REG - Just Group plc - Results for the year ended 31 December 2023
08/03/2024 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240308:nRSH0827Ga&default-theme=true
RNS Number : 0827G Just Group PLC 08 March 2024
http://www.rns-pdf.londonstockexchange.com/rns/0827G_1-2024-3-8.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/0827G_1-2024-3-8.pdf)
NEWS RELEASE
www.justgroupplc.co.uk
8 March 2024
JUST GROUP PLC
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2023
CONSISTENTLY BEATING OUR TARGETS
Just Group plc (the "Group", "Just") announces its results for the year ended
31 December 2023.
Profitable and sustainable growth(1)
· Underlying operating profit(2) up 47% to £377m (FY 22: £257m), driven by
significantly higher new business and in-force profits.
· Retirement Income sales(2) have grown by 24% to £3.9bn (FY 22: £3.3bn).
Pricing discipline and risk selection in buoyant markets have led to an
increased margin of 9.1% (FY 22: 8.5%). This has combined to drive a 33%
increase in new business profits to £355m (FY 22: £266m).
· Momentum continues into 2024. The DB market had a record year in 2023
(c.£50bn), while the GIfL market was at its highest level in a decade, up 46%
to £5.3bn. That momentum has carried into 2024 and we expect the strong
structural growth drivers of each market to continue well into the future.
Strong Solvency II and IFRS(1)
· Capital coverage ratio is a very healthy 197%(3) and more resilient (31
December 2022: 199%(3)). The interest rate sensitivity is significantly
reduced, through locking-in interest rate gains. Property sensitivity has
further reduced, as we increasingly diversify the investment portfolio.
· New business strain(2) at 0.9% (FY 22: 1.9%) is exceptionally low. This
outperformance is once again well inside our target of below 2.5% of premium.
Underlying capital generation, after new business strain, has grown by 67% to
£57m (FY 22: £34m).
· Adjusted profit before tax(2) was £520m (FY 22: Adjusted loss before tax
£167m), driven by strong growth in underlying operating profit, positive
longevity assumption changes, and economic profits. Of this £520m, £348m of
profit is deferred to the CSM(4) , leaving an IFRS profit before tax of £172m
(FY 22: IFRS loss before tax of £494m).
Delivering shareholder value
· Improved return on equity(2) to 13.5% and tangible net assets per share(2) to
224p (FY 22: 10.3% and 31 December 2022: 190p respectively). Increasing our
target return on equity from greater than 10% to greater than 12%.
· Dividend of 2.08p per share, 20% growth. (FY 22: 1.73p, 15% growth) Increased
growth driven by confidence in the strong fundamentals and future prospects of
the business.
· Remain confident in our ability to deliver 15% growth in underlying operating
profit from this higher base. Therefore, we are forecasting that 2024
underlying operating profit will be at least double the 2021 level of £211m.
David Richardson, Group Chief Executive Officer, said:
"We are delighted with our financial performance in 2023, a record year for
the Group, and are confident of exceeding our medium term profit growth
pledge. As such, we now expect to achieve our target of doubling profits in
three years instead of the originally intended five. Given the multiple
opportunities available and strong structural growth drivers in our chosen
markets, 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,
while building substantial value for shareholders."
Notes
(1 ) All comparatives throughout the document are restated under
IFRS 17.
(2 ) Alternative performance measure ("APM") - In addition to
statutory IFRS performance measures, the Group has presented a number of
non-statutory alternative performance measures. The Board believes that the
APMs used give a more representative view of the underlying performance of the
Group. APMs are identified in the glossary at the end of this announcement.
Adjusted operating profit is reconciled to IFRS profit before tax in the
Business Review.
(3 ) The 31 December 2023 Solvency II capital coverage ratio
includes a formal recalculation of TMTP, and is estimated. At 31 December 2022
the Solvency II figures include a formal TMTP recalculation.
(4 ) Contractual Service Margin.
( )
Enquiries
Investors / Analysts Media
Alistair Smith, Investor Relations Stephen Lowe, Group Communications Director
Telephone: +44 (0) 1737 232 792 Telephone: +44 (0) 1737 827 301
alistair.smith@wearejust.co.uk press.office@wearejust.co.uk
Paul Kelly, Investor Relations Temple Bar Advisory
Telephone: +44 (0) 20 7444 8127 Alex Child-Villiers
paul.kelly@wearejust.co.uk William Barker
Telephone: +44 (0) 20 7183 1190
For those analysts who have registered, a presentation will take place today
at 1 Angel Lane, London, EC4R 3AB, commencing at 09:30 am. The presentation
will also be available via a live webcast.
FINANCIAL CALENDAR DATE
Ex-dividend date for final dividend 11 April 2024
Record date for final dividend 12 April 2024
Payment of final dividend 15 May 2024
A copy of this announcement, the presentation slides and the transcript will
be available on the Group's website www.justgroupplc.co.uk
(http://www.justgroupplc.co.uk) .
JUST GROUP PLC
GROUP COMMUNICATIONS
Enterprise House
Bancroft Road
Reigate
Surrey RH2 7RP
Forward-looking statements disclaimer:
This announcement has been prepared for, and only for, the members of Just
Group plc (the "Company") as a body, and for no other persons. The Company,
its Directors, employees, agents and advisers do not accept or assume
responsibility to any other person to whom this document is shown or into
whose hands it may come and any such responsibility or liability is expressly
disclaimed.
By their nature, the statements concerning the risks and uncertainties facing
the Company and its subsidiaries (the "Group") in this announcement involve
uncertainty since future events and circumstances can cause results and
developments to differ materially from those anticipated. This announcement
contains, and we may make other statements (verbal or otherwise) containing,
forward-looking statements in relation to the current plans, goals and
expectations of the Group relating to its or their future financial condition,
performance, results, strategy and/or objectives (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, 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; the impact of
inflation and deflation; market competition; changes in assumptions in pricing
and reserving for insurance business (particularly with regard to mortality
and morbidity trends, gender pricing and lapse rates); risks associated with
arrangements with third parties, including joint ventures and distribution
partners and the timing, impact and other uncertainties associated with future
acquisitions, disposals or other corporate activity undertaken by the Group
and/or within relevant industries; inability of reinsurers to meet obligations
or unavailability of reinsurance coverage; default of counterparties;
information technology or data security breaches; the impact of changes in
capital, solvency or accounting standards; and tax and other legislation and
regulations in the jurisdictions in which the Group operates (including
changes in the regulatory capital requirements which the Company and its
subsidiaries are subject to). As a result, the Group's actual future financial
condition, performance and results may differ materially from the plans, goals
and expectations set out in the forward-looking statements. The
forward-looking statements only speak as at the date of this document and
reflect knowledge and information available at the date of preparation of this
announcement. The Group undertakes no obligation to update these
forward-looking statements or any other forward-looking statement it may make
(whether as a result of new information, future events or otherwise), except
as may be required by law. Persons receiving this announcement should not
place undue reliance on forward-looking statements. Past performance is not an
indicator of future results. The results of the Company and the Group in this
announcement may not be indicative, 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 never been stronger
We continue to exceed the promises we've made and we are very optimistic about
the future.
I am very pleased to present my Chief Executive Officer's Statement for 2023.
We've delivered an exceptionally strong performance and are extremely well
positioned to continue benefiting from the positive drivers and favourable
demographics supporting both of our
markets.
Retirement income sales growth
The rise in interest rates during 2022 and 2023 had a positive effect on both
the Defined Benefit and retail Guaranteed Income for Life markets.
Shareholder funded sales have grown by 24% to £3.9bn. Our DB and retail
businesses both contributed to this growth and have started the year with
positive momentum. This gives us increased confidence we will achieve our
growth ambitions in 2024.
Defined Benefit de-risking business
Our DB business continues to thrive and recorded total sales of £3.4bn, up
21%. We completed 80 transactions during the year, which is a substantial
increase from 56 completed in 2022. Our bulk quotation service continues to
grow in popularity, with completed transactions from 17 employee benefit
consultants ("EBC") during the year. We have hundreds of schemes onboarded and
this service provides a vibrant market for schemes of all sizes and a steady
source of smaller deal completions. Indeed around 40 completions in 2023 were
schemes with fewer than 100 members and they represent half the schemes
currently onboarded.
As well as expanding our leadership position in the smaller transaction size
segment, we will also drive growth by securing additional larger transactions.
We have significant pricing and deal experience having written almost 400 DB
transactions since entering the market in 2013, which is more than one-in-five
of all transactions completed since then. The flexibility provided by our
stronger capital position and expanded panel of reinsurance partners further
supports our participation in the larger transaction segment.
The DB market had a record year in 2023, with c.£50bn of new business volumes
(source LCP, WTW). These EBCs are forecasting that industry volumes in 2024
and beyond could grow significantly from this higher base.
Retail business
I am delighted that our retail business has had a very strong year with sales
up 59% to £0.9bn. The GIfL market has returned to strong growth and has had
its busiest year since Pensions Freedoms were announced in 2014. The number of
advisers looking for quotes from Just has increased by 50% and this is
providing us with increased opportunity to utilise our medical underwriting
expertise to select the most attractive risks.
Conduct regulation changes being introduced by the FCA may result in greater
use of retirement income solutions containing guarantees to help deliver
improved customer outcomes.
Expanding our investments in tandem
We are continuing to broaden our investment capabilities. Our successful
illiquid origination strategy enabled us to source £1.6bn of non-LTM illiquid
investments during 2023, a 50% increase year on year.
As the government's Solvency UK legislation is implemented, we expect this
will unlock additional opportunities to grow and diversify our investments
portfolio, while enabling us to support the UK economy.
Customers and our purpose
The current unpredictable economic outlook in the UK and volatility in
investment markets creates uncertainty and worry for many. We provide a
guaranteed income for life to customers, and as long-term interest rates have
risen over the last two years, the amount of retirement income we are able to
pay customers has increased significantly. This secure income is often
purchased to cover the essential expenditure of the household. Our solutions
provide much sought reassurance to customers.
Our purpose is to help people achieve a better later life. We provide a range
of professional advice and guidance to help people, and are continuing to
invest in these services to make them more available to a wider pool of
potential customers. 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 achieve our goals responsibly and are committed to a sustainable strategy
that protects our communities and the planet we live on. I am very proud that
over the last four years we have reduced our operational carbon intensity per
employee by 83%. However, the most material impact we can make to reduce
carbon emissions will be achieved through the decisions we take with our
£24bn investments portfolio. Compared to our 2019 baseline, we have reduced
these emissions over 30% for each million pound invested.
During 2023, we also continued to invest in environmental, social, and
corporate governance ("ESG") related assets with £325m invested in social
housing, the renewable energy industry and NHS facilities.
Our people
Our Just culture is underpinned by our people who are passionate and committed
to making a difference to the lives of those around them. The combination of
our strong purpose and having highly engaged teams working the "Just way", is
a competitive advantage which is helping us to drive high performance and
achieve our ambitious growth targets.
I would like to thank my colleagues for their continued focus in providing
outstanding support for our customers when they needed it most and for
helping to deliver an excellent set of results.
We are investing to develop the skills of our colleagues, attract new talent
into Just and build high-performing teams. We have excellent, and improving,
levels of colleague engagement (2023: 7.9; 2022: 7.7), with a key priority to
build a diverse and inclusive workforce.
Financial performance
In 2023, underlying operating profit, is up 47% to £377m, driven by the
strong new business performance, which has delivered a return on equity of
13.5%.
Investment and economic profits were £92m, and, combined with a number of
smaller non-operating items, led to an adjusted profit before tax of £520m
for 2023 (2022: adjusted loss before tax £167m). Of this, £348m of profit is
deferred to the CSM reserve in the balance sheet, leaving a statutory profit
before tax of £172m (2022: loss before tax £494m).
The strength and resilience of our capital position and our disciplined
pricing and risk selection ensures we are, and will continue to be capital
self-sufficient. This means we can fund our growth ambitions, reward
shareholders with a growing dividend and maintain a strong buffer of capital.
We will pay a final dividend of 1.50 pence per share, giving a total of 2.08
pence for the year, representing 20% year on year growth. The 20% growth in
total dividend is ahead of the 15% 2022 dividend growth rate.
In conclusion
2023 represents another year of outperformance, further building our track
record. We are exceptionally well positioned to capture the benefits of
positive market trends and have increased confidence in our ability, from this
higher base, to deliver 15% growth in underlying operating profit. In
addition, we have increased our target return on equity to greater than 12%
from greater than 10% previously.
We have never been stronger. We are retirement experts and have the capability
and opportunities to achieve our ambitious growth plans so that we build
substantial value for shareholders and fulfil our purpose to help more people
achieve a better later life.
Business Review
DELIVERING COMPOUNDING GROWTH
Our strong capital base and compelling proposition in the market provide the
opportunity to deliver compounding and sustainable growth.
The Group is well positioned in attractive markets with strong structural
growth drivers. This enables 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 year ended 31
December 2023, including IFRS and unaudited Solvency II information. These are
the first audited results under IFRS 17, which has prompted some modification
of the Group's key performance indicators including restatement of
comparatives where applicable, as set out below.
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 are focused on cost control across the business
whilst specifically targeting investment in proposition development, and to
enable the business to scale efficiently as we take advantage of the multiple
growth opportunities in our markets. We continue to diversify the asset
portfolio by originating a greater proportion of illiquid assets to back the
new business in line with our investment strategy.
SALES
The DB business continues to go from strength to strength as rising interest
rates have accelerated the closure of scheme funding gaps, enabling a market
shift towards full scheme Buy-ins. During 2023, we wrote a record amount of DB
new business, up 21% to £3,415m from 80 transactions (2022: £2,827m, 56
transactions), in a buoyant market estimated by LCP and WTW to be c£50bn
(2022: £28bn). Heightened and consistent demand throughout 2023 allowed Just
to increasingly risk select as the year progressed with strong pricing
discipline, a wider panel of reinsurers, market insight and business mix
driven by our streamlined bulk quotation service all contributing towards
higher margins.
The drivers behind this momentum remain and we expect a busy 2024 and beyond,
as we execute on 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. LCP are forecasting that
c.£600bn of DB Buy-in/Buy-out transactions could transact over the decade to
2033, of which up to £360bn could transact in the next five years. This
compares to £180bn in the last five years.
Our GIfL business had a very strong 2023, following a competitive year in
2022, where we demonstrated our pricing discipline by reducing volumes. During
2023, we wrote £894m of GIfL new business, up 59% year on year (2022:
£564m). The UK individual GIfL market grew by 46% to £5.3bn (2022: £3.6bn),
its highest level since Pension Freedoms in 2014. Quote activity levels remain
elevated as higher interest rates directly increase the customer rate on
offer, thus increasing 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. The
introduction of the FCA's Consumer Duty in July 2023 and findings from the
FCAs thematic review into retirement income advice, expected shortly, are
likely to lead to increased adviser conversations on the importance of
considering guaranteed solutions to help customers achieve their objectives.
PROFIT
During 2023, underlying operating profit was £377m (2022: £257m), up 47%,
and substantially ahead of our 15% operating profit growth target. Strong
demand for our products provided the opportunity to write a greater volume of
new business at an efficient capital strain. Shareholder funded Retirement
Income sales of £3,893m were 24% higher than 2022. New business profit, which
includes the DB Partner origination fee, was up 33% at £355m (2022: £266m),
translating to a new business margin of 9.1% (2022: 8.5%) on shareholder
funded premiums as buoyant markets supported active risk selection. Higher and
rising interest rates during 2023 boosted the return on surplus assets,
thereby increasing in-force operating profit, up 22% to £191m. Finance costs
have reduced following the November 2022 tender offer and subsequent
cancellation of £100m tier 2 debt, thus optimising the capital structure and
providing future capital flexibility.
Operating experience and assumption changes, primarily related to longevity,
were a combined £52m positive (2022: £104m positive) impact on profit. Total
investment and economic profits of £92m (2022: £537m losses) combined with
other items led to an adjusted profit before tax of £520m (2022: £167m
loss). Of this £520m, £348m of profit is deferred to the CSM reserve in the
balance sheet, leaving an IFRS Profit before tax of £172m (2022: Loss before
tax of £494m after deferral of £327m to CSM).
CAPITAL
The Group's estimated Solvency II capital position remains at a very healthy
and robust level of 197% (31 December 2022: 199%) as we benefited from organic
capital generation and regulatory changes, specifically a large reduction in
the risk margin, as part of the ongoing Solvency UK reforms. Through our
targeted management actions, property and interest rate sensitivities have
much reduced in recent years. Underlying organic capital generation ("UOCG")
grew strongly to £57m (2022: £34m), delivering a fourth consecutive year of
positive UOCG, a key metric to delivering a sustainable business model. Within
this, the £35m capital strain from writing the increased level of new
business was substantially lower year on year at 0.9% of premium (2022: £60m
and 1.9% of premium). This low new business strain, materially inside our
target of less than 2.5%, reflects strong pricing discipline, risk selection,
development of reinsurance optionality and our ability to originate increasing
quantities of high-quality illiquid assets. Lower finance costs also
contributed. During the year, we paid a £19m shareholder dividend, well
covered by UOCG. We continue to closely monitor and prudently manage our
risks, including interest rates, inflation, currency, residential property and
credit. The Solvency II sensitivities are set out below.
The 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, last June, HM Treasury and the Prudential
Regulation Authority ("PRA") set out their proposals to implement the more
straightforward items, including simplification measures and reforms which
have led to a c.60% reduction in risk margin for life insurance business.
Industry and the regulator were very much aligned on these objectives. A
consultation paper on the more complex changes to matching adjustment ("MA")
rules and the associated investment flexibility was launched in September,
with reforms to take effect in 2024. We expect these MA changes to support the
role HM Treasury is expecting from the industry, whereby appropriate reforms
could increase 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 continues to evolve, reflecting macro-economic and
political events including the trajectory of central bank rates to reduce and
control inflation, and a UK election by the end of 2024. The 2022/23 interest
rate increases have led to a flat-lining of the economy in 2023, predicted to
be followed by a gradual recovery. 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
in the Estimated Group Solvency II sensitivities section of this review.
The Group is closely monitoring the Government consultation regarding
restriction of ground rent for existing residential leases announced in
November 2023 and the impact of this on the Group's £176m portfolio of
residential ground rents. For further information on the Group's approach to
reflecting the uncertainty associated with the Consultation in the year end
valuation of residential ground rents see note 1.7.
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, although due to the adoption of
new accounting standards the reconciliation from APMs' to IFRS reported
results has changed. 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 now 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, which
have remained unchanged following the adoption of IFRS 17, which has also not
impacted the Group dividend policy. The Group's KPIs are discussed in more
detail on the following pages.
The Group's KPIs are shown below:
2023 2022 Change
(restated)
Retirement Income sales1 £3,893m £3,131m 24%
New business profit1 £355m £266m 33%
Underlying operating profit1 £377m £257m 47%
IFRS profit / (loss) before tax £172m £(494)m n/a
Return on equity1 13.5% 10.3% 3.2pp
Tangible net asset value per share1 224p 190p 34p
New business strain1 0.9% 1.9% +1pp
(as % of premium)
New business strain1 £(35)m £(60)m 42%
Underlying organic capital generation1 £57m £34m 68%
Solvency II capital coverage ratio2 197% 199% -2pp
1 Alternative performance measure, see glossary for definition.
2 Solvency II capital coverage ratios as at 31 December 2023 (estimated)
and 31 December 2022 includes a formal recalculation of TMTP at the respective
dates .
TANGIBLE NET ASSETS / RETURN ON EQUITY (UNDERLYING)
The return on equity in the year to 31 December 2023 was 13.5% (2022: 10.3%),
based on underlying operating profit after attributed tax of £288m (2022:
£208m) arising on average adjusted tangible net assets of £2,133m (2022:
£2,025m).
Tangible net assets are reconciled to IFRS total equity as follows:
31 December 2023 31 December 2022
£m £m
(restated)
IFRS total equity attributable to ordinary shareholders 883 783
Less intangible assets (41) (47)
Tax on amortised intangible assets 2 3
Add back contractual service margin 1,959 1,611
Adjust for tax on contractual service margin (488) (399)
Tangible net assets 2,315 1,951
Tangible net assets per share 224p 190p
Return on equity % (underlying) 13.5% 10.3%
UNDERLYING OPERATING PROFIT
Underlying operating profit is the core performance metric on which we have
based our target 15% growth, per annum, on average, over the medium term.
Underlying operating profit captures the performance and running costs of the
business including interest on the capital structure, but excludes operating
experience and assumption changes, which by their nature are unpredictable and
can vary substantially from period to period. 2023 underlying operating profit
grew by 47% to £377m (2022: £257m), as we strongly outperformed against our
medium-term target, driven by pricing discipline and positioning in buoyant
markets. We set the 15% profit growth target from the 2021 baseline (£211m),
and given the strong growth in 2023, we are confident that we can add a
further 15% to the 2023 level during 2024, and thereby double underlying
operating profit in three years instead of five.
Year ended Year ended Change
31 December 2023
31 December 2022
%
£m £m
(restated)
New business profit 355 266 33%
CSM amortisation (62) (61) (2)%
Net underlying CSM increase 293 205 43%
In-force operating profit 191 156 22%
Other Group companies' operating results (22) (16) (38)%
Development expenditure (17) (15) (13)%
Finance costs (68) (73) 7%
Underlying operating profit 377 257 47%
1 See reconciliation to IFRS profit before tax further in this Business
Review.
NEW BUSINESS PROFIT
New business profit was up 33% at £355m (2022: £266m), as shareholder funded
Retirement Income sales rose 24% to £3,893m (2022: £3,131m). The new
business margin achieved was 9.1% (2022: 8.5%). As the year progressed, we
increasingly risk selected, which combined with strong pricing discipline, a
wider panel of reinsurers able to offer bespoke terms, market insight and our
streamlined bulk quotation service all contributed towards higher margins. We
are also increasingly benefiting from scale and strong cost control leading to
operating leverage.
CSM AMORTISATION
IFRS 17 introduces a new concept of the Contractual Service Margin to the
statement of financial position. CSM amortisation represents the release from
the CSM reserve into profit as services are provided, net of accretion (unwind
of discount) on the CSM reserve balance (see below). £62m of net CSM
amortisation (2022: £61m) represents a £129m release of CSM into profit,
offset by £67m of interest accreted to the CSM. The £129m CSM release into
profit (2022: £95m) represents 6.2% (2022: 5.6%) of the CSM balance
immediately prior to release. The increase during the year 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 £67m (2022: £35m), which represents
3.4% (2022: 2.1%) 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 FY 22 longevity assumption changes.
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 (£355m) to CSM in-force release (£129m) multiple of 3 times
reflects the very high and healthy level of replacement profit, and
demonstrates the value of new business written during the year relative to the
gross CSM release from existing business. This strong growth dynamic increases
the CSM store of value to release into 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.
Year ended Year ended Change %
31 December 2023
31 December 2022
£m
£m
(restated)
Investment return earned on surplus assets 94 61 54%
Release of allowances for credit default 28 26 8%
CSM amortisation 62 61 2%
Release of risk adjustment for non-financial risk / Other 7 8 (13)%
In-force operating profit 191 156 22%
The in-force operating profit increased by 22% to £191m (2022: £156m),
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 £22m (2022: loss
of £16m). 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 the Destination Retirement proposition and other
development initiatives.
DEVELOPMENT EXPENDITURE
Development expenditure of £17m (2022: £15m), relates mainly to investment
in systems capability, in addition to various business line and functional
transformation.
FINANCE COSTS
Finance costs have decreased by 7% to £68m (2022: £73m). These include the
coupon on the Group's Restricted Tier 1 notes, as well as the interest payable
on the Group's Tier 2 and Tier 3 notes. Finance costs have reduced following
the November 2022 tender and associated offers, which resulted in the
subsequent cancellation of £100m 9% tier 2 debt, paid from excess Group
liquidity.
In 2022, the Group entered into a new five-year revolving credit facility,
with improved commercial terms. The facility has increased from £200m to
£300m, with flexibility for this to grow as the balance sheet expands over
time. This facility has not been drawn upon in 2022 or 2023.
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
Year ended Year ended Change
31 December 2023 31 December 2022 %
£m £m
Defined Benefit De-risking Solutions ("DB")1 2,999 2,567 17%
Guaranteed Income for Life Solutions ("GIfL")2 894 564 59%
Retirement Income sales (shareholder funded) 3,893 3,131 24%
DB Partner (funded reinsurance)1 416 259 61%
Total Retirement Income sales 4,309 3,390 27%
1 Adding the DB shareholder funded and Partner business leads to total
DB de-risking segment volumes of £3,415m (2022: £2,826m).
2 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 DB scheme funding
gaps, and therefore more schemes are able to begin the process to be
"transaction ready", accelerating business into our short/medium-term pipeline
that previously would have been expected to transact in the second half of the
decade. The retail GIfL market had its busiest year since 2014, with the Open
market, where Just competes, showing particularly strong growth, driven by the
customer rate available and advisers shopping around. The level of long-term
interest rates directly influences the customer rate we can offer, with the
higher rates in 2023 enhanced by our 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
underlying organic capital 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 £2,999m (2022: £2,567m) were up 17%, as we
were consistently busy throughout the year. In February, we closed our largest
DB transaction to date at £513m, with GKN/Melrose. In December, utilising our
DB Partner proposition, we reinsured all of the investment and longevity risks
on a £416m transaction, our second largest deal of the year. The upfront
origination fee received from our external reinsurance partner partially
offsets the new business strain incurred on the £3.0bn of DB new business
funded by Just's shareholders. Transactions of this type are additive to
Just's core shareholder funded business by generating incremental fee income,
while being repeatable, scalable and providing optionality going forward.
Adding both shareholder funded and partner business, the DB segment wrote
£3,415m of new business, up 21% year on year (2022: £2,826m), representing a
7% share by market value (LCP and WTW: c.£50bn).
In total, we completed 80 deals, of which 73 were below £100m in transaction
size. We maintained our leadership position in the less than £100m
transaction size segment. Our positioning has led to a doubling in our market
share to 16% in the up to £1bn size segment over the past three years. In
2023, we estimate that Just wrote over one third of all transactions in the
market. These activity levels are well ahead of the 56 transactions in 2022.
Our proprietary bulk quotation service continues to grow in popularity with
hundreds of DB schemes onboarded. Demonstrating the multiple benefits of the
service, 17 EBCs completed a transaction during the year. Our bulk quotation
service 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 our smallest DB transaction
to date at £0.6m, and a £2m scheme that had been price monitored since 2019.
We continue to develop the service to allow us to significantly increase our
onboarding capacity. As part of our proposition to EBCs, trustees, and scheme
sponsors, we are always available to quote for any credible transaction, as
evidenced from our activity levels in the past two years.
GIfL sales were £894m (2022: £564m), 59% higher year on year. The strong
foundation from the first half, together with continued market strength in the
second half allowed us to utilise our market-leading medical underwriting to
risk select more profitable and niche segments of the market. These market
dynamics, together with operational gearing due to tight cost control helped
to improve margins in the second half. 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, and is a
testament to the dedication from the customer service and business development
teams.
Furthermore, we estimate that since 2014, more than £140bn of cumulative
retirement savings have moved to drawdown on platform, often without a
decumulation strategy. Due to the higher customer rates now on offer, we
expect that advisers and customers will re-examine the role of guaranteed
income in retirement. The introduction of the FCA's Consumer Duty in July and
the findings due from the FCAs thematic review into retirement income advice
are also likely to increase the importance of considering guaranteed solutions
to help customers achieve their objectives.
lifetime mortgages advanceS
2023 internally funded lifetime mortgage advances were £164m (2022: £519m),
a decrease of 68%. In 2023, the LTM market fell by 58% to £2.6bn. We continue
to be selective, and use our market insight and distribution to target certain
sub-segments of the market. LTMs remain an attractive asset class, however, in
a higher interest rate environment, the capital charge attaching to the NNEG
risk becomes onerous. Prior investment in LTM digital capabilities and
proposition has been well received by financial advisers, resulting in
retention of our five star service award, as mentioned above.
