
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 Group and its insurance companies to protect policyholders and meet their
payments when due. Firms 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, allowing for
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.
In the periods reported above, the capital requirement for Just Group plc is
calculated using a partial internal model. JRL uses a full internal model and
PLACL capital is calculated using the standard formula. See section c) for
information on the internal model application for PLACL.
The Group and its regulated subsidiaries complied with their regulatory
capital requirements throughout the first half of the year.
(b) 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 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.
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 to 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.
(c) Regulatory developments
The Group applied to the PRA to use an internal model to calculate the capital
requirement for PLACL in early 2024. This application was approved in July
2024 and the Group plans to use the internal model for calculating PLACL's
capital requirement from 30 September 2024.
The key regulatory developments are included below.
On 9 November 2023, the previous government published a consultation seeking
views on capping the maximum ground rent that residential leaseholders can be
required to pay. Although the previous government did not implement any reform
of residential ground rent, the new government may still consider reforming
the ground rent charges. The Group is closely monitoring the new government's
agenda, which remains uncertain following the recent King's Speech, and the
impact of this on the Group's £163m (FY23 £176m) portfolio of residential
ground rents. An adjustment was made at year end 2023 and no changes have been
made to that adjustment over half year 2024 to reflect the ongoing
uncertainty.
The PRA published PS10/24, the final policy statement setting out reforms on
the matching adjustment, on 6 June 2024. The updated policy comes into effect
from 30 June 2024 with the initial matching adjustment attestation due in
2025. The Group is assessing new matching adjustment eligible investment
opportunities resulting from the reform and is preparing for implementation
ahead of the 31 December 2024 Matching Adjustment attestation, removal of the
sub-investment grade cliff and the reflection of rating notches in the
fundamental spread. We are assessing the financial impact ahead of
implementation.
17. 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 2023.
There were no transactions with related parties during the six months ended 30
June 2024 which have had a material effect on the results or financial
position of the Group.
18. POST BALANCE SHEET EVENTS
Subsequent to 30 June 2024, the Directors approved an interim dividend for
2024 of 0.7 pence per ordinary share amounting to £7m in total, which will be
paid on 4 October 2024.
Additional financial information
The following additional financial information is not covered by PwC's
independent review report.
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 117 0.5 - 5 28 80 4 -
Communications and technology 1,199 4.8 118 226 242 611 2 -
Auto manufacturers 102 0.4 - - 95 7 - -
Consumer staples (including healthcare) 1,266 5.1 126 206 549 363 22 -
Consumer cyclical 183 0.7 - 4 51 128 - -
Energy 335 1.3 - 67 5 194 69 -
Banks 1,389 5.6 61 100 813 415 - -
Insurance 729 2.9 - 204 97 428 - -
Financial - other 683 2.8 92 126 359 106 - -
Real estate including REITs 596 2.4 30 18 249 262 37 -
Government 2,532 10.2 303 1,760 222 247 - -
Industrial 460 1.9 - 88 47 313 12 -
Utilities 2,470 9.9 - 64 767 1,627 12 -
Commercial mortgages 800 3.2 106 247 243 204 - -
Long income real estate(1)estate 1,053 4.2 163 3 339 548 - -
Infrastructure 2,971 12.0 58 265 1,046 1,589 13 -
Other 42 0.2 - - 42 - - -
Corporate/government bond total 16,927 68.1 1,057 3,383 5,194 7,122 171 -
Other assets 927 3.7
Lifetime mortgages 5,554 22.3
Liquidity funds 1,471 5.9
Investments portfolio 24,879 100.0
Derivatives and collateral 2,964
Gilts (interest rate hedging) 3,344
Total 31,187
1 Includes residential ground rents of £163m (FY23: £164m) rated AAA and nil
(FY23: £12m) rated AA.
NEW BUSINESS PROFIT RECONCILIATION
New business profit is deferred on the balance sheet under IFRS 17. 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 of the business.
Six months ended Six months ended
30 June 2024 30 June 2023
£m £m
New business CSM on gross business written 236 158
Reinsurance CSM (10) (10)
Net new business CSM 226 148
Impact of using quote date for profitability measurement (4) 13
New business profit 222 161
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 operating profit before tax - an APM, this is the sum of underlying
operating profit and operating experience and assumption changes. The net
underlying CSM increase is added back as the Board considers the value of new
business is significant in assessing business performance. As such Adjusted
operating profit excludes the deferral of profit in CSM as defined below.