RECONCILIATION OF UNDERLYING OPERATING PROFIT TO IFRS PROFIT BEFORE TAX
Year ended Year ended
31 December 2023 31 December 2022
£m £m
(restated)
Underlying operating profit1 377 257
Operating experience and assumption changes 52 104
Adjusted operating profit before tax1 429 361
Investment and economic movements 92 (537)
Strategic expenditure (17) (7)
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity 16 16
Adjusted profit/(loss) before tax1 520 (167)
Deferral of profit in CSM (348) (327)
Profit/(loss) before tax 172 (494)
1 Alternative performance measure, see glossary for definition.
OPERATING EXPERIENCE AND ASSUMPTION CHANGES
As usual, the Group carried out a full basis review in December 2023, and has
updated its longevity reserving using the CMI 2022 mortality tables (2022: CMI
2021). The Group continues to allow for future improvements in long-term
mortality, but with the longer term also reflecting the heightened mortality
being experienced post pandemic. Assessment of the longer-term impact of the
pandemic on the population continues to evolve, but these factors, combined
with the winter flu season, longer NHS waiting lists and inflation pressures
on incomes are contributing towards a deterioration in the rate of improvement
across the population, which we have sought to reflect in our year end
assumption. There were a number of minor changes to the Group's other
assumptions in 2023. Sensitivity analysis is shown in notes 20 and 26, which
sets out the impact on the IFRS results from changes to key assumptions,
including mortality and property.
Overall, operating experience and assumption changes were £52m (2022:
£104m). The Group reported negative operating experience of £10m in 2023
(2022: negative £3m). Assumption changes resulted in a £62m release (2022:
£107m reserve release), and were almost entirely driven by the mortality
assumption change, as per above.
INVESTMENT AND ECONOMIC MOVEMENTS
Year ended Year ended
31 December 2023 31 December 2022
£m £m
(restated)
Change in interest rates (5) (536)
Narrower/(Wider) credit spreads 44 (51)
Property growth experience (13) (23)
Other 66 73
Investment and economic movements 92 (537)
Investment and economic movements were positive at £92m (2022: £537m loss).
Movements in risk free rates during 2023 have had a negligible effect due to
the implementation of a revised interest rate hedging strategy in the latter
part of 2022 and across 2023. This includes the purchase of £2.5bn of long
dated gilts held at amortised cost under IFRS. This approach has significantly
reduced1 the IFRS exposure whilst also containing our Solvency II sensitivity
to future interest rate movements (see estimated Group Solvency II
sensitivities below). In the second half of 2021 and across 2022, as rates
rose and the solvency position strengthened, we gradually reduced the swap
based interest rate hedging to a broadly economically neutral position. In
2023, we recorded £5m of losses in relation to interest rates (2022: loss of
£536m due to rising interest rates under from the previous hedging strategy,
which was originally designed to protect the solvency position).
Credit spreads narrowed during 2023, leading to a £44m positive movement
(2022: credit spreads widened leading to a negative movement of £51m). The
LTM portfolio property growth was c.2% during 2023, with our diversified
portfolio performing a little below the 3.3% annual long-term property growth
assumption (2022: 3.3% annual property growth assumption). Other includes
positives from corporate bond default experience, investment return on surplus
assets being above our assumption and backbook optimisation.
1 See note 26 for interest rate sensitivities, with a 100 bps increase in
interest rates resulting in a pre tax loss of £(40)m and a 100 bps decrease
in interest rates resulting in a pre tax profit increase of £49m.
STRATEGIC EXPENDITURE
Strategic expenditure was £17m (2022: £7m). This included increased
investment to scale and bring to market various retail related propositions,
costs in relation to Consumer Duty, final implementation costs for IFRS 17 and
preparations for an internal model update.
UNDERLYING EARNINGS PER SHARE
Underlying EPS (based on underlying operating profit after attributed tax) has
increased to 27.9 pence (2022: 20.2 pence per share).
Year ended Year ended
31 December 2023
31 December 2022 (restated)
Underlying operating profit after attributable tax (£m) 288 208
Weighted average number of shares (million) 1,032 1,032
Underlying EPS1 (pence) 27.9 20.2
1 Alternative performance measure, see glossary for definition.
EARNINGS PER SHARE
Earnings per share (based on net profit/(loss) after tax, see note 14) has
increased to 11.3 pence (2022: 36.3 pence per share loss).
Year ended Year ended
31 December
31 December 2022 (restated)
2023
Earnings (£m) 117 (375)
Weighted average number of shares (million) 1,032 1,032
EPS (pence) 11.3 (36.3)
CAPITAL MANAGEMENT
The Group's capital coverage ratio was estimated to be 197% at 31 December
2023, including a formal recalculation of transitional measures on technical
provisions ("TMTP") (31 December 2022: 199% including a formal recalculation
of TMTP). The Solvency II capital coverage ratio is a key metric and is
considered to be one of the Group's KPIs.
Unaudited 31 December 20231 31 December 20222
£m
£m
Own funds 3,104 2,757
Solvency Capital Requirement (1,577) (1,387)
Excess own funds 1,527 1,370
Solvency coverage ratio1 197% 199%
1 Solvency II capital coverage ratios as at 31 December 2023 and 31
December 2022 includes a formal recalculation of TMTP at the respective dates.
2 This is the reported regulatory position as included in the Group's
Solvency and Financial Condition Report as at 31 December 2022.
The Group has approval to apply the matching adjustment and TMTP in its
calculation of technical provisions and uses a combination of an internal
model and the standard formula to calculate its Group Solvency Capital
Requirement ("SCR").
MOVEMENT IN EXCESS OWN FUNDS1
The business is delivering sufficient ongoing capital generation to support
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 year to 31
December 2023.
Unaudited At At
31 December 20232
31 December 2022
£m
£m
(restated)
Excess own funds at 1 January 1,370 1,168
Operating
In-force surplus net of TMTP amortisation 168 174
Financing costs (49) (57)
Group and other costs (27) (23)
Cash generation 92 94
New business strain2 (35) (60)
Underlying organic capital generation 57 34
Management actions and other items 69 105
Total organic capital generation3 126 139
Non-operating
Strategic expenditure (13) (5)
Dividends (19) (16)
Economic movements (22) 117
Regulatory changes 109 -
Capital actions4 (24) (33)
Excess own funds 1,527 1,370
1 All figures are net of tax, and include a formal 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.
4 Capital actions are the effect of Tier 2 buyback (2023 and 2022) and
includes the positive effect (if any) from release of Solvency II tiering
restrictions.
UNDERLYING ORGANIC CAPITAL GENERATION AND NEW BUSINESS STRAIN
In 2023, we achieved £57m of underlying organic capital generation (2022:
£34m). Over the past four years, we have delivered £160m cumulative since we
became capital generative on an underlying basis in 2020, while at the same
time growing the shareholder backed new business volumes at a 22% compound
annual growth rate to £3.9bn in 2023.
Underlying organic capital generation ("UOCG") has benefited from the ongoing
focus across the business on minimising new business capital strain. Due to a
combination of focused risk selection, pricing discipline, bespoke reinsurance
and originating sufficient quantities of high-quality illiquid assets, new
business strain has decreased by £25m (40%) even though shareholder funded
new business premiums were up 24% year on year to £3.9bn. This level of new
business strain represents 0.9% of new business premium (2022: 1.9% of
premium), well within our target of below 2.5% of premium. This continued
outperformance is driven by our market insight, leading to an origination
strategy focussed on business mix within the DB and GIfL units. It also
includes the commission received from the DB Partner transaction. In-force
surplus after TMTP amortisation was down 3% to £168m, primarily due to higher
average interest rates during the year which reduces the amount of capital
available (via lower SCR and risk margin) to release. Group and other costs
including development and non-life costs were £27m (2022: £23m). Finance
costs at £49m were lower (2022: £57m), which reflected the interest savings
following the tier 2 debt cancellation previously mentioned. Management
actions and other items, primarily a mortality assumption changed, boosted the
capital surplus by £69m. This lead to a total of £126m from organic capital
generation, which contributed one percentage point to the capital coverage
ratio.
NON-OPERATING ITEMS
Economic movements summed to £(22)m in the capital surplus. The effect to the
surplus from the fall in long term interest rates at year end cut-off was
relatively small at £(15)m, but resulted in a three percentage point fall in
the capital coverage ratio. Property price growth at 2.3% (compared to our
annual 3.3% long-term growth assumption) led to a £(11)m decrease in capital
surplus, while we established a £(45)m provision for the potential
residential ground rent consultation, which may impact valuation of those
assets. These three negative items were offset by £49m of positive items,
primarily asset trading and timing variances.
Regulatory changes resulted in a £109m increase in the surplus following a
reduction in the Solvency II risk margin. Offsetting this, in
September/October 2023, we completed the repurchase of a further £24m
(nominal) of T2 debt via the open market. Shareholder dividend payments
totalled £19m, while strategic expenses reduced the capital surplus by a
further £13m.
The positive benefit from the risk margin reform has added seven percentage
points to the capital coverage ratio, which has been offset by the other
non-operating items. There were no capital restrictions or deferred tax assets
in the 31 December 2023 capital position.
ESTIMATED GROUP SOLVENCY II SENSITIVITIES1,5
The property sensitivity has reduced to 10% (31 December 2022: 12%). We expect
that reduced LTM origination and backing ratio on new business will contain
the Solvency II sensitivity to house prices 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.
Unaudited At 31 December 2023 At 31 December 2023
% £m
Solvency coverage ratio/excess own funds at 31 December 20232 197 1,527
-50bps fall in interest rates (with TMTP recalculation) (6) 26
+50bps increase in interest rates (with TMTP recalculation) 6 (27)
+100bps credit spreads (with TMTP recalculation) 14 109
Credit quality step downgrade3 (7) (109)
-10% property values (with TMTP recalculation)4 (10) (141)
-5% mortality (10) (147)
1 In all sensitivities the Effective Value Test ("EVT") deferment rate
is allowed to change subject to the minimum deferment rate floor of 3% as at
31 December 2023 (2.0% as at 31 December 2022) except for the property
sensitivity where the deferment rate is maintained at the level consistent
with base balance sheet.
2 Sensitivities are applied to the reported capital position which
includes a formal 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 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
Unaudited 31 December 2023 31 December 2022
£m
£m
(restated)
IFRS net equity 1,203 1,103
CSM 1,959 1,611
Goodwill (34) (34)
Intangibles (7) (13)
Solvency II risk margin (196) (456)
Solvency II TMTP1 637 874
Other valuation differences and impact on deferred tax (1,059) (884)
Ineligible items (5) (50)
Subordinated debt 619 619
Group adjustments (13) (13)
Solvency II own funds1 3,104 2,757
Solvency II SCR1 (1,577) (1,387)
Solvency II excess own funds1 1,527 1,370
1 The Solvency II capital coverage ratios as at 31 December 2023
(estimated) and 31 December 2022 include a formal recalculation of TMTP at the
respective dates.
RECONCILIATION FROM OPERATING PROFIT TO IFRS CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
The tables below present the reconciliation from the Group's APM income
statement view to the IFRS statement of comprehensive income for the Group.
The Group's results reflect the adoption of IFRS 17 including the restatement
of comparatives. For further information on the restatement see note 1 of the
Consolidated financial statements.
Year ended 31 December 2023
Alternative profit measure format Statutory accounts format
Reported Quote date difference CSM Adjusted Insurance result 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 355 (12) (343) -
CSM amortisation (62) 62 -
Net underlying CSM increase 293 (12) (281) -
In-force operating profit:
Investment return earned 94 94 94 94
on surplus assets
Release of allowances for credit default 28 28 28 28
CSM amortisation 62 62 129 (67) 62
Release of risk adjustment 7 7 7 7
for non-financial risk
Other Group companies' (22) (22) (22) (22)
operating results
Development expenditure (17) (17) (17) (17)
Finance costs (68) (68) (68) (68)
Underlying operating profit 377 (12) (281) 84 136 55 (68) (39) 84
Operating experience and 52 (67) (15) (18) 3 (15)
assumption changes
Adjusted operating profit before tax 429 (12) (348) 69
Investment and economic movements 92 12 104 215 (70) (41) 104
Strategic expenditure (17) (17) (17) (17)
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity 16 16 16 16
Adjusted profit before tax 520 (348) 172
Deferral of profit in CSM (348) 348 -
Profit before tax 172 172 118 273 (122) (97) 172
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
(see accounting policy note 1.5.6).
The adjusted total column is then transposed in the columns on the right-hand
side into the IFRS statutory accounts Consolidated statement of comprehensive
income format. Figures are presented on a net of reinsurance basis.
Investment return on surplus assets and Release of allowance for credit
default are recognised within the investment result in the IFRS Statement of
Comprehensive income. CSM amortisation includes recognition of services
provided within IFRS Insurance result and the unwind of discounting in the
IFRS Investment result.
The insurance service result of £118m (2022: £99m) represents the excess of
insurance revenue over insurance service expenses, with the year on year
increase attributable to a higher release from CSM reserve as an additional
year of new business is added, partly offset by higher external investment
management expenses.
The net investment result of £273m (2022: £(454)m loss) 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. In 2023, this net profit is attributable to the
return on surplus funds, the emergence of credit default margins, and the
effects of investment into higher yielding assets.
Other finance costs of £122m (2022: £57m) represent the costs of servicing
tier 2 and tier 3 debt and repurchase agreements in connection with the
amortised cost gilt portfolio established in 2023. Other income, expenses and
associates of £97m loss (2022: £82m loss) represent the results from the
Group's non-insurance businesses and expenses not attributed to insurance
contracts in force.
Year ended 31 December 2022 (restated)
Alternative profit measure format Statutory accounts format
Insurance result Investment result Other finance costs Other income, expenses and associates PBT
£m £m £m £m £m
Reported Quote date difference CSM Adjusted
deferral
£m £m
total
£m
£m
New business profit 266 4 (270) -
CSM amortisation (61) 61 -
Net underlying CSM increase 205 4 (209) -
In-force operating profit:
Investment return earned 61 61 61 61
on surplus assets
Release of allowances for credit default 26 26 26 26
CSM amortisation 61 61 96 (35) 61
Release of risk adjustment 8 8 8 8
for non-financial risk
Other Group companies' (16) (16) (16) (16)
operating results
Development expenditure (15) (15) (15) (15)
Finance costs (73) (73) (73) (73)
Underlying operating profit 257 4 (209) 52
Operating experience and 104 (118) (14) (5) (9) (14)
assumption changes
Adjusted operating profit before tax 361 4 (327) 38
Investment and economic movements (537) (4) (541) (497) (44) (541)
Strategic expenditure (7) (7) (7) (7)
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity 16 16 16 16
Adjusted loss before tax (167) (327) (494)
Deferral of profit in CSM (327) 327 -
Loss before tax (494) (494) 99 (454) (57) (82) (494)
HIGHLIGHTS FROM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
The table on 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.
Financial investments
During the year, financial investments increased by £6bn to £29.4bn (2022:
£23.4bn). Excluding the derivatives and collateral, and gilts purchased in
relation to the interest rate hedging, the core Investments portfolio on which
we take credit risk increased by 18% to £24bn. Over the past two years,
central banks have rapidly raised base rates from their historical low levels
to counteract the effect of inflation and prevent it becoming embedded in the
economy. Base rates are expected to have peaked, with progressive interest
rate cuts expected later this year and into 2025. The year on year portfolio
increase to £24bn has been driven by investment of the Group's £4.3bn of new
business premiums, credit spread tightening, and the decrease in long-term
risk-free rates at year end cut-off, which increased the value of the assets
(and matched liabilities). The credit quality of the Group's bond portfolio
remains resilient, with 54% rated A or above (31 December 2022: 50%), driven
by an increase in A rated consumer staples and infrastructure assets. Our
diversified portfolio continues to grow and is well balanced across a range of
industry sectors and geographies.
We continue to position the portfolio with a defensive bias, and year to date
have experienced positive ratings performance as 11% of the Group's bond
portfolio (excluding gilts) was upgraded, offset by 8% being downgraded. The
Group continues to have very limited exposure to those sectors that are most
sensitive to structural change or macroeconomic conditions, such as auto
manufacturers, consumer (cyclical), energy and basic materials. The Group has
increased its infrastructure, utilities and long income real estate
(primarily commercial) investments, and selectively added to consumer and
banks investments. The BBB-rated bonds are weighted towards the most
defensive sectors including utilities, communications and technology, and
infrastructure.
The Group continues to have ample liquidity. We prudently manage the balance
sheet by hedging all foreign exchange and inflation exposure, and fully
implemented a revised interest rate hedging strategy during the first half of
2023. This involved the purchase of £2.5bn 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, with a much reduced
volatility on the IFRS 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.
31 December 2023 31 December 2022
£m
£m
(restated)
Assets
Financial investments 29,423 23,352
Reinsurance contract assets 1,143 776
of which CSM 100 107
Cash available on demand 546 482
Other assets 726 802
Total assets 31,838 25,412
Share capital and share premium 199 199
Other reserves 943 938
Accumulated profit and other adjustments (259) (354)
Total equity attributable to ordinary shareholders of Just Group plc 883 783
Tier 1 notes 322 322
Non-controlling interest (2) (2)
Total equity 1,203 1,103
Liabilities
Insurance contract liabilities 24,131 19,647
of which CSM 2,449 1,943
Reinsurance contract liabilities 125 121
of which CSM (296) (225)
Other financial liabilities 5,588 3,669
Other liabilities 791 872
Total liabilities 30,635 24,309
Total equity and liabilities 31,838 25,412
Total Net Contractual Service Margin included above 1.959 1,611
Net Contractual Service Margin net of deferred tax 1,471 1,212
Other illiquid assets and lifetime mortgages
To support new business pricing, optimise back book returns, and to further
diversify its investments, the Group originates other illiquid assets
including infrastructure, real estate investments and private placements.
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 2023, we originated £1,550m of other illiquid assets (68 investments) and
funded £164m of lifetime mortgages, which together represent a 44% new
business backing ratio. Other illiquid assets 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.
To date, Just has invested £4.9bn in other illiquid assets, representing 21%
of the Investments portfolio (31 December 2022: 16%), spread across more than
330 investments, both UK and abroad. We have invested in our in-house credit
team as we have broadened the illiquid asset origination, and work very
closely with our specialist asset managers on structuring to enhance our
security, with a right to veto on each asset. We anticipate that the Solvency
II reforms, when fully implemented, will increase the investment opportunities
available to us through wider matching adjustment eligibility criteria, such
as callable bonds, or assets with a construction phase, where the commencement
of cash flows is not entirely certain. A PRA consultation paper on the more
complex changes to matching adjustment ("MA") rules and the associated
investment flexibility was launched in September, with reforms to take effect
in 2024. We expect these MA changes to support the role HM Treasury is
expecting from the industry, whereby appropriate reforms could increase
investment by tens of billions of pounds in long-term finance that underpins
UK economic growth.
Internally funded lifetime mortgages were £164m (2022, £519m), primarily due
to a much reduced LTM market, which more than halved to £2.6bn, and our
ongoing pricing discipline. LTMs remain an attractive asset class, however, in
a higher interest rate environment, the capital charge attaching to the LTM
NNEG risk becomes onerous. The loan-to-value ratio of the in-force lifetime
mortgage portfolio was 38.2% (31 December 2022: 37.3%), reflecting continued
performance across our geographically diversified portfolio, which offsets the
interest roll-up. Lifetime mortgages at £5.7bn represent 24% 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.
31 December 2023 31 December 2023 31 December 2022 31 December 2022
£m
%
£m
%
(restated)
(restated)
AAA1 2,252 8 2,154 9
AA1,3 and gilts 5,327 18 2,136 9
A1,2,3 7,239 24 6,262 27
BBB1,2,3 8,083 27 6,544 28
BB or below1,2 176 1 265 1
Lifetime mortgages 5,681 19 5,306 23
Other assets 837 3 724 3
Total1,2,3 29,595 100 23,391 100
1 Includes units held in liquidity funds, derivatives and collateral and
gilts (interest rate hedging).
2 Includes investment in trusts which holds 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 comparative has been restated to re-allocate ground rents and
certain SME investment and other funds to the appropriate rating (previously
Other unrated).
4 The residential ground rent portfolio includes £164m rated AAA and
£12m rated AA.
The Group holds a £176m portfolio of residential ground rents and is
monitoring the progress of the Government Consultation regarding existing
leases and the impact on the Group's exposure to these assets. The Group
invests in loans secured by residential ground rents, rather than directly in
residential leases. These investments are valued at fair value, and reflect
our estimate of the impact that the uncertainty from the consultation has had
on the fair value of this asset class at the reporting date. The Group
acknowledges the significant uncertainty regarding the outcome of the
consultation, and that the fair value of these investments may change in the
future after the consultation concludes. For further information on the
consultation please see the Risk management report and the accounting
estimates made in note 1.7.
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.
31 December 2023 31 December 2023 31 December 2022 31 December 2022
£m
£m
%
%
(restated)
(restated)1
Basic materials 149 0.6 270 1.3
Communications and technology 1,334 5.6 1,327 6.6
Auto manufacturers 130 0.5 250 1.2
Consumer staples (including healthcare) 1,405 5.9 935 4.6
Consumer cyclical 197 0.8 125 0.6
Energy 378 1.6 535 2.6
Banks 1,606 6.7 1,119 5.5
Insurance 735 3.1 607 3.0
Financial - other 583 2.4 342 1.7
Real estate including REITs 660 2.8 437 2.2
Government 1,767 7.4 1,596 7.9
Industrial 543 2.3 588 2.9
Utilities 2,637 11.0 2,266 11.2
Commercial mortgages2 764 3.2 584 2.9
Long income real estate3 916 3.8 291 1.4
Infrastructure 2,473 10.3 1,702 8.4
Other 42 0.2 42 0.2
Bond total 16,319 68.1 13,016 64.4
Other assets 822 3.4 726 3.6
Lifetime mortgages 5,681 23.7 5,306 26.2
Liquidity funds 1,141 4.8 1,174 5.8
Investments portfolio 23,963 100.0 20,222 100.0
Derivatives and collateral 3,083 3,169
Gilts (interest rate hedging) 2,549 -
Total 29,595 23,391
1 Restated to re-allocate various short term illiquid fund assets and
cash/investments, primarily from the Financial - other sector. These assets
are now in the "Other Assets" category.
2 Includes investment in trusts which are included in investment
properties in the IFRS consolidated statement of financial position.
3 Includes direct long income real estate and where applicable, investment
in trusts which are included in investments accounted for using the equity
method in the IFRS consolidated statement of financial position. Long income
real estate include £740m commercial ground rents and £176m 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.
Reinsurance assets increased to £1,143m at 31 December 2023 (31 December
2022: £776m) as the funded reinsurance in relation to the DB Partner
transaction in December 2023 was partially offset by reinsurance quota share
treaties which are in gradual run-off.
Cash and other assets
Other assets (primarily cash) remained consistent at £1.3bn at 31 December
2023 (31 December 2022: £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 £24.1bn at 31 December 2023 (31
December 2022: £19.6bn). The increase in liabilities reflects the new
business premiums written and decrease to the valuation rate of interest,
offset by mortality assumptions changes and policyholder payments over the
period.
Other liabilities
Other liability balances decreased to £791m at 31 December 2023 (31 December
2022: £872m) due to a reduction in loans and other payables.
IFRS net assets
The Group's total equity at 31 December 2023 was £1.2bn (31 December 2022:
£1.1bn). Total equity includes the Restricted Tier 1 notes of £322m (after
issue costs) issued by the Group in September 2021. The total equity
attributable to ordinary shareholders increased to £883m (31 December 2022:
£783m).
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:
Year ended 31 December 2023 Year ended 31 December 2022 (restated)
Gross insurance contracts Reinsurance contracts Total Gross insurance contracts Reinsurance contracts Total
£m
£m
£m
£m
£m
£m
CSM balance at 1 January 1,943 (332) 1,611 1,489 (205) 1,284
New Business initial CSM recognised 380 (37) 343 320 (50) 270
Accretion of interest on CSM 79 (12) 67 41 (6) 35
Changes to future cash flows at 203 (136) 67 213 (96) 117
locked-in economic assumptions
Release of CSM (156) 27 (129) (120) 25 (95)
Net transfers to CSM 506 (158) 348 454 (127) 327
CSM balance at 31 December 2,449 (490) 1,959 1,943 (332) 1,611
RESTATEMENT OF ALTERNATIVE PERFORMANCE MEASURES
As noted earlier, certain of the Group's APMs and KPIs have been affected by
the implementation of IFRS 17 as a result of changes to risk parameters
and other measurement factors in the underlying statutory accounts. The
opportunity has been taken to make other changes to the derivation of the KPIs
at the same time as implementing IFRS 17, notably:
· The impact of demographic changes on the valuation of LTMs has been
reclassified as an investment value change instead of being included with
insurance experience and assumption changes. This change treats the full
return on LTMs as investment return and recognises their reduced significance
within the investment portfolio.
· Non-recurring expenses have been reallocated to new business
acquisition expenses or development expenses within underlying operating
profit or to strategic expenses. This has also been reflected and aligned to
the classifications used for measurement of Solvency II capital generation.
The table below compares the new business profits, Underlying profit and
Adjusted operating profit before tax as presented in the Annual Report and
Accounts in 2022 under IFRS 4 (previous accounting standard) with the
equivalent APMs based on the IFRS 17 accounts:
New business profit Underlying operating profit Adjusted operating profit
£m
£m
£m
As presented in 2022 Annual Report and Accounts under IFRS 4 233 249 336
Changes in allowances for credit defaults 38 25 25
Changes attributable to replacement of IFRS 4 prudent reserves with IFRS 17 2 (9) (9)
risk adjustment
Change to the classification of demographic assumption changes and experience - - 24
variances in respect of LTMs
Reclassification of expenses (1) (6) (6)
Other differences (6) (2) (9)
As presented in 2023 Annual Report and Accounts under IFRS 17 266 257 361
Dividends
In line with our stated policy to grow the dividend over time, the Board is
recommending a final dividend of 1.50 pence per share bringing the total
dividend for the year ended 31 December 2023 to 2.08 pence per share. The 20%
growth in total dividend is ahead of the 15% 2022 dividend growth rate.
MARK GODSON
Group Chief Financial Officer
Risk Management
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 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
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.
STRATEGIC PRIORITIES
1. Grow through innovation
2. Transform how we work
3. Get closer to our customers and partners
4. Be proud to work at Just
5. Grow sustainably
ONGOING PRINCIPAL RISKS
RISK How We manage or mitigate the risk
A Arises from changes in interest rates, residential property prices, credit · Premiums are invested to match asset and liability cash flows as
spreads, inflation, and exchange rates, which affect, directly or indirectly, closely as practicable;
MARKET RISK the level and volatility of market prices of assets and liabilities.
· Market risk exposures are managed within pre-defined limits aligned to
The Group is not exposed to any material levels of equity risk. Some very risk appetite for individual risks;
limited equity risk exposure arises from investment into credit funds which
Strategic priorities have a mandate that allows preferred equity to be held. · Exposure is managed using regulatory and economic metrics to achieve
desired financial outcomes;
1, 5
· Balance sheet is managed by hedging exposures, including currency and
inflation where cost effective to do so; and
· Interest rate hedging is in place to manage Solvency II capital
coverage and IFRS equity positions.
B Arises if another party fails to perform its financial obligations to the · Investments are restricted to permitted asset classes and concentration
Group, including failing to perform them in a timely manner. limits;
Credit RISK
· 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, 5
· Credit risks from reinsurance balances are mitigated by the reinsurer
depositing back premiums ceded and through collateral arrangements or
recapture plans; and
· The external fund managers we use are subject to Investment Management
Agreements and additional credit guidelines.
C Arises through exposure to longevity, mortality, morbidity risks and related · Controls are maintained over insurance risks related to product
factors such as levels of withdrawal from lifetime mortgages and management development and pricing;
Insurance RISK and administration expenses.
· Approved underwriting requirements are adhered to;
· Medical information is developed and used for pricing and reserving to
strategic priorities assess longevity risk;
1, 3, 5 · Reinsurance used to reduce longevity risk, with oversight by 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 The risk of insufficient suitable assets available to meet the Group's · Stress and scenario testing and analysis is conducted: including
financial obligations as they fall due. collateral margin stresses, asset eligibility and haircuts under stress;
Liquidity RISK
· 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, 5
· Contingency funding plan is maintained with funding options and process
for determining actions.
E Arise from inadequate internal processes, people and systems, or external · Implement policies, controls, and mitigating activities to keep risks
events including changes in the regulatory environment. Such risks can result within appetite;
Conduct and operational RISK in harm to our customers, the markets in which we do business or our
regulatory relationships as well as direct or indirect loss, or reputational · Oversee risk status reports and any actions needed to bring risks back
impacts. within appetite;
Strategic priorities · Scenario-based assessment is in place to establish the level of capital
needed for conduct and operational risks;
1, 2, 3, 4, 5
· Monitor conduct and customer risk indicators and their underlying
drivers prompting action to protect customers;
· 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 Arises from the choices the Group makes about the markets in which it competes · The Group operates an annual strategic review cycle;
and the environment in which it competes. These risks include the risk of
strategic RISK changes to regulation, competition, or social changes which affect the · Information on the strategic environment, which includes both external
desirability of the Group's products and services. market and economic factors and those internal factors which affect our
ability to maintain our competitiveness, is regularly analysed to assess the
impact on the Group's business models;
Strategic priorities
· Engagement with industry bodies supports our information gathering; and
1, 2, 3, 4, 5
· The Group responds to consultations through trade bodies where
appropriate.
risk outlook
how this risk effects just just's exposure to risk outlook and how we manage or mitigate the risk
1 Just monitors and assesses regulatory developments for their potential impact The matching adjustment and Solvency II reform is of key importance to Just's
on an ongoing basis. We seek to actively participate in all regulatory business model.
Political initiatives which may affect or provide future opportunities for the Group.
and regulatory Our aims are to implement any changes required effectively and deliver better In September 2023, the PRA issued its first substantive consultation on the
outcomes for our customers and a competitive advantage for the business. We detail of its proposed changes to the matching adjustment (MA). Subject to the
Changes in regulation and/or the political environment can impact the Group's develop our strategy by giving consideration to planned political and government's legislative timetable and responses to the consultation, the PRA
financial position and its ability to conduct business. The financial services regulatory developments and allowing for contingencies should outcomes differ plans to publish final policy and rules on the MA during Q2 2024 with an
industry continues to see a high level of regulatory activity. from our expectations. effective date of 30 June 2024, with all other changes relating to the
Solvency II review taking effect on 31 December 2024. Whilst greater clarity
has now been provided, the potential impact of the changes will not be
completely understood until the final details have been agreed and full
Trend details of their implementation are known in 2024.
Uncertain The Group has limited Funded Reinsurance and that which it has is
collateralised with awareness of the recapture risks and correlated risks the
PRA is concerned with in CP 24/23. The Group will evaluate the changes
required as a result of the final supervisory statement and if required make
strategic priorities changes to its approach.
1, 3, 4, 5 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. Just achieved
substantive compliance with the requirements in line with the timescales
provided by the FCA. Work is in progress to apply the requirements to products
and services in closed books by 31 July 2024, and completion of these works
will form part of the required annual Board report.
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.
On 9 November 2023, the Government published a consultation seeking views on
capping the maximum ground rent that residential leaseholders can be required
to pay in England and Wales. The consultation set out five options including
capping ground rents at a peppercorn (essentially zero). The Group invests in
loans secured on residential ground rents as part of its investment portfolio,
and if the consultation results in a reduction in future cash flow from ground
rents, the security and/or value of the loans will be reduced, in some cases
materially. For more information on the Group's exposure to residential ground
rents see the Other illiquid assets and lifetime mortgages section of the
Business Review.
2 Our TCFD disclosures (section "sustainability strategy: TCFD disclosure Just is proactive in pursuing its sustainability responsibilities and
framework") explains how climate-related risks and opportunities are embedded recognises the importance of its social purpose. We have set targets for Scope
Climate and ESG in Just's governance, strategy and risk management, with metrics to show the 1, 2 and business travel to be carbon net zero by 2025. For emissions from our
potential financial impacts on the Group. The metrics reflect the Scope 3 emissions including our investment portfolio, properties on which
Climate change could impact our financial position by impacting the value of stress-testing and scenario capabilities developed to date to assess the lifetime mortgages are secured and supply chain we have set net zero targets
residential properties in our lifetime mortgage portfolio and the yields and potential impact of climate risk on the Group's financial position. by 2050, with a 50% reduction in these emissions by 2030. Performance against
default risk of our investment portfolios. Just's reputation could also be
these targets is being monitored and reported.
affected by missed emissions targets or inadequate actions on environmental The value of properties on which lifetime mortgages are secured can be
issues or broader sustainability issues. 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
the energy efficiency of residential properties; data.
Trend
(ii) physical risks - such as increased flooding due to severe rainfall, or The lifetime mortgage lending criteria will be kept under review and
Increasing more widespread subsidence after extended droughts. adjustments made as required.
A shortfall in property sale price against the outstanding mortgage could lead Under Just's Responsible Investment Framework, the ESG risks, including
to a loss due to the no-negative equity guarantee given to customers. climate change, are considered for liquid and illiquid assets. Risks arising
strategic priorities
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.
1, 2, 3, 4, 5 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 latest 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
outstanding Customer service and to the financial management of the business. coming years and evolve in sophistication. We will continue to closely monitor
Cyber and technology We maintain a framework of operational resilience and disaster recovery evolving external cyber threats to ensure our information security measures
capabilities so that we can continue to operate the business remain fit for purpose. Just's Chief Information Security Officer has recently
IT systems are key to serving customers and running the business. These in adverse circumstances. implemented a revised information security team structure and approach.
systems may not operate as expected or may be subject to cyber-attack to steal
or misuse our data or for financial gain. Any system failure affecting the Protecting the personal information of our customers and colleagues is a key 2024 will see further investments in cyber-attack countermeasures, to enable
Group could lead to costs and disruption, adversely affecting its business and priority. consistent delivery of required security standards, in line with our Cyber
ability to serve its Customers, and reputational damage.
strategy. We will continue to evaluate impacts of other new and emerging
Internal controls and our people are integral to protecting the integrity of technologies, such as Artificial Intelligence, during the year.
our systems, with our multi-layered approach to information security supported
by training, embedded company policies, and governance. Following the 2023 CBEST thematic findings from the Bank of England, a review
Trend
of such by the Chief Information Security Officer found that there were
We continue to invest in strategic technologies. minimal improvements required regarding the recommendations and guidance; all
Stable of which were of low residual risk and for which improvements have been
undertaken to address such.
To strengthen data security and overall resilience, in 2023, we continued to
Strategic priorities make enhancements to network architecture and implemented data centre
upgrades.
1, 2, 3, 4, 5
Our email system has been 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
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
Insurance risk Most of the financial exposure to the longevity risks that are not reinsured mortality for existing and future policyholders.
relate to certain business written prior to 2016.
In the long-term, the rates of mortality suffered by our customers and other
Our views on the changes are updated annually taking into account recent data,
demographic risks may differ from the assumptions made when we priced the Reinsurance treaties include collateral to minimise exposure in the event of a emerging best practice and expected trends. The assumptions about these
contract. reinsurer default. Analysis of collateral arrangements can be found in notes changes have been incorporated into Just's pricing across our Retirement
29 and 34 of the Annual Report and Accounts. Income and Lifetime Mortgage products and will be updated as more information
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
Strategic priorities
1, 3, 5
5 Financial market volatility leads to changes in the level of market prices of Global growth has held up in 2023 despite tighter fiscal and monetary policy.
assets and liabilities. Our business model and risk management framework have 2024 is likely to see weaker growth with a recession possible in the UK and
Market and been designed to remain robust against market headwinds. Our policy is to the countries in which the Group invests. Financial markets are likely to
credit risk manage market risk within pre-defined limits. remain volatile during this period.
Fluctuations in interest rates, residential property values, credit spreads, Investment in fixed income investments exposes the Group to default risk and Our investment assets may experience increased movements in downgrade and/or
inflation and currency may result, directly or indirectly, in changes in the subsequent losses should collateral and recovery be less than the expected default experience.
level and volatility of market prices of assets and liabilities. investment value. Additionally, the Group is exposed to concentration risk and
to the downgrade of assets which shows an increased probability of default. 2023 saw limited changes to UK residential property prices; however, sustained
Investment credit risk is a result of investing to generate returns to meet
high interest rates may result in price falls, increasing the Group's exposure
our obligations to policyholders. Credit risk exposures arise due to the potential default by counterparties we to the risk of shortfalls in expected repayments due to no-negative equity
use to: guarantee within its portfolio of lifetime mortgages. Any commercial property
price falls would reduce the value of collateral held within our loan
· provide reinsurance to manage Group exposure to insurance risks, most portfolio secured against commercial properties.
Trend notably longevity risk;
Our balance sheet sensitivities to these risks can be found in note 20.
Increasing · provide financial instruments to mitigate interest rate and currency
risk exposures; and Credit risk on cash assets is managed by imposing restrictions over the credit
ratings of third parties with whom cash is deposited.
· hold our cash balances.
Strategic priorities
To reduce risk, the Group ensures it trades with a wide range of
1, 3, 5 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 measures reinsurance default with respect to its
regulatory balance sheet as expected by SS 24/23. 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
with an increased level of liquidity risk. At the same time, Just is
Liquidity risk · short-term cash flow volatility leading to mismatches between cash experiencing strong market demand for defined benefit de-risking solutions
flows from assets and liabilities, particularly servicing collateral from pension schemes.
Having sufficient liquidity to meet our financial obligations as they fall due requirements of financial derivatives and reinsurance agreements;
requires ongoing management and the availability of appropriate liquidity
Just's use of derivative positions is planned to increase in proportion to its
cover. The liquidity position is stressed to reflect extremely volatile · the liquidation of assets to meet liabilities during stressed market planned growth. Throughout any period of heightened volatility, Just maintains
conditions such as those triggered by the September 2022 "mini-Budget". 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,
lower redemptions than expected; and
Trend
· liquidity transferability risk across the Group.
Increasing
Strategic priorities
1, 3, 5
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
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
Strategic risk 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 market or alter the attractiveness of markets. change as a result of schemes' exposures. Demand for de-risking solutions is
The choices we make about the markets in which we compete and the demand for
expected to remain stable.
our product and service offering may be affected by external risks including Changes in the nature or intensity of competition may impact the Group and
changes to regulation, competition, or social changes. increase the risk the business model is not able to be maintained. The Government is keen for the development of Collective Defined Contributions
(CDC) Schemes. The Group believes that CDC would likely be complementary to
The actions of our competitors may increase the exposure to the risk from the existing decumulation market rather than replace it. Both the ABI and the
regulation should they fail to maintain appropriate standards of prudence. Group continue to actively contribute to ongoing discussions specific to this
Trend matter.
Stable
Strategic priorities
1, 2, 3, 4, 5
Consolidated statement of comprehensive income
for the year ended 31 December 2023
Note Year ended Year ended
31 December 2023 31 December 2022 (restated)
£m £m
Insurance revenue 2 1,555 1,325
Insurance service expenses 3 (1,396) (1,196)
Net expenses from reinsurance contracts 4 (41) (30)
Insurance service result 118 99
Interest income on financial assets measured at amortised cost 5 54 -
Other investment return 5 2,119 (5,189)
Investment return 2,173 (5,189)
Net finance (expenses)/income from insurance contracts 6 (2,006) 4,823
Net finance income/(expenses) from reinsurance contracts 7 108 (91)
Movement in investment contract liabilities (2) 3
Net investment result 273 (454)
Other income 21 14
Other operating expenses 3 (104) (93)
Other finance costs 8 (122) (57)
Share of results of associates accounted for using the equity method 36 (14) (3)
Profit/(loss) before tax 9 172 (494)
Income tax (expense)/credit 10 (43) 132
Profit/(loss) for the year 129 (362)
Profit/(loss) attributable to:
Equity holders of Just Group plc 129 (362)
Profit/(loss) for the year 129 (362)
Total comprehensive income/(loss) attributable to:
Equity holders of Just Group plc 129 (362)
Total comprehensive income/(loss) for the year 129 (362)
Basic earnings/(loss) per share (pence) 14 11.3 (36.3)
Diluted earnings/(loss) per share (pence) 14 11.2 (36.3)
The notes are an integral part of these financial statements.
Consolidated statement of changes in equity
for the year ended 31 December 2023
Year ended 31 December 2023 Note Share capital Share premium Other reserves Retained earnings1 Total shareholders' equity Tier 1 notes Total owners' equity Non-controlling interest Total
£m £m £m £m £m £m £m £m £m
At 1 January 2023 104 95 938 (354) 783 322 1,105 (2) 1,103
Profit for the year - - - 129 129 - 129 - 129
Total comprehensive income for the year - - - 129 129 - 129 - 129
Contributions and distributions
Dividends 15 - - - (19) (19) - (19) - (19)
Interest paid on Tier 1 notes (net of tax) 25 - - - (12) (12) - (12) - (12)
Share-based payments - - 5 (3) 2 - 2 - 2
Total contributions and distributions - - 5 (34) (29) - (29) - (29)
At 31 December 2023 104 95 943 (259) 883 322 1,205 (2) 1,203
Year ended 31 December 2022 Note Share capital £m Share premium £m Other reserves £m Retained earnings1 £m Total shareholders' equity Tier 1 notes Total owners' equity Non-controlling interest Total
£m
£m
£m
£m
£m
At 1 January 2022 - previously reported 104 95 944 977 2,120 322 2,442 (2) 2,440
Impact of adoption of new accounting standards(2) - - - (944) (944) - (944) - (944)
At 1 January 2022 - restated 104 95 944 33 1,176 322 1,498 (2) 1,496
Loss for the year - - - (362) (362) - (362) - (362)
Total comprehensive loss for the year - - - (362) (362) - (362) - (362)
Contributions and distributions
Dividends 15 - - - (15) (15) - (15) - (15)
Interest paid on Tier 1 notes (net of tax) 25 - - - (14) (14) - (14) - (14)
Share-based payments - - (6) 4 (2) - (2) - (2)
Total contributions and distributions - - (6) (25) (31) - (31) - (31)
At 31 December 2022 104 95 938 (354) 783 322 1,105 (2) 1,103
1 Includes currency translation reserve of £1m (31 December 2022:
£1m).
2 See note 1.2.2.
The notes are an integral part of these financial statements.
Consolidated statement of financial position
as at 31 December 2023
Note 31 December 2023 31 December 2022 1 January 2022
£m
(restated)
(restated)
£m
£m
Assets
Intangible assets 16 41 47 45
Property and equipment 17 22 22 14
Investment property 18 32 40 70
Financial investments 19 29,423 23,352 24,682
Investments accounted for using the equity method 36 149 194 -
Reinsurance contract assets 26 1,143 776 716
Deferred tax assets 21 406 449 304
Current tax assets 4 6 30
Prepayments and accrued income 12 11 6
Other receivables 60 33 21
Cash available on demand 22 546 482 510
Assets classified as held for sale - - 3
Total assets 31,838 25,412 26,401
Equity
Share capital 23 104 104 104
Share premium 23 95 95 95
Other reserves 24 943 938 944
Retained earnings (259) (354) 33
Total equity attributable to shareholders of Just Group plc 883 783 1,176
Tier 1 notes 25 322 322 322
Total equity attributable to owners of Just Group plc 1,205 1,105 1,498
Non-controlling interest 36 (2) (2) (2)
Total equity 1,203 1,103 1,496
Liabilities
Insurance contract liabilities 26 24,131 19,647 23,086
Reinsurance contract liabilities 26 125 121 165
Investment contract liabilities 27 35 33 34
Loans and borrowings 28 686 699 774
Other financial liabilities 29 5,588 3,669 721
Other provisions 3 1 1
Accruals and deferred income 47 43 43
Other payables 31 20 96 81
Total liabilities 30,635 24,309 24,905
Total equity and liabilities 31,838 25,412 26,401
The notes are an integral part of these financial statements.
The financial statements were approved by the Board of Directors on 7 March
2024 and were signed on its behalf by:
Mark Godson
Director
Consolidated statement of cash flows
for the year ended 31 December 2023
Note Year ended Year ended
31 December 2023 31 December 2022
£m (restated)
£m
Cash flows from operating activities
Profit/(loss) before tax 172 (494)
Property revaluation loss 17 - 1
Depreciation of property and equipment 17 2 4
Share of results from associates 14 3
Amortisation of intangible assets 16 3 2
Impairment of intangible assets 16 3 -
Share-based payments 1 (3)
Interest income 5 (1,104) (638)
Interest expense 8 122 57
Net (increase)/decrease in financial investments (6,068) 3,063
Increase in net reinsurance contracts (363) (105)
Increase in prepayments and accrued income (1) (5)
Decrease/(increase) in other receivables 3 (13)
Increase/(decrease) in insurance contract liabilities 4,484 (3,439)
Increase/(decrease) in investment contract liabilities 2 (1)
Increase in accruals, provisions and deferred income 16 1
Increase in net derivative liabilities and financial liabilities 1,849 1,340
(Decrease)/increase in other payables (75) 10
Interest received 1,075 402
Taxation received 6 16
Net cash inflow from operating activities 141 201
Cash flows from investing activities
Additions to internally generated intangible assets 16 - (4)
Acquisition of property and equipment 17 (3) (4)
Disposal of property 17 1 3
Acquisition of subsidiaries - (197)
Net cash outflow from investing activities (2) (202)
Cash flows from financing activities
Decrease in borrowings (net of costs) 28 (26) (76)
Dividends paid 15 (19) (15)
Coupon paid on Tier 1 notes 15 (16) (17)
Interest paid on borrowings (48) (57)
Payment of lease liabilities - principal (1) (3)
Net cash outflow from financing activities (110) (168)
Net increase/(decrease) in cash and cash equivalents 29 (169)
Foreign exchange differences on cash balances 2 4
Cash and cash equivalents at 1 January 1,656 1,821
Cash and cash equivalents at 31 December 1,687 1,656
Cash available on demand 546 482
Units in liquidity funds 1,141 1,174
Cash and cash equivalents at 31 December 22 1,687 1,656
The Consolidated Statement of Cash Flows for year ended 2022 includes
corrections to the restatements previously included within the interim
financial statements.
The notes are an integral part of these financial statements
Notes to the consolidated financial statements
1. Material accounting policies
General information
Just Group plc (the "Company") is a public company limited by shares,
incorporated and domiciled in England and Wales. The Company's registered
office is Enterprise House, Bancroft Road, Reigate, Surrey, RH2 7RP.
1.1.Basis of preparation
The consolidated financial statements have been prepared in accordance with UK
adopted international accounting standards in conformity with
the requirements of the Companies Act 2006 and the disclosure guidance and
transparency rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The consolidated financial statements have been 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 and the accounting for the
remeasurement of insurance and reinsurance contracts as required by IFRS 17.
Values are expressed to the nearest £1m.
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31 December 2023 and 2022 but is
derived from those accounts. Statutory accounts for 2022 have been delivered
to the registrar of companies, and those for 2023 will be delivered in due
course. The auditor has reported on those statutory accounts. Their report for
the years ended 31 December 2023 and 31 December 2022 were (i) unqualified,
(ii) did not contain a statement under section 498 (2) or (3) of the Companies
Act 2006, and (iii) did not include a reference to any matters to which the
auditor drew attention by way of emphasis without qualifying their report.
Going concern
A detailed going concern assessment has been undertaken and having completed
this assessment, the Directors are satisfied that the Group has adequate
resources to continue to operate as a going concern for a period of not less
than 12 months from the date of this report and that there is no material
uncertainty in relation to going concern. Accordingly, they continue to adopt
the going concern basis in preparing these financial statements.
This assessment includes the consideration 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 current financing arrangements
and contingent liabilities, and a range of forecast scenarios with differing
levels of new business and associated additional capital requirements to write
anticipated levels of new business.
The Group has a robust liquidity framework designed to withstand a range of
"worst case" 1-in-200 year historic liquidity events. The Group liquid
resources includes the Parent Company's undrawn revolving credit facility of
up to £300m for general corporate and working capital purposes.
The borrowing facility is subject to covenants that are measured biannually
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 31 December 2023 was 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.
The Group and its regulated insurance subsidiaries are required to comply with
the requirements established by the Solvency II framework directive as adopted
by the Prudential Regulation Authority ("PRA") in the UK, and to measure and
monitor its capital resources on this basis. The overriding objective of the
Solvency II capital framework is to ensure there is sufficient capital within
the insurance company to protect policyholders and meet their payments when
due. Insurers are required to maintain eligible capital, or "Own Funds", in
excess of the value of the Solvency Capital Requirement ("SCR"). The SCR
represents the risk capital required to be set aside to absorb 1-in-200 year
stress tests, over the next years' time horizon, of each risk type that the
insurer is exposed to, including longevity risk, property risk, credit risk,
and interest rate risk. These risks are aggregated together with appropriate
allowance for diversification benefits.
The resilience of the solvency capital position has been tested under a range
of adverse scenarios, before and after management actions within the Group's
control, which considers the possible impacts on the Group's business,
including stresses to UK residential property prices, house price inflation,
the credit quality of assets including residential ground rents, mortality,
and risk-free rates. In addition more extreme stresses and scenarios have been
considered, including a scenario where of the worst case outcome of peppercorn
rent from the Government consultation regarding restriction of ground rent for
existing residential leases, and also a reverse property stress. The Group
continued to be a going concern with the addition of the extreme peppercorn
scenario and also in the scenario of a property price fall of 40%. Eligible
own funds exceeded the minimum capital requirement in all stressed scenarios
described above.
Based on the assessment performed above, the Directors conclude that it
remains appropriate to value assets and liabilities on the assumption that
there are adequate resources to continue in business and meet obligations as
they fall due for the foreseeable future, being at least 12 months from the
date of signing this report.
Furthermore, the Directors note that in a scenario where the Group ceases to
write new business, the going concern basis would continue to be applicable
while the Group continued to service in-force policies.
The Directors considered the findings of the work performed to support the
long-term viability statement of the Group in the Risk management section of
the Annual Report and Accounts, which is undertaken together with the going
concern assessment. The Board and Audit Committee considered going concern
over 12 months as well as the consistency with the longer-term viability of
the Group, reviewing this over five years. Accordingly, the going concern
basis has been adopted in the valuation of assets and liabilities.
1.2. New accounting standards and new material accounting policies
1.2.1. Adoption of new and amended accounting standards
The Group has adopted two new accounting standards, with effect from 1 January
2023:
· IFRS 17 "Insurance Contracts" was issued in May 2017 with an effective
date of 1 January 2021. In June 2020, the IASB issued an amended standard
which delayed the effective date to 1 January 2023. IFRS 17 was approved for
adoption by the UK Endorsement Board in May 2022.
IFRS 17 establishes the principles for the recognition, measurement,
presentation and disclosure of insurance contracts and supersedes IFRS 4,
"Insurance Contracts".
· IFRS 9 "Financial Instruments" replaces IAS 39 "Financial Instruments:
Recognition and Measurement" and is effective for accounting periods beginning
on or after 1 January 2018. However, the Group previously met the relevant
criteria for, and applied, the temporary exemption from IFRS 9 for annual
periods before 1 January 2023, the date at which IFRS 17 becomes effective.
Consequently, the Group has applied IFRS 9 commencing 1 January 2023, with
comparative periods restated.
IFRS 9 is applicable to financial assets and financial liabilities and covers
the classification, measurement, impairment and derecognition of financial
assets and liabilities together with a new hedge accounting model.
The comparative figures in the financial statements have been restated on the
adoption of the standards. The impact on the opening statement of financial
position for the earliest presented period (1 January 2022) is disclosed in
note 1.2.2.
Material accounting policy choices on the adoption of the new standards (IFRS
17 and IFRS 9) are included in note 1.5 and note 1.6 respectively.
On the transition date, 1 January 2022, the Group has:
· identified, recognised, and measured each group of gross insurance
contracts and associated reinsurance contracts, as if IFRS 17 had always
applied unless impracticable (refer to note 1.3). Where the Group has
concluded that the fully retrospective approach is impracticable, it has
applied the fair value approach (refer to note 1.4) on transition;
· derecognised any existing IFRS 4 balances, including the Present Value
of In-Force Business and other relevant balances that would not exist had IFRS
17 always applied;
· presented reinsurance balances separately depending on whether they are
in an asset or liability position at a portfolio level (previously at a treaty
level), and reinsurance deposits previously classified as financial
instruments are included within the value of reinsurance contracts;
· recognised allowance for expected credit losses (ECL) on financial
assets which are measured at amortised cost, on the adoption of IFRS 9; and
· recognised any resulting net difference in retained earnings net of any
related tax adjustments.
The change in tax law enabling spreading of the tax recovery of the deferred
tax asset created at implementation of IFRS 17 over a period of 10 years was
enacted on 10 November 2022. The deferred tax asset at the transition date has
been deemed fully recoverable based on projections of future business
activity.
The following amendments to existing standards have been adopted by the Group
and do not have a significant impact on the financial statements:
· IAS 1 "Presentation of financial statements" - Amendments in respect of
disclosures of accounting policies.
· IAS 8 "Accounting policies" - Amendments in respect of the definition
of accounting estimates.
· IAS 12 "Income taxes" - Amendments in respect of deferred tax related
to assets and liabilities arising from a single transaction.
· IAS 12 "Amendments in respect of International tax reform" - Pillar two
model rules.
The following amendments to existing standards in issue have not been adopted
by the Group and are not expected to have a significant impact on the
financial statements:
· IAS 1 - Amendments in respect of the classification of liabilities as
current or non-current (effective 1 January 2024).