Adjusted operating profit before tax 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 represents adjusted operating profit
before tax plus the impact from non-operating items (investment and economic
movement, strategic expenditure, and any adjustments to IFRS for transactions
reported directly in equity).
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 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.
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.
Cash Generation - a Solvency II APM and represents underlying organic capital
generation before the impact of new business strain.
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 yet retired.
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 obtain retirement benefits.
De-risk - an action carried out by the trustees of a pension scheme with the
aim of transferring risks such as longevity, investment, inflation, 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 (sales or products) - collective term for investment products
including Capped Drawdown.
Employee benefits consultant ("EBC") - 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.
Finance costs - Finance costs included within underlying operating profit
include coupons paid on the Group's restricted Tier 1 notes, interest payable
on the Group's Tier 2 and Tier 3 notes, facility non-utilisation fees and debt
repurchase costs when incurred, and amortisation of debt issue and facility
arrangement costs capitalised. Finance costs included in underlying organic
capital generation include coupons paid on the Group's restricted Tier 1
notes, interest paid on the Group's Tier 2 and Tier 3 notes, and all facility
costs when incurred. Debt issue and repurchase costs are excluded from
underlying organic capital generation and included within capital actions when
incurred.
Guaranteed Income for Life ("GIfL") - retirement income products which
transfer investment and longevity risk and provide the retiree with a
guarantee to pay an agreed level of income for as long as the retiree lives.
On a "joint-life" basis, the policy will continue 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 - an APM and 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 Retirement income sales, New
business profit, Underlying operating profit, IFRS profit before tax, Return
on equity, Tangible net asset value per share, New business strain, Underlying
organic capital generation and Solvency II capital coverage ratio.
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") - an APM that represents IFRS total equity, net of
tax, and excluding equity attributable to Tier 1 noteholders.
New business margin - an APM that is calculated by dividing new business
profit by Retirement income sales (shareholder funded). It provides a measure
of the profitability of shareholder funded 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. The net underlying CSM increase from new business is
added back as the Board considers the value of new business is significant in
assessing business performance. New business profit is reconciled to adjusted
profit before tax, which is reconciled to IFRS profit before tax in the
Business Review.
New business strain - an APM and 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 Requirement.
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. This is reported prior to the deferral of profit in CSM from
changes to future cash flows.
Organic capital generation - an APM that is calculated in the same way as
underlying organic capital generation, plus the impact of management actions
and other 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.
Pension Freedoms/Pension Freedom and Choice/Pension Reforms - the UK
government's pension reforms, implemented in April 2015.
Peppercorn rent - a very low or nominal rent.
PrognoSys™ - the Group's proprietary underwriting engine, 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.
REITs - a Real Estate Investment Trust is a company that owns, operates, or
finances income-generating real estate.
Retail - the Group's collective term for GIfL and Care Plan.
Retirement income sales (shareholder funded) - an APM and one of the Group's
KPIs and a collective term for GIfL, DB and Care Plan new business sales
"Sales" and excludes DB partner premium. Premiums are reported gross of
commission paid. Retirement income sales (shareholder funded) are reconciled
in note 2 to premiums included in the analysis of movement in insurance
liabilities within note 12.
Return on equity - an APM and one of the Group's KPIs. Return on equity is
calculated by dividing underlying operating profit after attributed tax for
the period by the average tangible net asset value for the period and is
expressed as an annualised percentage. Underlying operating profit and
tangible net asset value are reconciled respectively to IFRS profit before tax
and 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 - a Bank of England reporting requirement that codifies and
harmonises the UK insurance regulation. Primarily this concerns the amount of
capital that UK 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") - an APM that comprises 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 earnings per share - an APM that 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.
Underlying operating profit - an APM and one of the Group's KPIs representing
new business profit, in-force operating profit, other Group companies'
operating results, development expenditure and finance costs. Underlying
operating profit is reported prior to the deferral of profit in CSM as the
Board considers the value of new business is significant in assessing business
performance. 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. Underlying operating profit is reconciled to adjusted operating
profit before tax, which is reconciled to IFRS profit before tax in the
Business Review.
Underlying organic capital generation - an APM and one of the Group's KPIs.
Underlying organic capital generation is the net movement in Solvency II
excess own funds over the year, generated from in-force surplus, 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 is reconciled to Solvency II excess own funds, which is
reconciled to shareholders' net equity on an IFRS basis in the Business
Review.
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