1.2.2. Impact of adoption of new accounting standards
Statement of financial position
The Statements of financial position reported at 31 December 2021 (the
transitional balance sheet presented on 1 January 2022 for the cumulative
impacts of the adoption of new accounting standards) and 31 December 2022 (the
comparative balance sheet) have been restated as follows:
Restatement of the transitional Statement of financial position (1 January
2022)
31 December 2021 Reclassification adjustments Measurement 1 January 2022
(as reported)
adjustments
(restated)
£m
£m £m £m
Assets
Intangible assets 120 - (75) 45
Property and equipment 14 - - 14
Financial investments measured at fair value through profit or loss 24,682 - - 24,682
Reinsurance contract assets (previously reinsurance assets) 2,808 (2,128) 36 716
Deferred tax assets - (6) 310 304
Current tax assets 30 - - 30
Prepayments and accrued income 76 (70) - 6
Other receivables (previously insurance and other receivables) 35 (13) (1) 21
Other assets 583 - - 583
Total assets 28,348 (2,217) 270 26,401
Equity
Share capital 104 - - 104
Share premium 95 - - 95
Other reserves 944 - - 944
Retained earnings 977 - (944) 33
Total equity attributable to shareholders of Just Group plc 2,120 - (944) 1,176
Tier 1 notes 322 - - 322
Total equity attributable to owners of Just Group plc 2,442 - (944) 1,498
Non-controlling interest (2) - - (2)
Total equity 2,440 - (944) 1,496
Liabilities
Insurance contract liabilities (previously insurance liabilities) 21,813 (57) 1,330 23,086
Reinsurance contract liabilities (previously reinsurance liabilities) 275 6 (116) 165
Investment contract liabilities 34 - - 34
Other financial liabilities 2,866 (2,145) - 721
Deferred tax liabilities 5 (5) - -
Other payables (previously insurance and other payables) 93 (12) - 81
Other liabilities 822 (4) - 818
Total liabilities 25,908 (2,217) 1,214 24,905
Total equity and liabilities 28,348 (2,217) 270 26,401
Restatement of the comparative Statement of financial position at 31 December
2022
31 December 2022 (previously reported) Reclassification adjustments Measurement adjustments 31 December 2022 (restated)
£m £m £m £m
Assets
Intangible assets 104 - (57) 47
Property and equipment 22 - - 22
Financial investments measured at fair value through profit or loss 23,477 (125) - 23,352
Investments accounted for using the equity method 194 - - 194
Reinsurance contract assets (previously reinsurance assets) 2,287 (1,598) 87 776
Deferred tax assets 93 - 356 449
Current tax assets 6 - - 6
Prepayments and accrued income 85 (74) - 11
Other receivables (previously insurance and other receivables) 324 (289) (2) 33
Other assets 522 - - 522
Total assets 27,114 (2,086) 384 25,412
Equity
Share capital 104 - - 104
Share premium 95 - - 95
Other reserves 938 - - 938
Retained earnings 721 - (1,075) (354)
Total equity attributable to shareholders of Just Group plc 1,858 - (1,075) 783
Tier 1 notes 322 - - 322
Total equity attributable to owners of Just Group plc 2,180 - (1,075) 1,105
Non-controlling interests (2) - - (2)
Total equity 2,178 - (1,075) 1,103
Liabilities
Insurance contract liabilities (previously insurance liabilities) 18,332 (336) 1,651 19,647
Reinsurance contract liabilities (previously reinsurance liabilities) 306 7 (192) 121
Investment contract liabilities 33 - - 33
Other financial liabilities 5,250 (1,581) - 3,669
Deferred tax liabilities - - - -
Other payables (previously insurance and other payables) 263 (167) - 96
Other liabilities 752 (9) - 743
Total liabilities 24,936 (2,086) 1,459 24,309
Total equity and liabilities 27,114 (2,086) 384 25,412
The reclassification adjustments are:
· the inclusion of insurance receivables and payables balances as cash
flows in the measurement of insurance and reinsurance contracts;
· the aggregation of reinsurance deposit backed liabilities with
reinsurance contract assets, previously recognised in 'Other financial
liabilities';
· the presentation of reinsurance contracts as an asset / liability based
on the net position of all contracts within a portfolio, rather than the
previous IFRS 4 treatment which was recognised on an individual contract
basis; and
· in addition to the reclassifications as a result of adopting IFRS 17
and IFRS 9, a further reclassification of £23m has been made in respect of
future funding commitments as a derivative forward which was previously
incorrectly accounted for gross within investment assets and the funding
commitment in other payables. There is no impact on net assets of this revised
classification. The impact on 1 January 2022 is not material.
The following table summarises the impact of reclassification and impact on
cash flows:
Note Reclassification adjustments
£m
Financial investments 19 (125)
Other financial liabilities - Derivatives 30 (23)
Other payables 31 148
Statement of cash flows - net decrease in financial investments 148
Statement of cash flows - increase in other payables (148)
IFRS 17 represents a significant change from the previous measurement
requirements contained in IFRS 4. The measurement adjustments are:
· For insurance and reinsurance contracts principally:
- discount rates, which include allowance for expected and unexpected
credit default risks instead of the prudent allowance for credit default risk
in IFRS 4;
- risk adjustment for non-financial risk, a new concept required by IFRS
17 compared to the prudent margins required by IFRS 4; and
- Contractual Service Margin ("CSM"), which is a significant conceptual
change from IFRS 4, whereby profits are recognised over the term of insurance
and reinsurance contracts rather than at point of sale.
· The derecognition of present value in force business intangible assets.
· Accounting for the associated tax impacts of the measurement
adjustments.
The impact of implementation of IFRS 9 has been minor, with the recognition of
an expected credit loss adjustment of £1m in the opening balance sheet.
Impact on Statement of comprehensive income
The Statement of comprehensive income has been re-presented for the year ended
31 December 2022 to reflect the changes in the opening balance sheet at 1
January 2022. The transitional requirements of IFRS 17 do not require a
reconciliation between the previous format of profit or loss and the new
format of profit or loss.
Except for note 5 on net investment gains/(losses) from financial assets,
notes 2 to 7 of the financial statements are newly required by the adoption of
IFRS 17.
Impact on earnings per share
The loss per share for the year ended 31 December 2022 (both basic and
diluted) has been restated to 36.30 pence per share from 23.70 pence per share
as a result of the adoption of the standards.
1.3. Adoption of IFRS 17
1.3.1. Insurance and reinsurance contracts - determination of transitional
amounts
The transition approach on initial adoption of IFRS 17 for the calculation of
the contractual service margin was determined for groupings of insurance and
reinsurance contracts either using the:
a) fully retrospective approach - the contractual service margin at inception
is calculated based on initial assumptions when groupings of contracts were
incepted, and rolled forward to the date of transition as if IFRS 17 had
always been applied; or the
b) fair value approach - the fair value CSM is calculated as the difference
between the fair value of the insurance (or reinsurance contracts) and the
value of the fulfilment cash flows at the date of transition.
The following table summarises the approaches outlined in 1.3.3 and 1.4 below
in order to transition from the previous standard, IFRS 4, to IFRS 17:
31 December 2021 Reclassification adjustments Measurement adjustments 1 January 2022
(as reported)
(restated)
£m £m
£m £m
Insurance contract liabilities
- Fully retrospective approach (1.3.3) 2,284 (8) 335 2,611
- Fair value approach (1.3.4) 19,529 (49) 995 20,475
Total insurance contract liabilities 21,813 (57) 1,330 23,086
Reinsurance contracts
Reinsurance contract assets
- Fair value approach (1.3.4) (2,808) 2,128 (36) (716)
Reinsurance contract liabilities
- Fully retrospective approach (1.3.3) 33 - (32) -
- Fair value approach (1.3.4) 242 6 (84) 165
Reinsurance contract liabilities 275 6 (116) 165
Net reinsurance contract (assets) (2,533) 2,134 (152) (551)
1.3.2. Inputs used to determine best estimate and risk adjustment (IFRS 17
values) at date of transition for insurance and reinsurance contracts
1.3.2.1. Determination of best estimate and risk adjustment
For insurance and reinsurance contracts where the fully retrospective approach
has been adopted, the best estimate and risk adjustment components of
fulfilment cash flows have been recognised and measured using the accounting
policies set out in note 1.5 from the inception date of the contracts to the
date of transition (1 January 2022). For insurance and reinsurance contracts
where the fair value approach has been adopted, the best estimate and risk
adjustment components of fulfilment cash flows have been determined as at 1
January 2022. The longevity assumptions used are consistent with the basis
used in the Just Group plc Solvency and Financial Condition Report as at 31
December 2021.
Mortality assumptions have been set by reference to appropriate standard
mortality tables. These tables have been adjusted to reflect the future
mortality experience of the policyholders, taking into account the medical and
lifestyle evidence collected during the underwriting process, premium size,
gender and the Group's assessment of how this experience will develop in the
future. The assessment takes into consideration relevant industry and
population studies, published research materials, and management's own
industry experience. The standard tables which underpin the mortality
assumptions are summarised in the table below for the relevant products of the
Group's insurance subsidiaries Just Retirement Limited ("JRL") and Partnership
Life Assurance Company Limited ("PLACL").
Product group Entity Mortality tables
Individually underwritten Guaranteed Income for Life Solutions ("GIfL") JRL Modified E and W Population mortality, with CMI 2019 model mortality
improvements
Individually underwritten Guaranteed Income for Life Solutions ("GIfL") PLACL Modified E and W Population mortality, with CMI 2019 model mortality
improvements
Defined Benefit ("DB") JRL Modified E and W Population mortality, with CMI 2019 model mortality
improvements for standard underwritten business; Reinsurer supplied tables
underpinned by the Self-Administered Pension Scheme ("SAPS") S1 tables, with
modified CMI 2009 model mortality improvements for medically underwritten
business
Defined Benefit ("DB") PLACL Modified E and W Population mortality, with modified CMI 2019 model mortality
improvements
Care Plans ("Care") and other annuity products JRL/PLACL Modified PCMA/PCFA and with CMI 2019 model mortality improvements for Care
Plans; Modified PCMA/PCFA or modified E and W Population mortality with CMI
2019 model mortality improvements for other annuity products
Protection PLACL TM/TF00 Select
The long-term improvement rates in the CMI 2019 model are 1.5% for males and
1.25% for females. The period smoothing parameter in the modified CMI 2019
model has been set to 7.00. The addition to initial rates ("A") parameters in
the model varies between 0% and 0.25% depending on product. All other CMI
model parameters are the defaults.
1.3.2.2. Discount rates
All cash flows were discounted using investment yield curves adjusted to allow
for expected and unexpected credit risk (refer to note 1.5 and note 26(b).
The overall reduction in yield to allow for the risk of defaults from all
non-LTM assets (including gilts, corporate bonds, infrastructure loans,
private placements and commercial mortgages) and the adjustment from LTMs,
which included a combination of the NNEG guarantee and the additional
reduction to future house price growth rate, was 61bps in JRL and 68bps in
PLACL.
The discount rates used to calculate the value of the best estimate and risk
adjustment for the groups of contracts applying the fair value approach were
determined based on a reference portfolio as at the transition date.
The discount rates used for the determination of the fulfilment cash flows
(and the locked-in rates for the contracts transitioning to IFRS 17 under the
fair value approach) were:
JRL PLACL PLACL
DB / GIfL Care DB / GIfL
1 year 2.6% 0.8% 2.7%
5 years 3.0% 1.1% 3.0%
10 years 2.9% 1.0% 2.9%
20 years 2.8% 1.0% 2.9%
30 years 2.7% 0.9% 2.8%
1.3.3. Fully retrospective approach
On transition to IFRS 17, the Group has applied the fully retrospective
approach unless it has concluded it is impracticable (see notes 1.3.4 and
1.3.5). The Group has applied the fully retrospective approach on transition
for all insurance contracts issued on or after 1 January 2021 and prior to the
1 January 2023 effective date. For all contracts issued after 1 January 2021,
the Group has applied the accounting policies described in note 1.5 for the
measurement and recognition of insurance and reinsurance contracts and used
the quantitative inputs described in note 1.3.2 to determine the best estimate
and risk adjustment.
The locked-in discount rates for the 2021 cohort, which have been determined
on a fully retrospective basis are:
JRL JRL PLACL
GIfL DB Care
1 year 2.2% 2.2% 0.8%
5 years 3.1% 2.7% 1.1%
10 years 3.2% 2.7% 1.0%
20 years 2.9% 2.4% 1.0%
30 years 2.7% 2.4% 0.9%
For all groups of insurance and associated reinsurance contracts issued prior
to this, the fair value approach has been applied (see notes 1.3.4 and 1.4).
1.3.4. Fair value approach
Where the Group has concluded that the fully retrospective approach is
impracticable, it has applied the fair value approach on transition for all
groups of insurance and associated reinsurance contracts. For each legal
entity, fair value basis cohorts have been grouped across multiple
underwriting years into a single unit for each product type and reinsurance
treaty for measurement purposes, which is the unit of account applied. The
fair value approach was selected as the modifications allowed by the modified
retrospective approach were not deemed to be sufficient to enable that
approach to be adopted.
The assumptions, models and the results of the determination of the fair value
of the insurance and reinsurance contracts under this approach are explained
in note 1.4.
1.3.5. Impracticability assessment
IFRS 17 requires firms to apply the Standard fully retrospectively, unless it
is impracticable to do so, in which case either a modified retrospective
approach or fair value approach may be taken. For insurance and reinsurance
contracts where the effective date of the contract was prior to 1 January
2021, the Group concluded that it would be impracticable to apply the standard
on a fully retrospective basis due to the inability of determining the risk
adjustment, a new requirement in terms of IFRS 17, in earlier years without
the application of hindsight. Guidance contained in IAS 8 "Accounting
Policies, Changes in Accounting Estimates and Errors" requires that hindsight
should not be applied in the application of an accounting standard on a
retrospective basis.
Impracticability of application of risk adjustment on the fully retrospective
approach (insurance contracts)
The most significant issue identified was the absence of an approved Group
Risk Adjustment framework, policy and methodology prior to 2021, with any
target setting to prior year information representing the application of
hindsight which is prohibited by the Standard.
The risk adjustment is a new requirement of IFRS 17 and represents the
compensation that an entity requires to take on non-financial risk. Defining
"compensation that the entity requires" to take on risk differs to any of the
risk-based allowances adopted for either existing regulatory or statutory
reporting purposes. A new framework and policy have been defined and
implemented to measure the risk adjustment.
The new risk adjustment policy was developed and adopted during 2021 with
calculation of the risk stresses to be applied from 1 January 2021. Under this
policy, the Group determines a target confidence level based upon an
assessment of the current level of risks that the business is exposed to and
the compensation required to cover the risks. Key factors for consideration
here include: the size of the business, products offered, reinsurance
structures, regulatory challenges and market competitiveness. These factors
are not necessarily stable from period to period, and today's understanding of
these aspects should be excluded from any historic assessment of risk as doing
so would be to apply hindsight.
The Group has assessed whether other information used in previous reporting
cycles, including pricing for new business, could be used to determine the
risk adjustment, but has concluded that none of these alternatives would be an
appropriate proxy for the risk adjustment. The development of the new approach
for IFRS 17 represents a significant enhancement in the approach used to
determine the Group's allowance for non-financial risk, with the use of a
target confidence interval and probability distributions providing a more
meaningful quantification of allowance for risk compared with IFRS 4
reporting.
Therefore, the Group has concluded that the fully retrospective approach is
impracticable prior to 2021 in respect of risk adjustment as it would require
the use of hindsight.
Impracticability assessment for reinsurance contracts held
The risk adjustment for reinsurance contracts held in IFRS 17 reflects the
"amount of risk being transferred" to the reinsurer, therefore where the risk
adjustment for insurance contracts is impracticable then, by definition, the
reinsurance risk adjustment is also impracticable.
Approach adopted
After considering the severity of these factors, the Group concluded that it
was impracticable to determine the value of insurance and reinsurance
contracts on a fully retrospective approach basis for those years of business
transacted prior to 2021.
As a result of this impracticality, the IFRS 17 standard allows an accounting
policy choice of the fair value approach or modified retrospective approach
from which the Group elected to apply the fair value approach.
1.4. Determination of fair value
1.4.1. Fair value principles
The Group has used the principles contained in IFRS 13 "Fair Value
Measurement" except the principles relating to demand features, to determine
the fair value of the insurance and reinsurance contracts.
The objective of a fair value measurement is to estimate the price at which an
orderly transaction to sell the asset or to transfer the liability would take
place between market participants at the measurement date under current market
conditions (i.e. an exit price at the measurement date from the perspective of
a market participant that holds the asset or owes the liability).
For certain assets and liabilities, observable market transactions or market
information may be available. For other assets and liabilities, such as
insurance obligations and associated reinsurance agreements, observable market
transactions and market information are not widely available. There is no
active market for the transfer of insurance liabilities and associated
reinsurance between market participants and therefore there is limited market
observable data. Although there may be transactions for specific books of
annuity business, the profile of the cash flows and nature of the risks of
each book of business is unique to each, with key inputs underlying the price
of these transactions not being widely available public knowledge, and
therefore it is not possible to determine a reliable market benchmark from
these transactions.
When a price for an identical asset or liability is not observable, the Group
measures fair value using an alternative valuation technique that maximises
the use of relevant observable inputs and minimises the use of unobservable
inputs. Because fair value is a market-based measurement, it is determined
using the assumptions that market participants would use when pricing the
asset or liability, including assumptions about risk. As a result, an entity's
intention to hold an asset or to settle or otherwise fulfil a liability is not
relevant when measuring fair value.
The initial determination of the fair value was calculated on a gross and net
of reinsurance basis. The fair value of the reinsurance contracts was then
determined based on the difference between the gross and net of reinsurance
results.
In arriving at the definition of a "market participant" the Group has assumed
the following:
· a similar monoline, rather than a multi-product line insurer;
· the portfolios are transferred as closed books of business;
· transferral of the associated reinsurance contracts currently in place,
as these would be expected to transfer at the point of sale alongside the
underlying insurance contracts; and
· treatment of the business under a Solvency II Internal Model approach
including a matching adjustment as it is expected that a market participant
would adopt this approach. This is regardless as to whether the business as
part of the Group today has an internal model and/or applies the matching
adjustment.
The measurement of the fair value of insurance contracts and associated
reinsurance contracts have therefore been classified in terms of the financial
reporting fair value hierarchy as Level 3.
1.4.2. Aggregation of contracts for the determination of fair value
The Group has aggregated contracts issued more than one year apart when
determining groups of insurance and reinsurance contracts under the fair value
approach at transition as permitted by IFRS 17. For the application of the
fair value approach, the Group has used reasonable and supportable information
available at the transition date in order to identify groups of insurance and
reinsurance contracts.
All insurance contracts which are valued at the date of transition using the
fair value transition method have been allocated to the "any remaining
contracts" profitability grouping (refer to note 1.5.3).
1.4.3. Overview of the fair value approach applied
The fair value approach adopted by the Group calculates the theoretical
premium (market premium approach) required by a market participant to accept
insurance liabilities. The quantification of the premium required for the
gross insurance liabilities and the associated reinsurance contracts was
determined separately.
The market premium required at the transition date has been determined as
follows:
· the premium required to earn the target rate of return on capital
("RoC") on reserves held in respect of Solvency II Best Estimate Liability,
Risk Margin and Solvency Capital Requirements, adjusted for associated
Solvency II Transitional Measure on Technical Provisions (TMTP) benefits for
the relevant pre-2016 business;
· the level of Solvency Capital assumed to be required has been
determined as 140% of the solvency capital required under Solvency II
regulations, being based on an external benchmark of a market participant's
requirement for a closed book of business (refer to note 1.4.4.2); and
· the target Return on Capital has been determined as 8%, being based on
an external benchmark of a market participant's target return for a closed
book of business (refer to note 1.4.4.3).
These assumptions and other key inputs into the fair value calculations have
been reviewed by an independent firm of accountants who have access to
industry surveys and other benchmarking, and their review conclusions were
made available to the Group Audit Committee. The fair value result has been
benchmarked against any publicly available and relevant market information as
well as an independent internal calculation based upon a Dividend Discount
Model ("DDM") approach used in industry for the valuation of insurance
business.
1.4.4. Principal inputs used to determine fair value
1.4.4.1. Best estimate and risk margin
The estimates for the best estimate and the risk margin are determined on a
basis consistent with Solvency II. The inputs used for JRL are based on its
Internal Model, and for PLACL are based on the assumed results that would be
derived from its internal model. An allowance for Solvency II TMTP benefits on
relevant pre-2016 business is reflected within the valuation.
The longevity assumptions used for the determination of the best estimate and
risk margin are consistent with the basis used in the Just Group plc Solvency
and Financial Condition Report as at 31 December 2021.
The discount rate assumption used for the determination of JRL and PLACL best
estimate liabilities is the prescribed Solvency II risk-free rate term
structure including a Matching Adjustment ("MA") based upon the JRL asset
portfolio as at 31 December 2021.
1.4.4.2. Solvency Capital Requirement ("SCR") coverage ratio
The target SCR coverage ratio assumed for the determination of fair value at
the date of transition is based on a market participant view for a closed book
of business. A target ratio of 140% is assumed in the fair value calculation
after consideration of the current ranges quoted by similar peers, notably
those principally operating closed books of business in the market and other
publicly available data. The fair value calculated is based on the purchase of
the insurance contracts liabilities and the associated reinsurance agreements
and does not include a premium associated with writing new business.
1.4.4.3. Return on Capital - Weighted Average Cost of Capital ("WACC")
The fair value measurement guidance within IFRS 13 requires that the Return on
Capital assumption should be based upon a Weighted Average Cost of Capital
("WACC") applicable to a "generic" market participant, rather than the Group's
specific WACC. Consequently, an appropriate market participant WACC is
computed for the Group's business based on debt and equity cost of capital for
companies that have closed books of insurance business, using input from
brokers, and the cost of external debt sourced from an external pricing
provider.
The market participant WACC determined was 8% and is applied to all books of
business irrespective of the expected duration of the underlying schemes.
1.4.5. Summary of fair value results
The following table summarises the fair value of insurance and reinsurance
contracts determined at the 1 January 2022 transition date.
Fair value Estimate of present value of future cash flows Risk adjustment Contractual
service margin
£m £m £m
£m
Insurance contract liabilities 20,475 18,343 905 1,227
Reinsurance contract assets 716 546 115 54
Reinsurance contract liabilities (165) (677) 395 119
Net reinsurance contracts (asset) 551 (131) 510 173
Insurance contract liabilities - net of reinsurance 19,924 18,474 395 1,054
The amounts previously reported under IFRS 4 on 1 January 2022 for insurance
contract liabilities and net reinsurance contracts, where the fair value
approach to transition has been adopted was £19,529m and £2,566m
respectively. Disclosure of the fair value component of the transition
approach can be found in note 1.3.1.
1.4.6. Sensitivities
The following table provides sensitivities to changes in key inputs used to
determine the fair value of net insurance contract liabilities. Figures
shown in the table represent the estimated impact on the fair value of each
sensitivity in isolation. The SCR coverage ratio and Return on Capital
sensitivities can be interpreted as the corresponding impact on the
contractual service margin. However, the Matching Adjustment sensitivity may
not display the same relationship as there may be linkages between the asset
portfolio referenced by a market participant in the calculation of the fair
value and the asset portfolio underlying the calculation of IFRS 17 best
estimate and risk adjustment liabilities. This linkage has not been allowed
for in the sensitivity.
Insurance contract liabilities (increase)/decrease Reinsurance contract (net) increase/(decrease) Insurance contract liabilities net
of reinsurance (increase)/decrease
£m £m
£m
Reported balances 20,475 (551) 19,924
SCR coverage ratio
+10% 103 (25) 78
-10% (103) 25 (78)
Return on capital
+1% 177 (60) 117
-1% (201) 68 (133)
Matching adjustment
+10bps (49) 2 (47)
-10bps 50 (2) 48
1.5. IFRS 17 Accounting policies
The Group uses the General Measurement Model to measure all insurance and
reinsurance contracts and consequently does not apply the Variable Fee
Approach or the Premium Allocation Approach to the measurement of any of its
liabilities. IFRS 17 is only applied to insurance and reinsurance contracts
and not to any other ancillary agreements which represent the provision of
distinct non-insurance services including LTM servicing as part of reinsurance
arrangements, see note 34(c)(iii).
1.5.1. Classification of insurance and investment contracts
The measurement and presentation of assets, liabilities, income and expenses
arising from Retirement Income contracts issued and associated reinsurance
contracts held is dependent upon the classification of those contracts as
either insurance or investment contracts.
A contract is classified as insurance only if it transfers significant
insurance risk. Insurance risk is significant if an insured event could cause
an insurer to pay significant additional benefits to those payable if no
insured event occurred. A contract that is classified as an insurance contract
remains an insurance contract until all rights and obligations are
extinguished or expire. DB, GIfL, Care Plan and Protection policies currently
written by the Group are classified as insurance contracts.
Any contracts not considered to be insurance contracts under IFRS are
classified as investment contracts. Capped Drawdown pension business in JRL
and Linked endowment contracts and term-certain GIfL contracts in the South
African business are classified as investment contracts as there is limited
transfer of longevity risk. Capped Drawdown contracts are no longer marketed
by JRL. IFRS 17 includes an election to treat lifetime mortgages as either as
financial instruments or insurance contracts, Just has chosen to report
lifetime mortgages as financial assets, measured at FVTPL in accordance with
IFRS 9.
1.5.2. Recognition
The Group recognises a group of insurance contracts issued from the earliest
of the following dates (point of sale):
· The date of the beginning of the insurance coverage period of the group
of contracts.
· The date when the first payment from a policyholder in the group
becomes due.
· The date when facts and circumstances indicate that the group to which
an insurance contract will belong is onerous.
Premiums are considered to be due and the Group is "on risk" only after a
contract with a policyholder has been completed. New contracts are added to
the annual cohort group when they are issued, provided that all contracts in
the Group are issued in the same financial year.
Reinsurance is recognised from the start of the period during which the Group
receives coverage for claims arising from the reinsured portions of the
underlying insurance contracts. From time to time the Group may transact
reinsurance coverage in respect of underlying contracts already in force, in
which case recognition is from the date of the reinsurance contract.
The Group recognises a group of contracts acquired as part of a business
transfer as at the date of acquisition.
1.5.3. Level of aggregation
Within each legal entity, the Group identifies portfolios of insurance
contracts which comprise contracts that are subject to similar risks, and are
managed together. Risks included in this assessment comprise both risks
transferred from the policyholder and other business risks. For this purpose,
Defined Benefit (DB), Guaranteed Income for Life (GIfL), and Care contracts
have been determined to represent a single portfolio that is managed together
and subject to primarily longevity and financial risk. Minor products
including the small protection portfolio that is in run-off have been included
in the same portfolio on the grounds of immateriality.
The single annual portfolio for reporting purposes is divided into three
groups:
· contracts that are onerous on initial recognition, if any;
· contracts that have no significant likelihood of becoming onerous, if
any; and
· any remaining contracts in the portfolio.
Contracts within the single portfolio that would fall into different groups
only because law or regulation specifically constrains the Group's practical
ability to set a different price or level of benefits for policyholders with
different characteristics are included in the same group. This applies to
contracts issued in the UK that are required by regulation to be priced on a
gender-neutral basis.
All GIfL and Care contracts are evaluated based on the margins that individual
contracts contribute when measured on a gender-neutral basis. The Group has
evaluated that these contracts all fall into the remaining contracts grouping
in the current year. DB contracts are allocated either to the grouping of
those contracts that have no significant likelihood of becoming onerous, or
the remainder, based on whether contracts are Solvency II capital generative
at inception. Each group of insurance contracts is further divided by year of
issue for calculation of the CSM. The resulting groups represent the level at
which the recognition and measurement accounting policies are applied. The
groups are established on initial recognition and their composition is not
reassessed subsequently.
Reinsurance treaties are allocated to portfolios depending on whether they
transfer longevity and financial (inflation and/or investment) risk or
longevity risk alone. The Group has also concluded that both JRL and PLACL
hold portfolios of reinsurance contracts that transfer only longevity risk,
and that JRL holds a portfolio that transfers longevity risk and financial
risks. Reinsurance CSM is computed separately for each reinsurance treaty for
each underwriting year.
1.5.4. Contract boundaries
The measurement of a group of contracts includes all of the future cash flows
within the boundary of each contract in the group. Cash flows are within the
boundary of a contract if they arise from substantive rights and obligations
that exist during the current reporting period under which the Group has a
substantive obligation to provide services or be compelled to pay reinsurance
premiums, or can compel reinsurers to pay claims.
1.5.5. Initial measurement
On initial recognition, the Group measures a group of profitable insurance
contracts as the total of:
· the fulfilment cash flows; and
· the CSM, if a positive value.
Fulfilment cash flows include payments to policyholders and directly
attributable expenses including investment management expenses. Investment
management expenses are considered to be directly attributable if they are in
respect of investment activities from which the expected investment returns
are considered in setting the price at outset for the policyholder benefits.
Fulfilment cash flows, which comprise estimates of current and future cash
flows, are adjusted to reflect the time value of money and associated
financial risks, and a risk adjustment for non-financial risk. These
calculations are maintained at contract level for GIfL and Care business, and
at DB scheme member level. Insurance acquisition cash flows which are included
in fulfilment cash flows at point of sale are costs incurred in the selling,
underwriting and starting a group of contracts that are directly attributable
to the portfolio of contracts to which the group of contracts belongs.
The risk adjustment for non-financial risk for a group of insurance contracts
is the compensation required for bearing uncertainty regarding the amount and
timing of the cash flows that arise from non-financial risk. The measurement
of the fulfilment cash flows of a group of insurance contracts does not
reflect non-performance (own credit) risk of the Group.
The detailed policies and methodologies used for the determination of the
discount rate and the risk adjustment are included within note 26(b).
The CSM of a group of insurance contracts represents the unearned profit that
the Group will recognise as it provides services under those contracts. A
group of insurance contracts is not onerous on initial recognition if the
total of the fulfilment cash flows, any derecognised assets for insurance
acquisition cash flows, and any cash flows arising at that date is a net
inflow. In this case, the CSM is measured as the equal and opposite amount of
the net inflow, which results in no income or expenses arising on initial
recognition.
If the total of the fulfilment cash flows is a net outflow, then the CSM
grouping of contracts is considered to be onerous. The full value of the
fulfilment cash flows is recognised as an insurance liability, and the net
outflow recognised as a loss component in profit or loss on initial
recognition. Reversals of loss components following re-projection of future
cash flows are recognised in profit or loss only to the extent that they
reverse the loss previously recorded in profit or loss, with any further
amounts recognised on the balance sheet by creation of a CSM. The value of the
run-off of the loss component as policyholder benefits are paid is excluded
from insurance revenue.
1.5.6. Subsequent measurement
The carrying amount of a group of insurance contracts at each reporting date
is the sum of the liability for remaining coverage and the liability for
incurred claims. The liability for remaining coverage comprises:
· the fulfilment cash flows that relate to services that will be provided
under the contracts in future periods; and
· any remaining CSM at that date.
The fulfilment cash flows of groups of insurance contracts are measured at the
reporting date using current estimates of future cash flows, current discount
rates and current estimates of the risk adjustment for non-financial risk.
Outstanding balances due from or to policyholders and intermediaries are also
included within this balance.
Payments of annuities made before due dates owing to the timing of non-working
days are included within insurance contract liabilities.
The CSM of each group of contracts is calculated on a cumulative year to date
basis, rather than being locked in at each interim reporting period.
For insurance contracts, the carrying amount of the CSM at the end of each
period is the carrying amount at the start of the period, adjusted for:
· the CSM of any new contracts that are added to the group in the period;
· interest accreted on the carrying amount of the CSM during the period,
measured at the discount rates determined on initial recognition of the group
of contracts;
· changes in fulfilment cash flows that relate to future services, except
to the extent that:
- any increases in the fulfilment cash flows exceed the carrying amount of
the CSM, in which case the excess is recognised as a loss in the profit or
loss account and creates a loss component; or
- any decreases in the fulfilment cash flows are allocated to the loss
component, reversing losses previously recognised in profit or loss account;
- the changes are due to financial risk in policyholder cash flows
compared with expectations, for example inflation; and
- the amount recognised as insurance revenue in respect of services
provided in the period.
Changes in fulfilment cash flows that relate to future services and
accordingly adjust the CSM comprise:
· premium adjustments, such as DB true-ups (which can be both positive
and negative) to the extent that they relate to future coverage;
· changes in estimates of the present value of future cash flows in the
liability for remaining coverage, except for those that relate to the effects
of the time value of money, benefit inflation, financial risk and changes
therein; and
· changes in the risk adjustment for non-financial risk that relate to
future services.
Adjustments to CSM for changes in fulfilment cash flows are measured at the
discount rates determined at initial recognition, i.e. are calculated using
"locked-in" discount rates. The allowance for benefit inflation within the CSM
calculation uses the locked-in inflation assumptions prospectively, with
actual inflation experience recognised in the period up to the measurement
date. The effect of changes to the related best estimate and risk adjustment
balances caused by changes in discount rates and benefit inflation are
recognised as insurance finance income or expenses within the profit or loss
account.
The standard requires that the CSM is recognised in profit and loss over the
period of the contracts issued. The recognition of amounts in profit and loss
is based on coverage units which represent the services that are received by
the customers.
The Group provides the following services to customers:
· investment return service when a customer is in the deferred or
guarantee phase; and
· insurance coverage services when an annuitant is in payment period for
annuitants.
By their nature, coverage units vary depending on the type of service
provided. A weighting then needs to be applied to the different types of
coverage unit in order to calculate an aggregate value of the proportion of
the CSM balance that is to be released. The Group uses the probability of the
policy being in force in each time period for weighting the disparate types of
coverage units. This weighting reflects management's view that the value of
services provided to policyholders is broadly equivalent across the different
phases in the life of contracts.
The coverage units and the weightings used to combine coverage units are
discounted using the locked-in discount rates and financial risk assumptions
as at inception of the contracts. The weightings applied are updated each
period for changes in life expectancies of annuitants.
1.5.7. Reinsurance contracts
The Group applies consistent accounting policies to measure reinsurance
contracts as it does for the underlying contracts. Measurement of the
estimates of the present value of future cash flows uses assumptions that are
consistent with those used to measure the estimates of the present value of
future cash flows for the underlying insurance contracts, with an adjustment
within the future cash flows for risk of non-performance by the reinsurer. The
effect of the non-performance risk of the reinsurer is assessed at each
reporting date and the effect of changes in the non-performance risk is
recognised in profit or loss.
The risk adjustment for non-financial risk represents the amount of the risk
transferred by the Group to the reinsurer.
On initial recognition, the CSM of a group of reinsurance contracts represents
the net cost or net gain on purchasing reinsurance. Reinsurance contracts
cannot be onerous. The initial CSM is measured as the equal and opposite
amount of the total of the reinsurance fulfilment cash flows recognised in the
period including any cash flows arising at that date. However, if any net cost
on purchasing reinsurance coverage relates to insured events that occurred
before the purchase, the cost is recognised immediately in profit or loss as
an expense.
The level of aggregation for CSM calculation purposes is at annual cohort
level for each treaty. The existing treaties for which the deposit back
arrangements were reported separately as financial liabilities prior to
adoption of IFRS 17 are included within the value of the associated
reinsurance contracts under IFRS 17. Reinsurance contracts are presented in
the Statement of financial position based on whether the portfolios of
reinsurance contracts are an asset or liability. The Group has identified
that, for each entity, it has two portfolios of reinsurance contracts based on
whether or not the underlying contracts transfer financial risk in addition to
longevity risk.
The carrying amount of the reinsurance CSM at the end of each period is the
carrying amount at the start of the year, adjusted for:
· the CSM of reinsurance ceded in the period;
· interest accreted on the CSM during the period, measured at the
discount rates determined on initial recognition;
· changes in fulfilment cash flows that relate to future services,
measured at the discount rates determined on initial recognition, except to
the extent that a change results from a change in fulfilment cash flows
allocated to a group of underlying insurance contracts that does not adjust
the CSM of the group of underlying contracts, in which case the change is
recognised in profit or loss;
· any reinsurance recovery, or reversal thereof, recognised in connection
with a loss component on underlying contracts calculated based on the
reinsurance quota share; and
· the amount representing either the cost or gain of services received
from reinsurance in the period.
The allowance for benefit inflation within the CSM calculation uses the
locked-in inflation assumptions prospectively, with actual inflation
experience recognised in the period up to the measurement date.
The coverage units for the release of the reinsurance CSM in profit and loss
are based on the "variable leg" reinsurance claim cash flow values.
1.5.8. Derecognition and contract modification
The Group derecognises a contract when it is extinguished - i.e. when the
specified obligations in the contract expire or are discharged or cancelled.
It also derecognises a contract if its terms are modified in a way that would
have changed the accounting for the contract significantly had the new terms
always existed, in which case a new contract based on the modified terms is
recognised. If a contract modification does not result in derecognition, then
the Group treats the changes in cash flows caused by the modification as
changes in estimates of fulfilment cash flows.
The Group transacts two main types of contract modification which are not
normally expected to result in derecognition as they do not result in changes
to profitability groupings or accounting treatment:
· transition of DB schemes from buy-in to buy-out is anticipated within
the original contracts and are therefore not treated as modifications;
· from time to time, fee charging terms and quota shares are amended
within reinsurance treaties however these do not have a significant impact on
the accounting for the treaties.
On the derecognition of a contract from within a group of contracts, the
fulfilment cash flows, CSM and coverage units of the group are adjusted to
reflect the removal of the contract that has been derecognised.
1.5.9. Presentation
The Group only writes types of annuity insurance business which are similar in
risk profile and are managed together. The small protection portfolio, which
is in run-off, is considered immaterial and is aggregated with the annuity
business and reported as a single portfolio.
The Group holds proportional reinsurance cover that is designed to be similar
in longevity risk profile to the underlying contracts. The proportional
reinsurance cover is reported in separate portfolios depending on whether or
not treaties transfer financial risk. Aggregated reinsurance portfolio
balances may be either assets or liabilities in the statement of financial
position.
Income and expenses from insurance contracts are presented separately from
income and expenses from reinsurance contracts. Income and expenses from
reinsurance contracts, other than insurance finance income or expenses, are
presented on a net basis as "net expenses from reinsurance contracts" in the
insurance service result.
The Group has elected to disaggregate the change in the risk adjustment for
non-financial risk between the insurance service result and insurance finance
income or expenses.
1.5.9.1. Insurance revenue
The Group recognises insurance revenue as it satisfies its performance
obligations - i.e. as it provides coverage or other services under groups of
insurance contracts through the payment of annuities and expenses. Repayment
of investment components do not represent provision of services.
In addition, the Group allocates a portion of premiums that relate to recovery
of insurance acquisition cash flows to each period in a systematic way based
on CSM coverage units. The Group recognises the allocated amount as insurance
revenue and an equal amount as insurance service expenses.
The proportion of the CSM account balance recognised as insurance revenue in
each period is based on the proportion of insurance contract services provided
in the period compared with the value of services expected to be provided in
future periods. The proportion of CSM is based on "coverage units" which
represent the quantity of insurance coverage provided by the contracts in the
group, determined by considering for each contract the quantity of benefits
provided and its expected coverage duration. Further information on the
calculation of CSM is given in note 1.5.6.
Policyholder cash flows that may occur regardless of an insurance event are
deemed to be "investment components" or other non-insurance components (such
as a premium refund) or a combination. This includes the guarantees that the
Group offers to policyholders which provide for annuity payments to continue
after death until the policy reaches a predetermined anniversary of its start
date (the guarantee period), tax-free cash payments that DB scheme members may
select at retirement, and payments on surrenders and transfers to other
retirement schemes. All investment components are regarded as non-distinct as
they only exist as a result of the underlying insurance contract, and are
measured consistently with future insurance cash flows included in the
Estimate of present value of future cash flows.
The value of payments made within investment components and other
non-insurance payments are excluded from both insurance revenue and expenses.
1.5.9.2. Insurance service expenses
The Group recognises insurance service expenses arising from groups of
insurance contracts issued comprising incurred claims (excluding repayments of
investment components); maintenance expenses; amortisation of insurance
acquisition cash flows; and the impact of changes that relate to either past
service (changes in fulfilment cash flows relating to the liability for
incurred claims) or future service (loss component).
1.5.9.3. Loss component
The Group establishes a loss component of the liability for remaining coverage
for onerous groups of insurance contracts, if any. The Group writes only
single premium contracts which are generally profitable, and hence loss
components are not expected to occur. The loss component represents the amount
of fulfilment cash outflows that exceed the premium income, and hence are
excluded from insurance revenue. Loss components are recognised in the
statement of comprehensive income within insurance service expenses when they
occur. The balance sheet disclosures in note 26 present the allocation between
the loss component and the liability for remaining coverage excluding the loss
component, if any. This run-off of the loss component element of the liability
for remaining coverage is determined based on coverage units (as used for CSM
amortisation) such that the loss component is nil at the end of the contracts.
Once a loss component is established, changes in estimates of cash flows
relating to future services are allocated solely to the loss component. If the
loss component is reduced to zero, then any excess over the amount allocated
to the loss component creates a new CSM for the group of contracts.
1.6. IFRS 9 Financial instruments
1.6.1. Summary of impact of adoption of IFRS 9
1.6.1.1. Financial assets
The Group classifies financial assets on the basis of both the business model
for which the portfolio is held and the contractual cash flow characteristics
of the financial asset. The Group's business model is to manage the financial
assets and liabilities which back its net insurance contract fulfilment cash
flows on a fair value basis. The Group will therefore adopt the approach
allowed within the standard to continue to measure the majority of its
financial assets at Fair Value Through Profit or Loss ("FVTPL"). On the
adoption of the standards (IFRS 17 and IFRS 9), the Group has elected to apply
the option contained in paragraph 8A in IFRS 17 to recognise and measure
Lifetime Mortgages, including the No Negative Equity Guarantee component, as
financial instruments in terms of IFRS 9, rather than as insurance contracts.
For the residual financial assets which are measured at amortised cost, IFRS 9
operates an expected credit loss model rather than an incurred credit loss
model. Providing for an expected credit loss on the existing financial assets
measured at amortised cost has not had a material impact on Group
shareholders' funds.
During 2023, the Group has acquired a portfolio of sovereign gilts which it
has classified at amortised cost due to the Group's intention to collect
solely payments of principal and interest. Further details have been provided
in note 19 Financial Investments.
1.6.1.2. Financial liabilities
IFRS 9 retains the requirements in IAS 39 for the classification and
measurement of financial liabilities, and hence there are no changes required
in this area.
1.6.1.3. Hedge accounting
The Group does not currently apply hedge accounting and therefore was not
impacted by the requirements of IFRS 9.
1.6.1.4. Classification of financial assets and financial liabilities on
adoption of IFRS 9
The following table shows the original measurement category and carrying
amount under IAS 39 and the new measurement category and carrying amount under
IFRS 9 for each class of the Group's financial assets and financial
liabilities as at 31 December 2022. There has been no significant change in
the measurement basis (either FVTPL or amortised cost) as a result of the
adoption of IFRS 9, nor is there a change to the carrying amount of financial
instruments on the opening balance sheet presented as at 1 January 2022.
2022 Original classification New classification Carrying amount New carrying amount under IFRS 9
under IAS 39
under IFRS 9
under IAS 39
£m
£m
Financial assets
Financial investments
- Derivative assets FVTPL (held for trading) FVTPL (mandatory) 2,277 2,277
- Residential mortgages FVTPL (designated) FVTPL (mandatory) 5,306 5,306
- All other financial investments FVTPL (designated) FVTPL (business model) 15,769 15,769
Other receivables Loans and receivables Amortised cost 34 33
Cash available on demand Loans and receivables Amortised cost 482 482
Financial liabilities
Investment contract liabilities FVTPL (designated) FVTPL (accounting mismatch) 33 33
Loans and borrowings Amortised cost Amortised cost 699 699
Other financial liabilities
- Derivative liabilities FVTPL (held for trading) FVTPL (mandatory) 3,046 3,046
- Other financial liabilities Amortised cost Amortised cost 623 623
Other payables Amortised cost Amortised cost 96 96
Amounts reported in this table include the amounts reported as at 31 December
2022 in the 2022 financial statements adjusted for the reclassifications of
certain balances as required by IFRS 17.
1.6.2. Classification of financial assets and financial liabilities
The Group classifies its financial assets into either the Amortised Cost or
FVTPL measurement categories. The Group measures its financial assets
according to the business model applied. This reflects how the Group manages
financial assets either in order to solely collect the contractual cash flows
from assets (measured at amortised cost), or collect both the contractual cash
flows and cash flows arising from the sale of assets (measured at FVTPL).
Business model - measurement of financial investments at FVTPL
Financial investments which back the net insurance fulfilment cash flows are
classified as part of the fair value business model and measured at FVTPL.
Factors considered by the Group in determining the business model for a group
of assets include past experience on how the cash flows for these assets were
collected, how the asset's performance is evaluated and reported to key
management personnel, how risks are assessed and managed, and how managers are
compensated. To ensure that the contractual cash flows from the financial
assets are sufficient to settle those liabilities, the Group undertakes
significant buying and selling activity on a regular basis to rebalance its
portfolio of assets and to meet cash flow needs as they arise. Investments are
measured at fair value with any gains and losses recognised in Investment
return in the Consolidated statement of comprehensive income. Transaction
costs are recognised in Other operating expenses when incurred.
The Groups' investments in Lifetime Mortgages, which contain No Negative
Equity Guarantees, are included in financial investments measured at FVTPL.
Derivative instruments
All derivative instruments, both assets and liabilities are classified as
FVTPL in accordance with IFRS 9. All derivatives are carried as assets when
the fair value is positive and liabilities when the fair values are negative.
The Group does not use hedge accounting.
Amortised cost
The Group has classified bank balances and other receivables at amortised
cost. These financial assets are eligible for this measurement as they contain
payments of solely payments of principal and interest and are not held for
trading purposes.
In addition, the Group has purchased a distinct portfolio of sovereign gilts
where the purpose of holding the instruments is to collect solely payments of
principal and interest. This portfolio is managed separately from the assets
that are held to back the insurance contract fulfilment cash flows (net of
reinsurance), financial liabilities measured at amortised cost, and equity
balances. The Group has policies and procedures which define the framework for
when disposals of these gilts can occur, which is expected to be in extremely
limited circumstances.
Transaction costs incurred on financial assets measured at amortised cost are
capitalised to the underlying instrument and are included in the determination
of the effective rate of interest.
1.6.3. Recognition and derecognition
Regular-way purchases and sales of investments are recognised on the trade
date, which is the date that the Group commits to purchase or sell the assets.
Amounts payable or receivable on unsettled purchases or sales are recognised
in other payables or other receivables respectively. Forward contracts to
enter into investments at a contracted date some time in the future are not
recognised until the settlement date; prior to that a derivative forward
contract is recognised. Loans secured by residential mortgages are recognised
when cash is advanced to borrowers.
Financial investments are derecognised when our rights to the contractual cash
flows expire or the IFRS 9 derecognition criteria for transferred financial
assets are met. The criteria include assessment of rights and obligations to
the cash flows, an assessment of the transfer of substantially all the risks
and rewards of ownership and an assessment of whether the Group has retained
control of the investment.
Collateral
The Group receives and pledges collateral in the form of cash or securities in
respect of derivative, reinsurance or other contracts such as securities
lending. Cash collateral received that is not legally segregated from the
Group is recognised as an asset with a corresponding liability for the
repayment in other financial liabilities. Cash collateral pledged that is
legally segregated from the Group is derecognised and a receivable for its
return is recorded in the Consolidated statement of financial position.
Non-cash collateral received is not recognised as an asset unless it qualifies
for derecognition by the transferor. Non-cash collateral pledged continues to
be recognised in the Consolidated statement of financial position within the
appropriate asset classification when the Group continues to control the
collateral and receives the economic benefit. Where non-cash collateral
pledged continues to be recognised by the Group but the counterparty is
permitted to sell or re-pledge the collateral, the non-cash collateral assets
are classified separately within the Financial instruments note. In the
current year these include the new portfolio of amortised cost gilts (See note
19).
The Group has various reinsurance collateral arrangements including funds
withheld, funds transferred and premium deposit-back arrangements. The
recognition/derecognition of the collateral assets is determined by the IFRS 9
recognition/derecognition criteria. An assessment is made of the contractual
terms, including consideration of the Group's exposure to the economic
benefits. See note 34(c)(iii) for further details.
1.6.4. Investment return
Net investment (losses)/gains on financial assets consists of interest
receivable for the year and realised and unrealised gains and losses on
financial assets and liabilities at FVTPL. Net investment (expense)/ revenue
is presented in the Statement of comprehensive income based on the
classification of the financial assets.
Interest income is recognised as it accrues on the effective interest method
and is reported separately for each classification of financial instruments.
Realised gains and losses on financial assets and liabilities occur on
disposal or transfer and represent the difference between the proceeds
received net of transaction costs, and the original cost.
Unrealised gains and losses arising on financial assets and liabilities
measured at fair value through profit or loss represent the difference between
the carrying value at the end of the year and the carrying value at the start
of the year or purchase value during the year, less the reversal of previously
recognised unrealised gains and losses in respect of disposals made during the
year.
1.6.5. Use of fair value
The Group uses current bid prices to value its investments with quoted prices.
Actively traded investments without quoted prices are valued using prices
provided by third parties. If there is no active established market for an
investment, the Group applies an appropriate valuation technique as described
below.
Determining the fair value of financial investments when the markets are not
active
The Group holds certain financial investments which are not quoted in active
markets and include loans secured by residential mortgages, derivatives and
other illiquid investments for which markets are not active. When the markets
are not active, there is generally no or limited observable market data that
can be used in the fair value measurement of the financial investments. The
determination of whether an active market exists for a financial investment
requires management's judgement.
Fixed-maturity securities, in line with market practice, are generally valued
using an independent pricing service. These valuations are determined using
independent external quotations from multiple sources and are subject to a
number of monitoring controls, such as monthly price variances, stale price
reviews and variance analysis. Pricing services, where available, are used to
obtain the third-party broker quotes. When prices are not available from
pricing services, prices are sourced from external asset managers or internal
models and treated as Level 3 under the fair value hierarchy. A third-party
fixed income liquidity provider is used to determine whether there is an
active market for a particular security.
If the market for a financial investment of the Group is not active, the fair
value is determined using valuation techniques. The Group establishes fair
value for these financial investments by using quotations from independent
third parties or internally developed pricing models. The valuation technique
is chosen with the objective of arriving at a fair value measurement which
reflects the price at which an orderly transaction would take place between
market participants on the measurement date. The valuation techniques include
the use of recent arm's length transactions, reference to other instruments
that are substantially the same, discounted cash flow analysis and option
pricing models. The valuation techniques may include a number of assumptions
relating to variables such as credit risk and interest rates and, for loans
secured by mortgages, mortality, future expenses, voluntary redemptions and
house price assumptions. Changes in assumptions relating to these variables
impact the reported fair value of these financial instruments positively or
negatively.
The financial investments measured at fair value are classified into the
three-level hierarchy described in note 20 on the basis of the lowest level of
inputs that are significant to the fair value measurement of the financial
investment concerned.
1.6.6. Financial assets measured at amortised cost
Financial assets held at amortised cost are measured using the effective
interest rate method and are impaired using an expected credit loss model. The
model splits financial assets into those which are performing, underperforming
and non-performing based on changes in credit quality since initial
recognition.
At initial recognition financial assets are considered to be performing. They
become underperforming where there has been a significant increase in credit
risk since initial recognition, and non-performing when there is objective
evidence of impairment. 12 months of expected credit losses are recognised
within expenses in the Consolidate statement of comprehensive income and
netted against the financial asset in the Consolidated statement of financial
position for all performing financial assets, with lifetime expected credit
losses recognised for underperforming and non-performing financial assets.
Expected credit losses are based on the historic levels of loss experienced
for the relevant financial assets, with due consideration given to
forward-looking information. The most significant categories of financial
assets held at amortised cost for the Group are its portfolio of investments
in sovereign gilts (see note 19) and cash available on demand. Investments are
reclassified from performing to under-performing when coupons become more than
30 days past due, in line with the presumption set out in IFRS 9, or when the
financial institution is no longer considered to be investment grade by the
rating agents. Due to the nature of the investment in sovereign gilts, the
Group concludes that these investments are low credit risk and there has been
no significant deterioration in credit risk in the investments.
1.6.7. Investment contract liabilities
Investment contracts are measured at fair value through profit or loss in
accordance with IFRS 9. The fair value of investment contracts is estimated
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.
1.6.8. Loans and borrowings
Loans and borrowings are initially recognised at fair value, net of
transaction costs, and subsequently amortised through profit or loss over the
period to maturity at the effective rate of interest required to recognise the
discounted estimated cash flows to maturity. There is no change in accounting
for loans and borrowings on adoption of IFRS 9.
1.6.9. Other financial liabilities
Except for derivative financial liabilities, all other financial liabilities
are held at amortised cost and measured using the effective interest rate
method.
1.7. Material accounting policies and the use of judgements, estimates and
assumptions
The preparation of financial statements requires the Group to select
accounting policies and make estimates and assumptions that affect items
reported in the Consolidate statement of comprehensive income, Consolidated
statement of financial position, other primary statements and Notes to the
financial statements. The adoption of IFRS 17 and IFRS 9 by the Group has
resulted in changes to significant accounting estimates and judgements.
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 20(d) and 26(h) respectively.
The major areas of judgement used as part of accounting policy application are
summarised below.
Note Item involving judgement Critical accounting judgement
1.3 Method of transition in the adoption of IFRS 17 The Group has concluded that is impracticable to apply the fully retrospective
approach to all insurance and reinsurance contracts prior to 1 January 2021
and has elected to adopt the fair value approach to these contracts.
1.5 Selection of method to determine the discount rate for insurance and The Group has elected to apply the top-down approach for the determination of
reinsurance contracts discount rates.
Discount rates are determined based on a reference portfolio of assets and
allow for deductions for credit risk (both expected and unexpected). The
reference portfolio consists of the actual asset portfolio backing the net of
reinsurance best estimate liabilities and risk adjustment and is adjusted in
respect of new contracts incepting in the period to allow for a period of
transition from the actual asset holdings to the target portfolio where
necessary. No adjustment for liquidity differences between the reference
portfolio and the liabilities is made.
For calculation of the CSM at the inception of contracts, discount rates are
based on the yields from a reference portfolio assumed to be represented by
the current target portfolio mix based on the latest investment strategy.
A weighted average discount rate curve is used for accreting interest on the
CSM and for calculating movements in the CSM due to changes in fulfilment cash
flows relating to future service. This separate "locked-in" discount rate
curve, is determined for each annual cohort at the end of the cohort's first
year and then does not change throughout the remainder of life of the group of
contracts.
1.5, 26 Calibration of risk adjustment for insurance contract liabilities and IFRS 17 requires that the future cash flows are adjusted by the risk
reinsurance assets and liabilities adjustment for non-financial risk.
The risk adjustment for non-financial risks reflects the adjustment to the
best estimate cash flows required to provide a 70% level of confidence that
longevity, expense and insurance contract specific operational risks will be
covered by the liabilities when viewed over the lifetime of the contracts.
This judgement represents the level of compensation that the Group requires
for bearing the uncertainty regarding the amount and timing of the cash flows
that arises from non-financial risk and is used as a core parameter within the
Group's pricing framework when assessing the profitability of new business.
The reinsurance risk adjustment represents the extent to which non-financial
risks are transferred to reinsurers and is measured using the same
calibrations as applied to the underlying contracts.
1.5, 26 Subsequent measurement of CSM for insurance contracts The CSM is recognised at point of sale based on the value of the fulfilment
cash flows, including directly attributable acquisition expenses. The CSM is
recognised in profit and loss over the terms of services provided to
policyholders (coverage units).
Coverage units will vary depending on the type of service provided. The Group
uses the probability of the policy being in force in each time period for
weighting the disparate types of coverage unit. This weighting reflects
management's view that the value of services provided to policyholders is
broadly equivalent across the different phases in the life of contracts.
These weightings are applied to the coverage units which are defined as
follows:
· In the deferred phase of Defined Benefit policies, investment return
service coverage units are represented by the return on the funds backing the
future cash flow liability in this accumulation phase. Insurance service in
this phase is considered insignificant.
· In the guaranteed phase of Defined Benefit and Guaranteed Income for
Life policies, when payments outwards are being made regardless of any
insurance event, investment return service is represented by the payments to
annuitants.
In the life contingent phase of all policies, insurance service is represented
by payments to annuitants, as confirmed by the IASB Interpretation Committee
("IFRIC") during 2022.
1.6.3 Financial assets - valuation method Assessment of fair value hierarchy for financial investments, which considers
the market observability of valuation inputs. Where the market is not active,
such as for illiquid assets including commercial mortgages, infrastructure
loans and long income real estate, management applies judgement in selecting
the appropriate valuation technique.
1.6 The selection of an appropriate measurement model to determine the fair value The Group has selected and used a variant of the Black-Scholes option pricing
of loans secured by residential mortgages which includes the no-negative formula with real world assumptions to determine the fair value of the
equity guarantees no-negative equity guarantee component of the fair value of loans secured by
residential mortgages. The Group has selected to use real world assumptions
instead of risk neutral assumptions due to the lack of relevant observable
market inputs to support a risk neutral valuation approach.
This selected measurement approach is in line with common industry practice
and there does not appear to be an alternative approach that is widely
supported in the industry. We acknowledge that there has been significant
recent academic and market debate concerning the valuation of no-negative
equity guarantees and we intend to continue to actively monitor this debate.
The table below sets out those items the Group considers susceptible to
changes in critical estimates and assumptions.
Note Item involving estimate Critical estimates and assumptions
1.4 Determination of the fair value of insurance and reinsurance contracts issued The Group has determined the fair value of these insurance contracts on 1
prior to 1 January 2021 January 2022. The critical assumptions used as part of the determination of
fair value included the selection of an appropriate weighted average cost of
capital, the appropriate level of solvency capital required, and the selection
of the asset portfolio to determine the discount rate.
A comprehensive description of the approach applied, and the inputs used in
the determination of fair value can be found in note 1.4.
1.5, 26 Measurement of insurance contract liabilities - present The critical estimates used in measuring insurance liabilities include the
value of future cash flows projected future annuity payments and the cost of administering payments to
policyholders. The Group considers any maintenance expenses to be directly
attributable if they are required to be incurred to enable the insurance
entities to continue to operate as insurance companies maintaining the
contracts in force.
The key assumptions used in the determination of future cash flows are the
mortality and annuity escalations assumptions and the level and inflation of
costs of administration.
Mortality assumptions are derived from the appropriate standard mortality
tables, adjusted to reflect the future expected mortality experience of the
policyholders. Maintenance expenses are determined from expense analyses and
are assumed to inflate at market-implied rates. Further detail can be found in
note 26(b).
The present value of future cash flows are discounted based on discount rates
as at the valuation date.
1.5, 26 Determination of discount rate for insurance and reinsurance contracts Discount rates for gross insurance contract liabilities are based on the yield
of a reference portfolio after deducting allowances for expected and
unexpected credit default losses. Factors that may affect future levels of
defaults, including historic trends and current spread levels, are closely
monitored when determining deductions for credit risk.
1.5, 26 Measurement of the fulfilment cash flows arising from reinsurance arrangements The critical estimates used in measuring the value of reinsurance assets and
liabilities include the projected future cash flows arising from the
reinsurers' share of the Group's insurance liabilities including the risk
adjustment.
The key assumptions used in the valuation include discount rates and mortality
experience, as described above, and assumptions around the reinsurers' ability
to meet their claims obligations.
Consistent discount rates are used for calculation of reinsurance CSM as used
for the underlying business. In instances where reinsurance cover is in place
when underlying contracts are written, the reinsurance CSM is calculated using
discount rates as at the start of the relevant treaty notice period. In
instances where reinsurance is transacted subsequently to the underlying
business being written, the reinsurance CSM is calculated using discount rates
as at the start date of the reinsurance treaty.
Allowance is made for reinsurer credit default risk within the expected cash
flows based on the net balance held with the reinsurer after allowing for
collateral arrangements.
1.6, 20(a), 20(d) Measurement of fair value of loans secured by residential mortgages, including The critical estimates used in valuing loans secured by residential mortgages
measurement of the no-negative equity guarantee include the projected future receipts of interest and loan repayments, future
house prices, and the future costs of administering the loan portfolio.
The key assumptions used as part of the valuation calculation include future
property prices and their volatility, mortality, the rate of voluntary
redemptions and the liquidity premium added to the swap curve and used to
discount the mortgage cash flows.
20(a) Measurement of fair value Assumptions based on unobservable inputs are used in the measurement of the
of other illiquid financial investments fair value of financial investments where there is not a quoted price
available and limited market activity. The fair value is estimated using
valuation techniques including discounted cash flows and pricing from asset
managers. The assumptions used in making this significant estimate include
management's expectations regarding credit spreads for determining the
discount rate for such investments including residential ground rents.
20 Determination of the appropriate adjustment to the value of residential The Group has considered the proposals set out in the government consultation
ground rents as a result of the publication of the government consultation. regarding potential restrictions to the level of residential ground rents and
has also considered the alternative proposal put forward by the ABI. In
determining the fair value of residential ground rents the Group has concluded
that it is appropriate to include an allowance for increased uncertainty and
this has been made by making adjustments to the rating framework to reflect
the Group's estimate of the impact that a third party would consider.
Specifically by adjusting two key parameters in the ratings model, the
amortisation benefit and the cap rate, for the purposes of providing a
valuation overlay.
The valuation of residential ground rents is adjusted to reflect an expected
increase in credit spread. The increased spread would also increase the
credit risk deduction for defaults. These adjustments have been applied to the
valuation of IFRS insurance contract liabilities by increasing the credit risk
deduction for defaults to reflect a lower rating and hence the valuation of
liabilities. Further information regarding management's consideration of the
impact on the valuation of residential ground rents as a result of Government
consultation can be found in note 20(d)(v).
1.18, 21 Recoverability of deferred tax The adoption of IFRS 17 has created tax losses on transition which can be
offset against future taxable profits. The Group has assessed that these tax
losses will be fully recoverable based on the Group's five-year business plan
and projection thereafter.
1.8. Consolidation principles
The consolidated financial statements incorporate the assets, liabilities,
results and cash flows of the Company and its subsidiaries.
Subsidiaries are those investments over which the Group has control. The Group
has control over an investee if all of the following are met:
· it has power over the investee;
· it is exposed, or has rights, to variable returns from its involvement
with the investee; and
· it has the ability to use its power over the investee to affect its own
returns.
Subsidiaries are consolidated from the date on which control is transferred to
the Group and are excluded from consolidation from the date on which control
ceases. All inter-company transactions, balances and unrealised surpluses and
deficits on transactions between Group companies are eliminated. Accounting
policies of subsidiaries are aligned on acquisition to ensure consistency with
Group policies.
The Group uses the acquisition method of accounting for business combinations.
Under this method, the cost of acquisition is measured as the aggregate of the
fair value of the consideration at the date of acquisition and the amount of
any non-controlling interest in the acquiree. The excess of the consideration
transferred over the identifiable net assets acquired is recognised as
goodwill.
The Group uses the equity method to consolidate its investments in joint
ventures and associates. Under the equity method of accounting the investment
is initially recognised at fair value and adjusted thereafter for the
post-acquisition change in the Group's share of net assets of the joint
ventures and associates.
1.9. Segments
The Group's segmental results are presented on a basis consistent with
internal reporting used by the Chief Operating Decision Maker ("CODM") to
assess the performance of operating segments and the allocation of resources.
The CODM has been identified as the Group Executive Committee.
An operating segment is a component of the Group that engages in business
activities from which it derives income and incurs expenses.
The results of operating segments that do not meet the Reportable segment
criteria within IFRS 8 "Operating segments" are not disclosed. Operating
segments, where certain materiality thresholds in relation to total results
from operating segments are not exceeded, are combined when determining
reportable segments. For segmental reporting, the arranging of guaranteed
income for life contracts, providing intermediary mortgage advice and
arranging, plus the provision of licensed software are included in the Other
segment along with Group activities, such as capital and liquidity management,
and investment activities.
1.10. Foreign currencies
Transactions in foreign currencies are translated to sterling at the rates of
exchange ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated into sterling at
the rates of exchange ruling at the end of the financial year. Foreign
exchange gains and losses resulting from the settlement of such transactions
and from the translation of monetary assets and liabilities denominated in
foreign currencies are recognised in profit or loss.
The assets and liabilities of foreign operations are translated to sterling at
the rates of exchange at the reporting date. The revenues and expenses are
translated to sterling at the average rates of exchange for the year. Foreign
exchange differences arising on translation to sterling are immaterial and are
accounted for through other comprehensive income.
1.11. Finance costs
Interest on loans and borrowings is accrued in accordance with the terms of
the loan agreement. Issue costs are added to the loan amount and interest
expense is calculated using the effective interest rate method.
1.12. Employee benefits
Defined contribution plans
The Group operates a defined contribution pension scheme. The assets of the
scheme are held separately from those of the Group in funds managed by a third
party. Obligations for contributions to the defined contribution pension
scheme are recognised as an expense in profit or loss when due.
Share-based payment transactions
Equity-settled share-based payments to employees are measured at the fair
value of the equity instruments at grant date, determined using stochastic and
scenario-based modelling techniques where appropriate. The fair value of each
scheme, based on the Group's estimate of the equity instruments that will
eventually vest, is expensed in the Consolidated statement of comprehensive
income on a straight-line basis over the vesting period, with a corresponding
credit to equity.
At each balance sheet date, the Group revises its estimate of the number of
equity instruments that will eventually vest as a result of changes in
non-market-based vesting conditions, and recognises the impact of the revision
of original estimates in the Consolidated statement of comprehensive income
over the remaining vesting period, with a corresponding adjustment to equity.
Where a leaver is entitled to their scheme benefits, this is treated as an
acceleration of the vesting in the period they leave. Where a scheme is
modified before it vests, any increase in fair value as a result of the
modification is recognised over the remaining vesting period. Where a scheme
is cancelled, this is treated as an acceleration in the period of the vesting
of all remaining options.
1.13. Intangible assets
Goodwill represents the excess of the cost of an acquisition over the fair
value of the Group's share of the net assets of the acquired subsidiary and
represents the future economic benefit arising from assets that are not
capable of being individually identified and separately recognised. Goodwill
is measured at initial value less any accumulated impairment losses. Goodwill
is not amortised but assessed for impairment annually or when circumstances or
events indicate there may be uncertainty over the carrying value.
For the purpose of impairment testing, goodwill has been allocated to
cash-generating units and an impairment is recognised when the carrying value
of the cash-generating unit exceeds its recoverable amount. Impairment losses
are recognised directly in the Consolidated statement of comprehensive income
and are not subsequently reversed.
Other intangible assets are recognised if it is probable that future economic
benefits attributable to the asset will flow to the Group, and are measured at
cost less accumulated amortisation and any impairment losses. For intangible
assets with finite useful lives, impairment testing is performed where there
is an indication that the carrying value of the assets may be subject to an
impairment. An impairment loss is recognised where the carrying value of an
intangible asset exceeds its recoverable amount.
PrognoSys™ is the Group's proprietary underwriting engine. The Group has
over two million person-years of experience collected over 20 years of
operations. It is enhanced by an extensive breadth of external primary and
secondary healthcare data and medical literature.
Costs that are directly associated with the production of identifiable and
unique software products controlled by the Group are capitalised and
recognised as an intangible asset. Direct costs include the incremental
software development team's employee costs. All other costs associated with
researching or maintaining computer software programmes are recognised as an
expense as incurred.
Intangible assets with finite useful lives are amortised on a straight-line
basis over their useful lives up to 15 years. The useful lives are determined
by considering relevant factors, such as usage of the asset, potential
obsolescence, competitive position and stability of the industry.
The useful economic life and the method used to determine the cost of
intangible acquired in a business combination is as follows:
Intangible asset Estimated useful economic life Valuation method
Intellectual property 12-15 years Estimated replacement cost
The useful economic lives of intangible assets recognised by the Group other
than those acquired in a business combination are as follows:
Intangible asset Estimated useful economic life
PrognoSys™ 12 years
Software 3 years
1.14. Property and equipment
Land and buildings are measured at their revalued amounts less any subsequent
depreciation, and impairment losses. Valuations are performed periodically but
at least triennially to ensure that the fair value of the revalued asset does
not differ materially from its carrying value. A revaluation surplus is
recognised in other comprehensive income and credited to the revaluation
reserve in equity. A revaluation deficit is recognised in profit or loss,
except to the extent that it offsets an existing surplus on the same asset
recognised in the revaluation reserve. Reversals of revaluation deficits
follow the original classification of the deficit in the Consolidated
statement of comprehensive income.
All other property and equipment is measured at cost less accumulated
depreciation and impairment losses. Depreciation is calculated on a
straight-line basis to write down the cost to residual value over the
estimated useful lives.
The useful lives over which depreciation is charged for all categories of
property and equipment are as follows:
Property and equipment Estimated useful economic life
Land Indefinite - Land is not depreciated
Buildings 25 years
Computer equipment 3-4 years
Furniture and fittings 2-10 years
1.15. Investment property
Investment property includes property that is held to earn rentals and/or for
capital appreciation. Investment property is initially recognised at cost,
including any directly attributable transaction costs and subsequently
measured at fair value.
Investment property held by the Group relates to the Group's investment in a
Jersey Property Unit Trust ("JPUT"). Cost represents the transaction price
paid for the investment in the JPUT. Although the Group obtained control of
the JPUT, the investment was not accounted for as a Business Combination
because substantially all of the fair value of the gross assets acquired was
concentrated in a single identifiable asset or group of similar identifiable
assets. As such, no goodwill was recognised and the cost of the group of
assets was allocated to the individual identifiable assets and liabilities on
the basis of their relative fair values at the date of purchase.
Fair value is the price that would be received to sell a property in an
orderly transaction between market participants at the measurement date.
The subsequent measurement of fair value reflects, among other things, rental
income from current leases and other assumptions that market participants
would use when pricing investment property under current market conditions.
Gains and losses arising from the change in fair value are recognised as
income or an expense in the Consolidated statement of comprehensive income.
Where investment property is leased out by the Group, rental income from these
operating leases is recognised as income in the Consolidated statement of
comprehensive income on a straight-line basis over the period of the lease.
1.16. Cash and cash equivalents
Cash and cash equivalents in the Consolidated statement of cash flows consist
of amounts reported in Cash available on demand in the Consolidated statement
of financial position and also cash equivalents that are reported in Financial
investments in the Consolidated statement of financial position.
Cash available on demand includes cash at bank and in hand and deposits held
at call with banks. Additional cash equivalents reported in the Consolidated
statement of cash flows include other short-term highly liquid investments
with less than 90 days' maturity from the date of acquisition. These do not
meet the definition of Cash available on demand and are therefore reported in
Financial investments (note 19).
1.17. Equity
The difference between the proceeds received on issue of the shares, net of
share issue costs, and the nominal value of the shares issued is credited to
the share premium account.
Interim dividends are recognised in equity in the period in which they are
paid. Final dividends require shareholder approval prior to payment and are
therefore recognised when they have been approved by shareholders.
Where the Company purchases shares for the purposes of employee incentive
plans, the consideration paid, net of issue costs, is deducted from equity.
Upon issue or sale, any consideration received is credited to equity net of
related costs.
The reserve arising on the reorganisation of the Group represents the
difference in the value of the shares in the Company and the value of shares
in Just Retirement Group Holdings Limited for which they were exchanged as
part of the Group reorganisation in November 2013.
Loan notes are classified as either debt or equity based on the contractual
terms of the instruments. Loan notes are classified as equity where they do
not meet the definition of a liability because they are perpetual with no
fixed redemption or maturity date, they are only repayable on liquidation,
conversion is only triggered under certain circumstances of non-compliance,
and interest on the notes is non-cumulative and cancellable at the discretion
of the issuer.
1.18. Taxation
The current tax expense is based on the taxable profits for the year, using
tax rates substantively enacted at the Consolidated statement of financial
position date, and after any adjustments in respect of prior years. Current
and deferred tax is charged or credited to Profit or loss unless it relates to
items recognised in Other comprehensive income or directly in equity.
Provision is made for deferred tax liabilities, or credit taken for deferred
tax assets, using the liability method, on all material temporary differences
between the tax bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. The principal temporary differences
arise from the transitional tax adjustments resulting from the implementation
of IFRS 17. In November 2022, provision was made in UK tax law to spread the
impact of transition to IFRS 17 over a period of 10 years.
Deferred tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary
differences can be utilised.
The deferred tax assets and liabilities are measured using substantively
enacted corporation tax rates based on the timings of when they are expected
to reverse.
2. Insurance revenue
Year ended Year ended
31 December 2023
31 December 2022
£m
(restated)
£m
Contractual service margin recognised for services provided 156 120
Change in risk adjustment for non-financial risk for risks expired 11 13
Expected incurred claims and other insurance service expenses 1,369 1,184
Recovery of insurance acquisition cash flows 19 8
Total 1,555 1,325
Insurance revenue measured by transition type:
Year ended Year ended
31 December 2023
31 December 2022
£m
(restated)
£m
Fully retrospective approach and General measurement model applied since 310 150
inception
Fair value measurement at the date of transition 1,245 1,175
Total 1,555 1,325
Contractual service margin recognised
The contractual service margin ("CSM") release of £156m (2022: £120m) is
based on the coverage units, at cohort level, representing services provided
in the year as a proportion of current and future coverage units, (see
note26(f)). The increase compared with 2022 reflects the inclusion of an
additional year's cohort of business, and the increase in the CSM balance in
2023 as a result of favourable changes in estimates of future cash flows
following demographic assumption changes.
The CSM release represents 6.0% (2022: 5.8%) of the CSM reserve balance
immediately prior to release.
Change in risk adjustment for non-financial risk for risks expired
The risk adjustment release of £11m (2022: £13m) represents the value of the
release of risk as insurance coverage expires.
Expected incurred claims and other insurance service expenses
This amount represents the expected claims and maintenance expense cash flows
in the period based on the assumptions within the opening liability for future
cash flows excluding the value of investment components and other
non-insurance cash flows.
As the business continues to grow and mature, more of the Group's claims
payments are for policies that are beyond guarantee periods. This together
with the increase in business mix towards DB business results in an increase
in expected claims and expenses recorded as part of insurance revenue.
Recovery of insurance acquisition cash flows
Acquisition costs are deducted from the CSM at point of sale, with the result
that as the CSM release is recognised in the income statement, there will be
an implicit allowance for acquisition costs made each year over the life of
contracts. The amount recognised in each period represents the portion of past
and current acquisition expenses in respect of insurance contracts that are
allocable to the current period based on the services provided (coverage
units). Insurance revenue and insurance service expenses are grossed up by
this annual value of acquisition expenses so that the full value of the
premium is recognised as insurance revenue over the lifetime of contracts.
The growth in the value in the year to £19m (2022: £8m) reflects the
inclusion of an additional new business cohort. Only the cohorts measured on a
fully retrospective basis at transition to IFRS 17 and cohorts of business
written since transition (i.e. underwriting years 2021 onwards) have insurance
acquisition cash flows. The recovery percentage recognised in the period is
consistent with the CSM release percentages.
3. Insurance service expenses
Note Year ended Year ended
31 December 2023
31 December 2022
£m
(restated)
£m
Incurred expenses
Claims 1,332 1,153
Commission 29 55
Personnel expenses and other 12 127 106
Investment expenses and charges 93 44
Depreciation of equipment 2 4
Impairment of intangible assets 3 -
Amortisation of intangible assets 3 2
Audit costs 4 4
Other costs 71 37
IFRS 17 treatment of acquisition costs
Amounts attributable to insurance acquisition cash flows (183) (124)
Amortisation of insurance acquisition cash flows 19 8
1,500 1,289
Represented by:
Actual claims and maintenance expenses 1,377 1,188
Amortisation of insurance acquisition cash flows 19 8
Insurance service expenses 1,396 1,196
Other operating expenses 104 93
Total 1,500 1,289
Total expenses, including claims costs, recognised in profit and loss in the
period amounted to £1,500m (2022: £1,289m), of which £1,396m (2022:
£1,196m) are attributed to provision of insurance services, and £104m (2022:
£93m) of other operating expenses. The actual insurance claims and expenses
of £1,377m (2022: £1,188m) compared with an expected value of £1,369m
(2022: £1,184m), included within insurance revenue.
Other operating expenses of £104m (2022 £93m) represent expenses of the
Group's non-insurance business of £38m (2022: £30m), development and
strategic expenses of £34m (2022: £22m), and other costs of £32m (2022:
£41m) which are mainly investment acquisition related expenses not attributed
to insurance contracts in force. The reduction in commission costs and
addition in investment expenses reflects the switch in investment strategy
from LTMs towards other illiquid investments.
These figures are stated after adjustments for:
· reduction of claims to exclude investment components and other
non-insurance cash flows as noted above for insurance revenue; and
· acquisition expenses incurred in the period are treated as a deduction
when calculating the CSM, with only the portion related to the current period
service provision included in profit or loss.
During the year the following services were provided by the Group's auditor at
costs as detailed below:
Year ended Year ended
31 December 2023
31 December 2022
£000
£000
Auditor remuneration
Fees payable for the audit of the Parent Company and consolidated accounts 676 616
Fees payable for other services
The audit of the Company's subsidiaries pursuant to legislation 2,555 3,042
Audit-related assurance services 792 705
Other assurance services - 48
Other non-audit services not covered above 1 1
Total 4,024 4,412
Fees payable for the audit of the Company's subsidiaries pursuant to
legislation includes fees of £789,000 (2022: £1,700,000) for audit
activities related to the implementation of IFRS 17. Audit-related assurance
services mainly include fees relating to the audit of the Group's Solvency II
regulatory returns and review procedures in relation to the Group's interim
results.
4. Net expenses from reinsurance contracts
Year ended Year ended
31 December 2023
31 December 2022
£m
(restated)
£m
Contractual service margin recognised for services received 27 25
Change in risk adjustment for non-financial risk for risk expired 4 5
Expected net settlements and reinsurance expenses 27 12
Actual net settlements and reinsurance expenses (17) (12)
Total 41 30
Contractual service margin recognised for services received
The CSM release for reinsurance contracts is recognised based on coverage
units in a similar manner to the CSM in respect of the underlying contracts.
For reinsurance swaps, the coverage units are calculated based on the cash
flows of the floating (receiving) leg only.
Change in reinsurance risk adjustment for non-financial risk for risk expired
The reinsurance risk adjustment is based on the floating leg cash flows, and
hence the behaviour of the risk adjustment, including its release, is similar
to the movement on the underlying contracts that are reinsured.
Actual vs. Expected incurred reinsurance claims and other reinsurance service
expenses
Actual reinsurance claims and expenses of £17m (2022: £12m) were lower than
the expected value of £27m (2022: £12m) as a result of reductions in
longevity experience during the year.
5. investment RETURN
Year ended Year ended
31 December 2023
31 December 2022 (restated)
£m
£m
Interest income on assets designated on initial recognition at FVTPL 806 473
Interest income on assets mandatorily measured at FVTPL: LTMs 244 165
Interest income on assets at amortised cost 54 -
Movement in fair value of financial assets designated on initial recognition 424 (3,143)
at FVTPL
Movement in fair value of financial assets mandatorily measured at FVTPL: LTMs 278 (1,578)
Movement in fair value of financial assets mandatorily measured at FVTPL: 365 (1,106)
Derivatives
Foreign exchange gains/(losses) on amortised cost assets 2 -
Total 2,173 (5,189)
Interest income and change in valuation of investments is reported separately
for assets classified in a portfolio at FVTPL and assets classified in an
amortised cost portfolio. The majority of the Group's investments are
classified at FVTPL; a separate amortised cost portfolio of sovereign gilts
was entered into during the year as explained in note 1.6.1.
6. Net finance (expenses)/income from insurance contracts
Year ended Year ended
31 December 2023
31 December 2022
£m
(restated)
£m
Interest accreted (1,317) (607)
Effect of changes in interest rates and other financial assumptions (622) 5,544
Effect of measuring changes in estimates at current rates and adjusting (67) (114)
the CSM at rates on initial recognition
Total (2,006) 4,823
Interest accreted
Interest accreted of £1,317m (2022: £607m) 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 of accretion in the current period compared
with the prior year reflects the impact of higher discount rates at the start
of 2023 compared with the start of 2022, combined with growth in the size of
the insurance portfolio.
The future cash flows and risk adjustment are interest rate sensitive and
represent 90% of the total value of insurance contract liabilities. The CSM is
measured using historic "locked-in" discount rate curves. The majority of the
CSM arises from the fair value approach on transition to IFRS 17 which is
measured using the locked-in discount rate curve as at 1 January 2022. This
curve is upward sloping in the early years which, combined with an increasing
CSM balance attributable to new business and demographic assumption changes,
has resulted in increased accretion.
Effect of changes in interest rates and other financial assumptions
The principal economic assumption changes adversely impacting the movement in
insurance liabilities during the year of £(622)m (2022: £5,544m gain) relate
to discount rates and inflation. The CSM is held at locked-in discount rates
and benefit inflation, and hence the effect of the increase in interest rates
experienced in the year applies only to the future cash flows and the risk
adjustment components of the insurance contract liabilities.
It is expected that amounts recognised in "investment return" will broadly
offset the "net finance (expense)/income from insurance contracts". The
principal driver for these amounts recognised in the Consolidated statement of
comprehensive income observed over the year is the changes in the value of the
investment assets and net insurance liabilities due to changes in interest
rates.
During 2023, the Group created a portfolio of investments that are expected to
be held to maturity, and which are valued at amortised cost rather than at
fair value. As a result, the valuation of these assets is not sensitive to
interest rate movements.
The amounts recognised in profit and loss 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.
Insurance liabilities for inflation-linked products, most notably Defined
Benefit business, and expenses on all products are impacted by changes in
future expectations of Retail Price Inflation (RPI), Consumers Price Inflation
(CPI), Linked Price Indexation (LPI) and earnings inflation.
The relationship between changes in key inputs used in determining the value
of net insurance liabilities and financial assets is explained in note 26(h).
Effect of measuring changes in estimates at current rates and adjusting the
CSM at rates on initial recognition
The difference in the measurement of changes in estimates relating to future
coverage at current discount rates of £136m (2022: £99m) compared to
locked-in rates of £203m (2022: £213m), amounting to a £67m loss (2022:
£114m loss), is recognised within net finance expenses. Significant
assumption changes in estimates mainly relates to the demographic basis change
on a gross of reinsurance basis.
7. Net finance income/(Expenses) from reinsurance contracts
Year ended Year ended
31 December 2023
31 December 2022
£m
(restated)
£m
Interest accreted 34 15
Effect of changes in interest rates and other financial assumptions 32 (169)
Effect of measuring changes in estimates at current rates and adjusting 49 63
the CSM at rates on initial recognition
Effect of changes in non-performance risk of reinsurers (7) -
Total 108 (91)
Interest accreted for reinsurance
The interest accretion on reinsurance balances of £34m (2022: £15m)
represents the unwind of discounting across the components of the reinsurance
contracts balance, namely the future cash flows, risk adjustment and CSM. The
future cash flows and CSM amount may be in either an asset or liability
position.
Effect of changes in interest rates and other financial assumptions
Consistent with the underlying business, the principal economic assumption
changes impacting the movement in reinsurance liabilities relate to discount
rates and inflation.
Effect of measuring changes in estimates at current and locked-in rates
The CSM is valued using economic parameters locked-in at point of sale. During
the year, the impact of £49m (2022: £63m) on reinsurance is from demographic
assumption changes alone.
8. Other finance costs
Year ended Year ended
31 December 2023
31 December 2022 (restated)
£m
£m
Interest payable on subordinated debt (loans and borrowings) 49 54
Interest payable on repurchase agreements 70 -
Other interest payable 3 3
Total 122 57
Interest payable on loans and borrowings has reduced as a result of the
repurchase of Tier 2 debt in October 2022 and 2023. The amortised cost Gilt
portfolio was funded by repurchase agreements; interest on these is recorded
in Other finance costs above.
9. Segmental reporting
Segmental analysis
The operating segments from which the Group derives income and incurs expenses
are as follows:
· the writing of insurance products for distribution to the at- or
in-retirement market and the DB de-risking market;
· the arranging of guaranteed income for life contracts and lifetime
mortgages 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 and Destination retirement revenue streams of the professional
services business, HUB, represents the other two operating segments. The HUB
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 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, 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 year and additional profit emerging from the in-force book of business,
provides a better view of the development of the business. Moreover, the net
underlying CSM increase is added back when calculating the underlying
operating profit as the Board considers the value of new business is
significant in assessing business performance. Actual operating experience,
where different from that assumed at the start of the year, and the impacts of
changes to future operating assumptions applied in the year, 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% (2022: 2% H1, 3% H2), the expected unwind of allowances for credit
default and the release of the risk adjustment.
Underlying operating profit excludes the impairment and amortisation of
intangible assets arising on consolidation, and strategic expenditure, since
these items arise outside the normal course of business in the year.
Underlying operating profit also excludes exceptional items. Exceptional items
are those items that, in the Directors' view, are required to be separately
disclosed by virtue of their nature or incidence to enable a full
understanding of the Group's financial performance.
Variances between actual and expected investment returns due to economic and
market changes, including on surplus assets and on assets assumed to back new
business, and gains and losses on the revaluation of land and buildings, are
also disclosed outside underlying operating profit.
Segmental reporting and reconciliation to financial information
Year ended 31 December 2023 Year ended 31 December 2022 (restated)
Insurance Other Total Insurance Other Total
£m
£m
£m
£m
£m
£m
New business profits 355 - 355 266 - 266
CSM amortisation(1) (62) - (62) (61) - (61)
Net underlying CSM increase(2) 293 - 293 205 - 205
In-force operating profit(3) 185 6 191 153 3 156
Other Group companies' operating results - (22) (22) - (16) (16)
Development expenditure (16) (1) (17) (14) (1) (15)
Finance costs (84) 16 (68) (87) 14 (73)
Underlying operating profit 378 (1) 377 257 - 257
Operating experience and assumption changes(4) 52 - 52 104 - 104
Adjusted operating profit/(loss) before tax 430 (1) 429 361 - 361
Investment and economic movements 106 (14) 92 (557) 20 (537)
Strategic expenditure (8) (9) (17) (7) - (7)
Interest adjustment to reflect IFRS 28 (12) 16 28 (12) 16
accounting for Tier 1 notes as equity
Adjusted profit/(loss) before tax 556 (36) 520 (175) 8 (167)
Deferral of profit in CSM(5) (348) - (348) (327) - (327)
Profit/(loss) before tax 208 (36) 172 (502) 8 (494)
1 CSM amortisation represents the net release from the CSM reserve into
profit as services are provided. The figures are net of accretion (unwind of
discount), and the release is computed based on the closing CSM reserve
balance for the period.
2 Net underlying CSM increase excludes the impact of using quote date for
profitability measurement. Just recognises contracts based on their completion
dates for IFRS 17, but bases its assessment of new business profitability for
management purposes on the economic parameters prevailing at the quote date of
the business.
3 In-force operating profit represents profits from the in force
portfolio before investment and insurance experience variances, and assumption
changes. It mainly represents release of risk adjustment for non-financial
risk and of allowances for credit default in the period, investment returns
earned on shareholder assets, together with the value of the
CSM amortisation.
4 Operating experience and assumption changes represent changes to cash
flows in the current and future periods valued based on end of period economic
assumptions.
5 Deferral of profit in CSM represents the total movement in the CSM 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.
The reconciliation of the non-GAAP new business profit to the new business
contractual service margin (IFRS measure) is included in the Additional
financial information.
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 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:
Year ended Year ended
31 December 2023
31 December 2022
£m
(restated)
£m
Defined Benefit De-risking Solutions ("DB") 2,999 2,567
Guaranteed Income for Life contracts ("GIfL")(1) 894 564
Retirement Income sales (shareholder funded) 3,893 3,131
Defined Benefit De-risking partnering ("DB partnering") 416 259
Retirement Income sales 4,309 3,390
Premium adjustments to in-force policies (27) -
Net change in premiums receivable 212 (276)
Premium cash flows (note 26(c)) 4,494 3,114
1 GIfL includes UK GIfL, South Africa GIfL and Care Plans.
Drawdown and Lifetime Mortgage ("LTM") products are accounted for as
investment contracts and financial investments respectively in the
Consolidated statement of financial position. An analysis of the amounts
advanced during the year for these products is shown below:
Year ended Year ended
31 December 2023
31 December 2022
£m
£m
LTM advances 186 538
Drawdown deposits and other investment products 12 14
10. Income tax
Year ended Year ended
31 December 2023
31 December 2022 (restated)
£m
£m
Current taxation
Adjustments in respect of prior periods - 9
Total current tax - 9
Deferred taxation
Deferred tax recognised for losses in the current period (2) (129)
Origination and reversal of temporary differences 6 (4)
Adjustments in respect of prior periods 3 (9)
Tax relief on the transitional adjustment on IFRS 17 implementation 34 -
Remeasurement of deferred tax - change in UK tax rate 2 1
Total deferred tax 43 (141)
Total income tax recognised in profit or loss 43 (132)
Further disclosure of the tax impacts of the adoption of IFRS 17 on 1 January
2023 is disclosed in note 21.
The deferred tax assets and liabilities at 31 December 2023 have been
calculated based on the rate at which they are expected to reverse.
On 3 March 2021, the Government announced an increase in the rate of
corporation tax to 25% from 1 April 2023. The change in tax rate was
substantively enacted in May 2021.
A deferred tax asset of £341m has been recognised on the adoption of IFRS 17
Insurance Contracts on 1 January 2023, which is expected to be fully
recoverable. Deferred tax has been recognised at 25%, reflecting the rate at
which the deferred tax asset is expected to unwind.
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
Year ended Year ended
31 December 2023
31 December 2022 (restated)
£m
£m
Profit/(loss) on ordinary activities before tax 172 (494)
Income tax at 23.5% (2022: 19%) 40 (94)
Effects of:
Expenses not deductible for tax purposes 2 2
Remeasurement of deferred tax - change in UK tax rate 2 1
Impact of future tax rate on tax losses - (34)
Adjustments in respect of prior periods 3 -
Other (4) (7)
Total income tax recognised in profit or loss 43 (132)
Income tax recognised directly in equity
Year ended Year ended
31 December 2023
31 December 2022
£m
£m
Current taxation
Relief on Tier 1 interest (4) -
Total current tax (4) -
Deferred taxation
Relief on Tier 1 interest - (3)
Relief in respect of share-based payments - (1)
Total deferred tax - (4)
Total income tax recognised directly in equity (4) (4)
Taxation of life insurance companies was fundamentally changed following the
publication of the Finance Act 2012. Since 1 January 2013, life insurance tax
has been based on financial statements; prior to this date, the basis for
profits chargeable to corporation tax was surplus arising within the Pillar 1
regulatory regime. Cumulative differences arising between the two bases, which
represent the differences in retained profits and taxable surplus which are
not excluded items for taxation, are brought back into the computation of
taxable profits. However, the legislation provides for transitional
arrangements whereby such differences are amortised on a straight-line basis
over a ten-year period from 1 January 2013. Similarly, the resulting
cumulative transitional adjustments for tax purposes in adoption of IFRS are
amortised on a straight-line basis over a ten-year period from 1 January
2016. The tax charge for the year to 31 December 2023 includes tax relief
arising from amortisation of transitional balances of £3m (2022: £3m).
IFRS 17 Insurance Contracts was adopted during the year. Cumulative
differences arising between IFRS 17 and the previous accounting standards
(IFRS 4), which represent the differences in retained profits previously
reported and impact of the adoption of the standard, are brought back into the
computation of taxable profits. However, legislation provides for transitional
arrangements whereby such differences are amortised on a straight-line basis
over a ten-year period from 1 January 2023. The tax charge for the year to 31
December 2023 includes current tax relief arising from amortisation of
transitional balances of £32m.
11. Remuneration of Directors
Information concerning individual Directors' emoluments, interests and
transactions is given in the Directors' Remuneration report. For the purposes
of the disclosure required by Schedule 5 to the Companies Act 2006, the total
aggregate emoluments of the Directors in the year was £5m (2022: £5m).
Employer contributions to pensions for Executive Directors for qualifying
periods were £nil (2022: nil). The aggregate net value of share awards
granted to the Directors in the year was £3m (2022: £2m), calculated by
reference to the average closing middle-market price of an ordinary share over
the five days preceding the grant. Two Directors exercised share options
during the year with an aggregate gain of £3m (2022: two Directors exercised
options with an aggregate gain of £1m).
12. Staff numbers and costs
The average number of persons employed by the Group (including Directors)
during the financial year, analysed by category, was as follows:
Year ended Year ended
31 December 2023
31 December 2022
Number
Number
Directors 11 10
Senior management 142 124
Staff 1,052 990
Average number of staff 1,205 1,124
The aggregate personnel costs were as follows:
Year ended Year ended
31 December 2023
31 December 2022
£m
£m
Wages and salaries 104 86
Social security costs 11 10
Other pension costs 6 4
Share-based payment expense 6 6
Total 127 106
13. Employee benefits
Defined contribution pension scheme
The Group operates a defined contribution pension scheme. The pension cost
charge for the year represents contributions payable to the fund and amounted
to £6m (2022: £4m).
Employee share plans
The Group operates a number of employee share option plans. Details of those
plans are as follows:
Long Term Incentive Plans ("LTIP")
The Group has made awards under the LTIP to Executive Directors and other
senior managers. Awards granted prior to 9 May 2023 were granted under the
Just Retirement Group plc 2013 Long Term Incentive Plan. Awards granted since
9 May 2023 are granted under the Just Group plc Long Term Incentive Plan.
Awards are made in the form of nil-cost options which become exercisable on
the third anniversary of the grant date, subject to the satisfaction of
service and performance conditions set out in the Directors' Remuneration
report. Options are exercisable until the tenth anniversary of the grant date,
with the exception for good leavers in respect of awards granted after 9 May
2023 which are exercisable until the first anniversary of the vesting date.
The majority of options granted are also subject to a two-year holding period
after the options have vested.
The options are accounted for as equity-settled schemes.
The number and weighted-average remaining contractual life of outstanding
options under the LTIP are as follows:
Year ended Year ended
31 December 2023
31 December 2022
Number of options
Number of options
Outstanding at 1 January 25,935,723 22,403,125
Granted(1) 9,544,856 8,563,671
Forfeited (2,902,296) (1,149,299)
Exercised (6,573,503) (2,679,669)
Expired - (1,202,105)
Outstanding at 31 December 26,004,780 25,935,723
Exercisable at 31 December 4,546,466 4,740,542
Weighted-average share price at exercise (£) 0.85 0.81
Weighted-average remaining contractual life (years) 1.14 1.09
1 Includes 294,437 options granted on 14 September 2023 under the Just
Group plc Long Term Incentive Plan. All other options granted under the Just
Retirement Group plc 2013 Long Term Incentive Plan.
The exercise price for options granted under the LTIP is nil.
During the year to 31 December 2023, awards of LTIPs were made on 23 March
2023, 30 March 2023 and 14 September 2023. The weighted-average fair value and
assumptions used to determine the fair value of the LTIPs and the buy-out
options granted during the year are as follows:
Fair value at grant date £0.77
Option pricing models used Black-Scholes, Stochastic, Finnerty
Share price at grant date £0.84
Exercise price Nil
Expected volatility - TSR performance 41.34%
Expected volatility - Other performance 44.36 - 44.43%
Expected volatility - holding period 37.52% - 37.60%
Option life 3 years + 2 year holding period
Dividend yield HUB LTIP awards - 2.05%, Other - Nil
Risk-free interest rate - TSR performance 3.44%
Risk-free interest rate - holding period 3.25% - 3.41%
A Stochastic model is used where vesting is related to a total shareholder
return target, a Black-Scholes option pricing model is used for all other
performance vesting targets, and a Finnerty model is used to model the holding
period.
For awards subject to a market performance condition, such as Total
Shareholder Return ("TSR"), expected volatility has been calculated using
historic volatility of the Company, and for each company in the TSR comparator
group, over the period of time commensurate with the remainder of the
performance period immediately prior to the date of grant. For awards not
subject to a market performance condition, expected volatility has been
calculated using historic volatility of the Company over the period of time
commensurate with the expected award term immediately prior to the date of the
grant. For awards with a holding period condition, expected volatility has
been calculated using historic volatility of the Company over the period of
time commensurate with the holding period immediately prior to the date of
grant.
Deferred share bonus plan ("DSBP")
The DSBP is operated in conjunction with the Group's short-term incentive plan
for Executive Directors and other senior managers of the Company or any of its
subsidiaries, as explained in the Directors' Remuneration report. Awards are
made in the form of nil-cost options which become exercisable on the third
anniversary, and until the tenth anniversary, of the grant date.
The options are accounted for as equity-settled schemes.
The number and weighted-average remaining contractual life of outstanding
options under the DSBP are as follows:
Year ended Year ended
31 December 2023
31 December 2022
Number of options
Number of options
Outstanding at 1 January 5,998,639 5,788,003
Granted 1,278,872 1,313,916
Forfeited (273,206) -
Exercised (1,603,924) (1,103,280)
Outstanding at 31 December 5,400,381 5,998,639
Exercisable at 31 December 1,661,999 1,652,826
Weighted-average share price at exercise (£) 0.83 0.83
Weighted-average remaining contractual life (years) 0.85 0.84
The exercise price for options granted under the DSBP is nil (2022: nil).
During the year to 31 December 2023, awards of DSBPs were made on 23 March
2023. The weighted-average fair value and assumptions used to determine the
fair value of options granted during the year under the DSBP are as follows:
Fair value at grant date £0.84
Option pricing model used Black-Scholes
Share price at grant date £0.84
Exercise price Nil
Expected volatility 45.43%
Option life 3 years
Dividend yield Nil
Risk-free interest rate Nil
Expected volatility has been calculated using historic volatility of the
Company over the period of time commensurate with the expected award term
immediately prior to the date of the grant.
Save As You Earn ("SAYE") scheme
The Group operates SAYE plans for all employees, allowing a monthly amount to
be saved from salaries over either a three- or five-year period that can be
used to purchase shares in the Company at a predetermined price. The employee
must remain in employment for the duration of the saving period and satisfy
the monthly savings requirement (except in "good leaver" circumstances).
Options are exercisable for up to six months after the saving period.
The options are accounted for as equity-settled schemes.
The number, weighted-average exercise price, weighted-average share price at
exercise, and weighted-average remaining contractual life of outstanding
options under the SAYE are as follows:
Year ended 31 December 2023 Year ended 31 December 2022
Number of options Weighted-average Number of options Weighted-average
exercise price
exercise price
£
£
Outstanding at 1 January 12,918,140 0.45 14,779,553 0.44
Granted 3,910,005 0.67 1,924,649 0.71
Forfeited (646,127) 0.56 (791,758) 0.46
Cancelled (442,187) 0.71 (526,561) 0.59
Exercised (7,794,942) 0.38 (2,337,700) 0.50
Expired (91,501) 0.92 (130,043) 0.79
Outstanding at 31 December 7,853,387 0.60 12,918,140 0.45
Exercisable at 31 December 231,646 0.50 233,954 0.59
Weighted-average share price at exercise (£) 0.84 0.72
Weighted-average remaining contractual life (years) 1.97 1.22
The range of exercise prices of options outstanding at the end of the year are
as follows:
2023 2022
Number of options outstanding
Number of options outstanding
£0.38 2,043,899 9,949,082
£0.52 217,744 395,051
£0.67 3,647,050 -
£0.71 1,380,653 1,718,536
£0.74 562,516 787,780
£1.07 - 66,166
£1.18 1,525 1,525
Total 7,853,387 12,918,140
During the year to 31 December 2023, awards of SAYEs were made on 18 April
2023. The weighted-average fair value and assumptions used to determine the
fair value of options granted during the year under the SAYE are as follows:
Fair value at grant date £0.38
Option pricing model used Black-Scholes
Share price at grant date £0.89
Exercise price £0.67
Expected volatility - 3-year scheme 47.78%
Expected volatility - 5-year scheme 50.32%
Option life 3.37 or 5.37 years
Dividend yield 1.95%
Risk-free interest rate - 3-year scheme 3.65%
Risk-free interest rate - 5-year scheme 3.62%
Expected volatility has been calculated using historic volatility of the
Company over the period of time commensurate with the expected term of the
awards immediately prior to the date of grant.
14. Earnings per share
The calculation of basic and diluted earnings per share is based on dividing
the profit or loss attributable to ordinary equity holders of the Company by
the weighted-average number of ordinary shares outstanding, and by the diluted
weighted-average number of ordinary shares potentially outstanding at the end
of the year. 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 RT1
notes. This is based on the judgement that the rights associated with the RT1
notes are similar to preference shares. Adjustments include coupon payments
and any gains/losses on redemption.
Year ended 31 December 2023 Year ended 31 December 2022
(restated)
Earnings Weighted- average number of shares Earnings Earnings Weighted- average number of shares Earnings
£m
million
per share
£m
million
per share
pence
pence
Profit/(loss) attributable to equity holders of Just Group plc 129 1,032 - (362) 1,032 -
Coupon payments in respect of Tier 1 notes (net of tax) (12) - - (14) - -
Profit/(loss) attributable to ordinary equity holders of 117 1,032 11.3 (376) 1,032 (36.3)
Just Group plc (basic)
Effect of potentially dilutive share options(1) - 17 - - - -
Diluted profit/(loss) attributable to ordinary equity holders 117 1,049 11.2 (376) 1,032 (36.3)
of Just Group plc
1 The weighted-average number of share options for the year ended 31
December 2022 that could have potentially diluted basic earnings per share in
the future but are not included in diluted EPS because they would be anti
dilutive was 23.3 million share options.
15. Dividends and appropriations
Dividends and appropriations paid in the year were as follows:
Year ended Year ended
31 December 2023
31 December 2022
£m
£m
Final dividend
Final dividend in respect of prior year end 13 10
(1.23 pence per ordinary share, paid on 17 May 2023)
Interim dividend
Interim dividend in respect of current year end 6 5
(0.58 pence per ordinary share, paid on 4 October 2023)
Total dividends paid 19 15
Coupon payments in respect of Tier 1 notes(1) 16 17
Total distributions to equity holders in the period 35 32
1 Coupon payments on Tier 1 notes are treated as an appropriation of
retained profits and, accordingly, are accounted for when paid.
Subsequent to 31 December 2023, the Directors proposed a final dividend for
2023 of 1.50 pence per ordinary share (2022: 1.23 pence) and together with the
interim dividend of 0.58 pence per ordinary share paid in 4 October 2023
amounting to £22m (2022: £18m) in total. Subject to approval by shareholders
at the Company's 2024 AGM, the dividend will be paid on 15 May 2024 to
shareholders on the register of members at the close of business on 12 April
2024, and will be accounted for as an appropriation of retained earnings in
year ending 31 December 2024.
16. Intangible assets
Year ended 31 December 2023 Acquired intangible assets Software Total
£m
£m
Goodwill Intellectual property £m PrognoSys™
£m
£m
Cost
At 1 January 2023 (restated) 35 2 6 29 72
At 31 December 2023 35 2 6 29 72
Amortisation and impairment
At 1 January 2023 (restated) (1) (1) (3) (20) (25)
Impairment - - - (3) (3)
Charge for the year - - (1) (2) (3)
At 31 December 2023 (1) (1) (4) (25) (31)
Net book value at 31 December 2023 34 1 2 4 41
Net book value at 31 December 2022 (restated) 34 1 3 9 47
Year ended 31 December 2022 - (restated) Acquired intangible assets Software Total
£m
£m
Goodwill Intellectual property PrognoSys™
£m
£m
£m
Cost
At 1 January 2022 35 2 6 25 68
Additions - - - 4 4
At 31 December 2022 35 2 6 29 72
Amortisation and impairment
At 1 January 2022 (1) (1) (3) (18) (23)
Charge for the year - - - (2) (2)
At 31 December 2022 (1) (1) (3) (20) (25)
Net book value at 31 December 2022 34 1 3 9 47
Net book value at 31 December 2021 34 1 3 7 45
The amortisation and impairment charge is recognised in other operating
expenses in profit or loss.
Impairment testing
The Group's goodwill of £34m at 31 December 2023 represents the following:
· £33m on the 2009 acquisition by Just Retirement Group Holdings Limited
of Just Retirement (Holdings) Limited, the Holding Company of Just Retirement
Limited ("JRL"); and
· £1m recognised on the 2018 acquisition of HUB Pension Consulting
(Holdings) Limited.
The majority of the goodwill has been allocated to the cash-generating unit of
Just Retirement (Holdings) Limited and its subsidiaries. The recoverable
amounts of goodwill have been determined from the value-in-use of the cash
generating unit.
2023 2022
Period on which management approved forecasts are based 5 years 5 years
Discount rate (pre-tax) 11.4% 12.7%
The value-in-use of the cash-generating unit is considered by reference to the
latest business plans over the next five years, which reflect management's
best estimate of future cash flows based on historical experience, expected
growth rates and assumptions around market share, customer numbers, expense
inflation and mortality rates. The discount rate was determined using a
weighted average cost of capital approach, with appropriate adjustments to
reflect a market participant's view. The outcome of the impairment assessment
is that the goodwill allocated to the cash-generating unit is not impaired and
that the value-in-use is higher than the carrying value of goodwill. Any
reasonably possible changes in assumptions will not cause the carrying value
of the goodwill to exceed the recoverable amounts.
17. Property and equipment
Year ended 31 December 2023 Freehold land Computer Furniture Right-of-use assets Total
and buildings
equipment
and fittings
£m
£m
£m
£m
£m
Cost or valuation
At 1 January 2023 10 11 9 15 45
Acquired during the year - 1 - 2 3
Disposals - - - (1) (1)
At 31 December 2023 10 12 9 16 47
Depreciation and impairment
At 1 January 2023 - (10) (6) (7) (23)
Depreciation charge for the year - (1) - (1) (2)
At 31 December 2023 - (11) (6) (8) (25)
Net book value at 31 December 2023 10 1 3 8 22
Net book value at 31 December 2022 10 1 3 8 22
Year ended 31 December 2022 Freehold land Computer Furniture Right-of-use assets Total
and buildings
equipment
and fittings
£m
£m
£m
£m
£m
Cost or valuation
At 1 January 2022 11 10 6 7 34
Acquired during the year - 1 3 8 12
Revaluations (1) - - - (1)
At 31 December 2022 10 11 9 15 45
Depreciation and impairment
At 1 January 2022 - (9) (6) (5) (20)
Eliminated on revaluation 1 - - - 1
Depreciation charge for the year (1) (1) - (2) (4)
At 31 December 2022 - (10) (6) (7) (23)
Net book value at 31 December 2022 10 1 3 8 22
Net book value at 31 December 2021 11 1 - 2 14
Included in freehold land and buildings is land of value £2m (2022: £2m).
The Group's freehold land and buildings are stated at their revalued amounts,
being the fair value at the date of revaluation less any subsequent
accumulated depreciation and subsequent accumulated impairment losses. The
fair value measurements of freehold land and buildings as at 11 November 2022
were performed by Hurst Warne & Partners Surveyors Ltd, independent
valuers not related to the Group. Hurst Warne & Partners Surveyors Ltd is
registered for regulation by the Royal Institution of Chartered Surveyors
("RICS"). The valuation process relies on expert judgement which is heightened
due to the macroeconomic-related uncertainty. The valuer has sufficient
current local knowledge of the particular market, and the knowledge, skills
and understanding to undertake the valuation competently. The fair value of
the freehold land was undertaken using a residual valuation assuming a new
build office on each site to an exact equivalent size as currently and
disregarding the possibility of developing any alternative uses or possible
enhancements. The fair value of the buildings was determined based on open
market comparable evidence of market rent. The fair value measurement of
revalued land and buildings has been categorised as Level 3 within the fair
value hierarchy based on the non-observable inputs to the valuation technique
used.
Revaluations during 2022 comprise a loss of £0.5m recognised in profit or
loss, a gain of £0.5m recognised in other comprehensive income (gross of tax
of £0.3m), partially reversing previously recognised gains of £4.3m (gross
of tax of £0.7m), and the elimination of depreciation on the revaluations of
£1m.
If freehold land and buildings were stated on the historical cost basis, the
carrying values would be land of £4m (2022: £4m) and buildings of £4m
(2022: £4m).
Right-of-use assets are property assets leased by the Group.
18. Investment property
Year ended Year ended
31 December 2023
31 December 2022
£m
£m
At 1 January 40 70
Net loss from fair value adjustment (8) (30)
At 31 December 32 40
Investment properties are leased to commercial tenants. Investment properties
are valued using discounted cash flow analysis using assumptions based on the
repayment of the underlying loan. The valuation model discounts the expected
future cash flows using a discount rate which includes a credit spread
allowance associated with that asset. The redemption and default assumptions
are derived from the assumptions for the Group's bond portfolio.
Minimum lease payments receivable on leases of investment properties are as
follows (undiscounted cash flows):
2023 2022
£m
£m
Within 1 year 1 1
Between 1 and 2 years 1 1
Between 2 and 3 years 1 1
Between 3 and 4 years 1 1
Between 4 and 5 years 1 1
Later than 5 years 127 128
Total 132 133
19. 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.
During the course of 2023, the Group purchased - in several transactions -
nominal Gilts with a total value of ~£2.5bn with maturities between 10 and 30
years and the average weighted yield of ~4.2% (at the time of purchase). The
purchase of these Gilts was financed through repurchase operations ("repos").
At the inception, repo maturities were from 12 to 21 months. The purpose of
this purchase was to reduce the duration gap between the Solvency II and the
IFRS exposure (Gilts were booked under the amortised cost basis under the
IFRS).
The table below summarises the classification of the Group's financial assets
and liabilities.
31 December 2023 Amortised cost Fair value Total
£m
£m
Mandatory Designated
£m
£m
Cash available on demand 546 - - 546
Financial investments 2,549 8,058 18,816 29,423
Other receivables 60 - - 60
Total financial assets 3,155 8,058 18,816 30,029
Underlying assets
- Investment contracts - - 35 35
- Other 3,155 8,058 18,781 29,994
Total financial assets 3,155 8,058 18,816 30,029
Investment contract liabilities - - 35 35
Loans and borrowings 686 - - 686
Other financial liabilities 3,101 2,487 - 5,588
Other payables 20 - - 20
Total financial liabilities 3,807 2,487 35 6,329
31 December 2022 (restated) Amortised cost Fair value Total
£m
£m
Mandatory Designated
£m
£m
Cash available on demand 482 - - 482
Financial investments - 7,583 15,769 23,352
Other receivables 33 - - 33
Total financial assets 515 7,583 15,769 23,867
Underlying assets
- Investment contracts - - 33 33
- Other 515 7,583 15,736 23,834
Total financial assets 515 7,583 15,769 23,867
Investment contract liabilities - - 33 33
Loans and borrowings 699 - - 699
Other financial liabilities 623 3,046 - 3,669
Other payables 96 - - 96
Total financial liabilities 1,418 3,046 33 4,497
Analysis of financial investments
2023 2022
£m
(restated)
£m
Units in liquidity funds 1,141 1,174
Investment funds 495 421
Debt securities and other fixed income securities 13,654 11,353
Deposits with credit institutions 706 908
Loans secured by residential mortgages 5,681 5,306
Loans secured by commercial mortgages 764 584
Long income real estate(1) 779 247
Infrastructure loans 1,113 948
Other loans 164 134
Derivative financial assets 2,377 2,277
Total investments measured at FVTPL 26,874 23,352
Gilts - subject to repurchase agreements 2,549 -
Total investments measured at amortised cost 2,549 -
Total financial investments 29,423 23,352
1. Includes £176m residential and £603m commercial ground rents. For further
information on residential ground rents see note 1.7.
The majority of investments included in debt securities and other fixed income
securities are listed investments.
Units in liquidity funds comprise wholly of units in funds which invest in
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 Consolidated statement of
cash flows.
Deposits with credit institutions with a carrying value of £706m (2022:
£892m) have been pledged as collateral in respect of the Group's derivative
financial instruments. Amounts pledged as collateral are deposited with the
derivative counterparty.
Derivatives are reported within Financial investments where the derivative
valuation is in an asset position, or alternatively within Other financial
liabilities where the derivative is in a liability position.
As explained in note 1.2.2, financial investments are restated by £125m in
respect of future funding commitments.
20. 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 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 liabilities. For some of these sensitivities,
the impact on the value of insurance liabilities and hence profit before tax
is included in note 26(h).
Assessment of the observability of pricing information
All Level 1 and 2 assets continue to have pricing available from actively
quoted prices or observable market data.
Where the Group receives broker/asset manager quotes and the information is
given a low score by Bloomberg's pricing service (BVAL), the investments are
classified as Level 3 as are assets valued internally.
Debt securities and financial derivatives which are valued using independent
pricing services or third party broker quotes are classified as Level 2.
The Group's assets and liabilities held at fair value which are valued using
valuation techniques for which significant observable market data is not
available and classified as Level 3 include loans secured by mortgages, long
income real estate, infrastructure loans, private placement debt securities,
investment funds, investment contract liabilities, and other loans.
(b) Analysis of assets and liabilities held at fair value according to fair
value hierarchy
2023 2022
(restated)
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m
£m
£m
£m
£m
£m
£m
£m
Assets held at fair value through profit or loss
Units in liquidity funds 1,135 6 - 1,141 1,170 4 - 1,174
Investment funds - 97 398 495 - 83 338 421
Debt securities and other fixed income securities 4,941 5,799 2,914 13,654 3,844 5,904 1,605 11,353
Deposits with credit institutions 706 - - 706 892 16 - 908
Loans secured by residential mortgages - - 5,681 5,681 - - 5,306 5,306
Loans secured by commercial mortgages - - 764 764 - - 584 584
Long income real estate - - 779 779 - - 247 247
Infrastructure loans - - 1,113 1,113 - - 948 948
Other loans - 41 123 164 - 22 112 134
Derivative financial assets - 2,377 - 2,377 - 2,277 - 2,277
Financial investments 6,782 8,320 11,772 26,874 5,906 8,306 9,140 23,352
Investment property - - 32 32 - - 40 40
Fair value of financial assets held at amortised cost
Gilts - subject to repurchase agreements (fair value) 2,614 - - 2,614 - - - -
Total financial assets and investment property 9,396 8,320 11,804 29,520 5,906 8,306 9,180 23,392
Liabilities held at fair value
Investment contract liabilities - - 35 35 - - 33 33
Derivative financial liabilities - 2,473 14 2,487 - 3,004 42 3,046
Fair value of financial liabilities at amortised cost
Obligations for repayment of cash collateral received (fair value) 511 21 - 532 593 30 - 623
Loans and borrowings at amortised cost (fair value) - 694 - 694 - 704 - 704
Repurchase obligation (fair value) - 2,569 - 2,569 - - - -
Total financial liabilities 511 5,757 49 6,317 593 3,738 75 4,406
Other than freehold land and buildings disposed of in 2022, there are no
non-recurring fair value measurements in either period.
(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 year
there were the following transfers between levels:
· Transfers from Level 2 to Level 1 as a result of improved pricing
sources £1,492m (2022: £1,422m)
· Transfer from Level 1 to Level 2 due to a fall in pricing quality
£279m (2022: £368m)
· Transfers from Level 3 to Level 2 as a result of improved pricing
sources £15m (2022: £123m)
· Transfer from Level 2 to Level 3 due to a fall in pricing quality
£157m (2022: 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. The sensitivities disclosed in this note
only consider the impact of the change in these assumptions on the fair value
of the investment assets. Some of these sensitivities would also impact the
yield on assets and hence the valuation discount rate used to determine the
insurance contract liabilities. For some of these sensitivities, the impact
on the value of insurance liabilities and hence profit before tax is included
in note 26(h).
Year ended 31 December 2023 Investment funds Debt securities and other fixed income securities Loans secured by residential mortgages Loans secured by commercial mortgages Long income real estate Infra-structure loans Other loans Derivative financial assets Investment contract liabilities Derivative financial liabilities
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
At 1 January 2023 338 1,605 5,306 584 247 948 112 - (33) (42)
Purchases/advances/deposits 56 1,195 186 256 529 138 17 - (12) -
Transfers to Level 2 - 142 - - - - - - - -
Sales/redemptions/payments 4 (116) (342) (110) (4) (50) - - 1 23
Recognised in profit or loss in
Investment return
- Realised gains and losses - - 122 - - - - - - -
- Unrealised gains and losses - 93 164 32 7 72 (16) - - 5
Interest accrued - (5) 245 2 - 5 10 - - -
Change in fair value of liabilities recognised in profit or loss - - - - - - - - 9 -
At 31 December 2023 398 2,914 5,681 764 779 1,113 123 - (35) (14)
Year ended 31 December 2022 (restated) Investment funds Debt securities and other fixed income securities Loans secured by residential mortgages Loans secured by commercial mortgages Long income real estate Infra-structure loans Other loans Derivative financial assets Investment contract liabilities Derivative financial liabilities
£m
£m
£m
£m
£m
£m
£m
£m
£m
£m
At 1 January 2022 233 1,450 7,423 678 190 993 90 8 (34) (9)
Purchases/advances/deposits 107 699 539 92 217 233 - - (14) -
Transfers to Level 2 - (123) - - - - - - - -
Sales/redemptions/payments (18) (101) (543) (135) (11) (22) (14) - 12 -
Disposal of a portfolio of LTMs(1) - - (751) - - - - - - -
Recognised in profit or loss in
Investment return
- Realised gains and losses - - (87) (2) - - - - - -
- Unrealised gains and losses 16 (304) (1,434) (49) (149) (258) 36 (8) - (33)
Interest accrued - (16) 159 - - 2 - - - -
Change in fair value of liabilities recognised in profit or loss - - - - - - - - 3 -
At 31 December 2022 338 1,605 5,306 584 247 948 112 - (33) (42)
1 In February 2022 the Group disposed of a portfolio of loans secured by
residential mortgages with a fair value of £751m. The transaction was part of
the Group's strategy to reduce exposure and sensitivity of the balance sheet
to the UK property market following changes in the regulatory environment in
2018.
(i) 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% (2022:
7.0%).
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable inputs used in
the valuation model either as at the valuation date or from a suitable recent
reporting period where appropriate to do so could give rise to significant
changes in the fair value of the assets. The sensitivity of the valuation of
investment funds is determined by reference to the movement in credit spreads.
The Group has estimated the impact on fair value to changes to these inputs
as follows:
Investment funds Credit spreads
+100bps
net increase/(decrease) in fair value (£m)
2023 (10)
2022 (9)
(ii) Debt securities and other fixed income securities
Fixed income securities, in line with market practice, are generally valued
using an independent pricing service. These valuations are determined using
independent external quotations from multiple sources and are subject to a
number of monitoring controls, such as monthly price variances, stale price
reviews and variance analysis. Pricing services, where available, are used to
obtain the third party broker quotes. When prices are not available from
pricing services, prices are sourced from external asset managers or internal
models and classified as Level 3 under the fair value hierarchy due to the use
of significant unobservable inputs. These include private placement bonds and
asset backed securities as well as less liquid corporate bonds.
Principal assumptions underlying the calculation of the debt securities and
other fixed income securities classified as Level 3
Credit spreads
The valuation model discounts the expected future cash flows using a discount
rate which includes a credit spread allowance associated with that asset.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable inputs used in
the valuation model either as at the valuation date or from a suitable recent
reporting period where appropriate to do so could give rise to significant
changes in the fair value of the assets. The sensitivity of the valuation of
bonds is determined by reference to movement in credit spreads. The Group has
estimated the impact on fair value to changes to these inputs as follows:
Debt securities and other fixed income securities Credit spreads
net increase/(decrease) in fair value (£m)
+100bps
2023 (293)
2022 (138)
(iii) 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 26(b).
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 3.6% (2022: 3.9%).
Mortality
Mortality assumptions have been derived with reference to England and Wales
population mortality using the CMI 2022 (2022: CMI 2021) model for mortality
improvements. These base mortality and improvement tables have been adjusted
to reflect the expected future mortality experience of mortgage contract
holders, taking into account the medical and lifestyle evidence collected
during the sales process and the Group's assessment of how this experience
will develop in the future. This assessment takes into consideration relevant
industry and population studies, published research materials and management's
own experience. The Group has considered the possible impact of the COVID-19
pandemic on its mortality assumptions and has included an allowance for the
expected future direct and indirect impacts of this and wider UK mortality
trends, updated from that which applied at 31 December, 2022. Further details
of the matters considered in relation to mortality assumptions at 31 December
2023 are set out in note 26(b).
Property prices
The approach in place 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 31 December 2023, no additional
short-term adjustment is allowed for.
The appropriateness of this valuation basis is regularly tested on the event
of redemption of mortgages. The sensitivity of loans secured by mortgages to
a fall in property prices is included in the table of sensitivities below.
Future property price
In the absence of a reliable long-term forward curve for UK residential
property price inflation, the Group has made an assumption about future
residential property price inflation based upon available market and industry
data. These assumptions have been derived with reference to the long-term
expectation of the UK consumer price inflation, "CPI", plus an allowance for
the expectation of house price growth above CPI (property risk premium) less a
margin for a combination of risks including property dilapidation and basis
risk. An additional allowance is made for the volatility of future property
prices. This results in a single rate of future house price growth of 3.3%
(2022: 3.3%), with a volatility assumption of 13% per annum (2022: 13%). The
setting of these assumptions includes consideration of future long and
short-term forecasts, the Group's historical experience, benchmarking data,
and future uncertainties including the possible impacts of the COVID-19
pandemic and a higher interest and inflation rate economic environment on the
UK property market. House price reductions have been experienced across much
of the UK over the year, albeit these have been more modest than some
forecasts for the period. As such, at this stage our view is that there is no
clear indication of a change in the long-term prospects of the housing market.
In light of this, the future house price growth and property volatility
assumptions have been maintained at the same level as assumed at 31 December
2022. The sensitivity of loans secured by mortgages to changes in future
property price growth, and to future property price volatility, are included
in the table of sensitivities below.
Voluntary redemptions
Assumptions for future voluntary redemption levels are based on the Group's
recent analyses. The assumed redemption rate varies by duration and product
line between 0.5% and 4.1% for loans in JRL (2022: 0.5% and 4.1%) and between
0.6% and 6.8% for loans in PLACL (2022: 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% (2022: 3.2%) and for loans held
within PLACL is 3.3% (2022: 3.5%). The movement over the period observed in
both JRL and PLACL is a function of the liquidity premiums on new loan
originations compared to the liquidity premiums on those policies which have
redeemed over the period, both in reference to the average spread on the back
book of business.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable inputs used in
the valuation model could give rise to significant changes in the fair value
of the assets. The Group has estimated the impact on fair value to changes to
these inputs as follows:
Loans secured by residential mortgages Maintenance expenses Base Mortality improvement Immediate property price fall Future property price growth Future property price volatility Voluntary redemptions Liquidity premium
net increase/(decrease) in fair value (£m)
+10%
mortality
+10%
-10%
-0.5%
+1%
+10%
+10bps
-5%
2023 (5) (15) (3) (83) (50) (34) 19 (49)
2022 (5) (14) (4) (75) (49) (32) 20 (48)
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. The mortality improvement
sensitivity applies a multiplicative adjustment to improvement rates.
The impact on insurance liabilities of sensitivities to mortality is included
in note 26(h).
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.
(iv) 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
net increase/(decrease) in fair value (£m)
+100bps
2023 (27)
2022 (19)
(v) 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
Government consultation regarding restriction of residential ground rents as
explained in the Risk Management report and has included an adjustment to the
valuation of its residential ground rents portfolio to reflect this
uncertainty in the fair value that a market participant would be willing to
exchange such assets at the balance sheet date.
The value of these assets has been adjusted to reflect an expected increase in
credit spread and consequential increase the credit risk deduction
for defaults.
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. Given the ongoing Government
consultation 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 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:
Long income real estate Credit spread Residential ground rent downgraded to BBB
net increase/(decrease) in fair value (£m)
+100bps
2023 (158) (11)
2022 (78) N/A
(vi) 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)
2023 (78)
2022 (72)
(vii) 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.
(viii) Investment contract liabilities
Investment contracts are valued using an internal model and determined on a
policy-by-policy basis using a prospective valuation of future retirement
income benefit and expense cash flows.
Principal assumptions underlying the calculation of investment contract
liabilities
Valuation discount rates
The valuation model discounts the expected future cash flows using a discount
rate derived from the assets hypothecated to back the liabilities. The
discount rate used for the fixed term annuity product treated as investment
business is based on a curve where 6.88% is the one-year rate and 5.47% is the
five-year rate (31 December 2022: 5.67%).
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.
21. Deferred tax assets
Year ended Year ended
31 December 2023
31 December 2022
£m
(restated)
£m
Transitional tax relief on adoption of IFRS 17 307 341
Tax losses and other 98 108
Transitional tax on adoption of IFRS 1 1
Land and buildings - (1)
Total 406 449
The impact on deferred tax from implementation of IFRS 17 of £356m is
represented by creation of a £341m deferred tax asset in respect of
transitional tax relief, and elimination of a £15m deferred tax liability in
respect of purchased value of in force. The transitional tax relief will be
recognised over a period of ten years commencing 1 January 2023.
The movement in the net deferred tax balance was as follows:
Year ended Year ended
31 December 2023
31 December 2022
£m
(restated)
£m
Net balance at 1 January 449 304
Recognised in profit or loss (43) 141
Recognised in equity - 4
Net balance at 31 December 406 449
The group has unrecognised deferred tax assets of £6m (2022: £6m).
The net balance of deferred tax at 1 January 2022 has been restated by £310m
due to the adoption of IFRS 17 Insurance Contracts. On 13 November 2022, the
tax authorities agreed that the tax impact from the restatement of prior year
profits recognised as a result of the IFRS 17 transitional adjustment should
be spread over a period of ten years. The deferred tax asset created on
transition to IFRS 17 represents tax previously paid on profits under IFRS 4.
Deferred tax assets have been recognised because it is probable that these
assets will be recovered. Deferred tax assets principally comprise of the
transitional tax asset of £307m recognised on the gross IFRS 17 transitional
adjustment of £1,228m and the deferred tax asset of £91m recognised on the
balance of tax losses carried forward of £364m, which can used to offset
taxable future profits of group entities.
22. Cash and cash equivalents
2023 2022
£m
£m
Cash available on demand 546 482
Units in liquidity funds 1,141 1,174
Cash and cash equivalents in the Consolidated statement of cash flows 1,687 1,656
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 (see note 19). Liquidity funds do however meet the definition of
cash equivalents for the purposes of disclosure in the Consolidated statement
of cash flows.
23. 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
ordinary shares
£m
£m
At 1 January 2023 1,038,702,932 104 95
At 31 December 2023 1,038,702,932 104 95
At 1 January 2022 1,038,537,044 104 95
In respect of employee share schemes 165,888 - -
At 31 December 2022 1,038,702,932 104 95
The Company does not have a limited amount of authorised share capital.
24. Other reserves
2023 2022
£m
£m
Merger reserve 597 597
Reorganisation reserve 348 348
Revaluation reserve 3 3
Share held by trusts (5) (10)
Total 943 938
The merger reserve is the result of a placing of 94,012,782 ordinary shares in
2019 and the acquisition of 100% of the equity of Partnership Assurance Group
plc in 2016. The placing was achieved by the Company acquiring 100% of the
equity of a limited company for consideration of the new ordinary shares
issued. Accordingly, merger relief under Section 612 of the Companies Act 2006
applies, and share premium has not been recognised in respect of this issue of
shares. The merger reserve recognised represents the premium over the nominal
value of the shares issued.
25. Tier 1 notes
Year ended Year ended
31 December 2023
31 December 2022
£m
£m
At 1 January 322 322
At 31 December 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 year, interest of £16m was paid to holders of the Tier 1 notes
(2022: £17m). 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
directly in shareholders' equity.
26. Insurance contracts and related reinsurance
31 December 2023 31 December 2022
£m
(restated)
£m
Gross insurance liabilities 24,131 19,647
Reinsurance contract assets (1,143) (776)
Reinsurance contract liabilities 125 121
Net reinsurance contracts (1,018) (655)
Net insurance liabilities 23,113 18,992
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.
Year ended 31 December 2023 Year ended 31 December 2022 (restated)
Gross Net Reinsurance Net Gross Net Reinsurance Net
£m £m £m £m £m £m
Best estimate 17,030 76 17,106 20,574 257 20,831
Risk adjustment 674 (399) 275 1,023 (603) 420
CSM 1,943 (332) 1,611 1,489 (205) 1,284
Net opening balance 19,647 (655) 18,992 23,086 (551) 22,535
CSM recognised for services provided (156) 27 (129) (120) 25 (95)
CSM accretion 79 (12) 67 41 (6) 35
Other movements in the CSM 583 (173) 410 533 (146) 387
Release from risk adjustment (11) 4 (7) (13) 5 (8)
Other movements in risk adjustment 261 (197) 64 (336) 199 (137)
Movements in best estimate 3,728 (12) 3,716 (3,544) (181) (3,725)
Net closing balance 24,131 (1,018) 23,113 19,647 (655) 18,992
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 closing balance 24,131 (1,018) 23,113 19,647 (655) 18,992
The detailed movements analysis of insurance liabilities and reinsurance
assets and liabilities are presented in note 26 (c) and (d) respectively. The
movements include the CSM split between contracts under the Fair Value
Approach ("FVA") and the General Measurement Model ("GMM") including those
measured under the Fully Retrospective Approach ("FRA") at transition to IFRS
17.
(a) Terms and conditions of insurance and reinsurance contracts
The Group's long-term insurance contracts, written by the Group's life
companies JRL and PLACL, 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 as
follows:
· GIfL was reinsured using longevity swap reinsurance at 90% during 2023.
· Care new business was not reinsured in 2023.
· DB was reinsured using longevity swap reinsurance at c.90% and a small
proportion was reinsured using quota share reinsurance in 2023.
In-force business is reinsured under longevity swap and quota share treaties.
The reinsurance on JRL GIfL in-force business is as described for new
business, noting the following differences in proportion reinsured:
· Business written between 1 January 2016 and 31 December 2019 is
reinsured at 100% following a change implemented in 2020 for in-force
policies, which increased the reinsurance coverage from 75% to 100%.
· Business written prior to March 2015 is not reinsured; business written
from March to December 2015 is reinsured at 45%.
The reinsurance on JRL DB written:
· Between 1 January 2016 and 30 June 2019 is reinsured at 100% following
a change implemented in 2019 for in-force policies, which increased the
reinsurance coverage from 55% for underwritten schemes and 75% for
non-underwritten schemes.
· Between 1 July 2019 and 31 December 2022 is reinsured at 90% for
non-underwritten schemes and 75% for underwritten schemes, and a small
proportion was reinsured using quota share reinsurance in 2022 and 2020.
The reinsurance arrangements above are subject to collateral arrangements in
order to mitigate the credit risk created by such contracts. Collateral
arrangements for both quota share and longevity swap treaties are described in
note 34(c)(iii).
(b) Measurement of insurance contracts
The Group's long-term insurance contracts include retirement annuities, namely
Defined Benefit and Guaranteed Income for Life products, and annuities to fund
care fees (immediate needs and deferred).
The value of insurance contracts in the financial statements comprises the
following components:
· estimates of future cash flows;
· an adjustment to reflect the time value of money and the financial
risks related to future cash flows, to the extent that the financial risks are
not included in the estimates of future cash flows;
· a risk adjustment for non-financial risk; and
· a contractual service margin.
(i) Estimates of future cash flows
In estimating future cash flows, the Group incorporates, in an unbiased way,
all reasonable and supportable information that is available without undue
cost or effort at the reporting date. This information includes both internal
and external historical data about claims and other experience, updated to
reflect current expectations of future events. When estimating future cash
flows, the Group takes into account current expectations of future events that
might affect those cash flows.
Cash flows within the boundary of a contract relate directly to the fulfilment
of the contract, including those for which the Group has discretion over the
amount or timing. These include payments to (or on behalf of) policyholders,
insurance acquisition cash flows and other costs, including investment
expenses, that are incurred when fulfilling contracts. The valuation of future
policyholder payments is by its nature inherently uncertain, and is based on
recognised mortality assumptions as described below.
Insurance acquisition cash flows, and other costs that are incurred in
fulfilling contracts, comprise both direct costs and an allocation of fixed
and variable overheads. These may include costs incurred in providing the
required level of benefits; policy administration and maintenance costs;
transaction-based taxes and levies directly associated with the insurance
contract; payments by the insurer in a fiduciary capacity to meet tax
obligations incurred by the policyholder, and related receipts; costs the
entity will incur performing investment activities to the extent the entity
performs that activity to enhance benefits from insurance coverage for
policyholders; and an allocation of fixed and variable overheads.
Cash flows are attributed to acquisition activities, other fulfilment
activities and other activities using activity-based costing techniques. Cash
flows attributable to acquisition and other fulfilment activities are
allocated to groups of contracts using methods that are systematic and
rational and are consistently applied to all costs that have similar
characteristics. Other costs are recognised in profit or loss as they are
incurred.
(ii) Mortality assumptions
Mortality assumptions have been set by reference to appropriate standard
mortality tables. These tables have been adjusted to reflect the future
mortality experience of the policyholders, taking into account the medical and
lifestyle evidence collected during the underwriting process, premium size,
gender and the Group's assessment of how this experience will develop in the
future. The assessment takes into consideration relevant industry and
population studies, published research materials, and management's own
industry experience.
The expected impact on future mortality rates over the short and long term has
been considered. Mortality experience has been volatile and at times
significantly higher in aggregate than expected since March 2020 due to the
COVID-19 pandemic. There is some evidence that the outlook is stabilising with
insights emerging suggesting that the pandemic will have enduring direct and
indirect influences on future mortality experience.
At 31 December 2022, we considered it appropriate to make an explicit
allowance in the Group's assumptions for the impact of the pandemic on future
mortality experience. From 31 December 2023, the explicit allowance was
revised to reflect the change in our estimates in light of the emerging
evidence of the future impacts of COVID infections and continuing and likely
long-lasting disruption to healthcare services. This explicit allowance
involved a mortality uplift of +6.1% over 2024-2026, +4.0% over 2027-36 and
+2.2% over 2037-53, leading to higher assumed rates of mortality improvements
over the short to medium term relative to our view prior to the pandemic.
Further, it was considered appropriate to make adjustments to the Group's
assumptions on current mortality rates as the Office for National Statistics
released revised population estimates based on the 2021 Census that suggested
that historical mortality rates for older lives had been understated. The
mortality uplift applies uniform multipliers to mortality ages across all
ages.
The Group will continue to follow closely the actual impact of COVID-19 on
mortality and separately consider 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.
The standard tables which underpin the mortality assumptions are summarised in
the table below.
Product group Entity 2023 2022
Individually underwritten Guaranteed JRL Modified E and W Population mortality, with CMI 2022 model mortality Modified E and W Population mortality, with CMI 2021 model mortality
Income for Life Solutions improvements improvements
Individually underwritten Guaranteed PLACL Modified E and W Population mortality, with CMI 2022 model mortality Modified E and W Population mortality, with CMI 2021 model mortality
Income for Life Solutions improvements improvements
Defined Benefit JRL Modified E and W Population mortality, with CMI 2022 model mortality Modified E and W Population mortality, with CMI 2021 model mortality
improvements. Medically underwritten unchanged from 2022 improvements. Medically underwritten unchanged from 2021
Defined Benefit PLACL Modified E and W Population mortality, with CMI 2022 model mortality Modified E and W Population mortality, with CMI 2021 model mortality
improvements improvements
Care Plans and other annuity products PLACL Modified PCMA/PCFA or modified E and W Population mortality with CMI 2022 Modified PCMA/PCFA or modified E and W Population mortality with CMI 2019
model mortality improvements model mortality improvements
Protection PLACL Unchanged from 2022 TM/TF00 Select
The long-term improvement rates in the CMI 2022 model are 1.5% for males and
1.25% for females (2022: 1.5% for males and 1.25% for females). The period
smoothing parameter in the modified CMI 2022 model has been set to 7.0 (2022:
7.0). The addition to initial rates ("A") parameter in the model varies
between 0% and 0.25% depending on product (2022: between 0% and 0.25%
depending on product). A 0% weighting has been given to 2022 CMI mortality
experience (2022: n/a for CMI 2021 model). All other CMI model parameters are
the defaults (2022: other parameters set to defaults).
(iii) 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 20 with an additional
reduction to the future house price growth rate of 50bps (2022: 50bps) allowed
for. The yields on residential ground rents are derived using the assumptions
described in note 20(d)(v) and the adjustments set out in note 1.7 in light of
the uncertainty introduced by the announcement of the government consultation
regarding these investments.
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 58bps for JRL (2022: 58bps) and 69bps for
PLACL (2022: 69bps).
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.
Separate weighted average discount curves are calculated for each new business
product line. The point of sale discount curves are weighted by the value of
projected claims payments.
At each valuation date, the estimate of the present value of future liability
cash flows and the risk adjustment for non-financial risks are discounted
based on the yields from a reference portfolio consisting of the actual asset
portfolio backing the net of reinsurance best estimate liabilities and risk
adjustment. The reference portfolio is adjusted in respect of new contracts
incepting in the period to allow for a period of transition from the actual
asset holdings to the target portfolio where necessary. Typically, this period
of transition can be up to six months but is dependent on the volume of new
business transactions completed.
The target asset portfolio seeks to select the appropriate mix of assets to
match the underlying net insurance contract liabilities. The target asset
portfolio consists of listed bonds, unlisted illiquid investments and loans
secured by residential mortgages.
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
31 December together with the weighted average discount rates applied to the
new business cohorts for the principal insurance product lines. The discount
rates used for the gross insurance and reinsurance contracts at the year end
date are consistent, having been based on a single investment portfolio for
each legal entity. The discount rates used for locking-in the CSM for the new
business cohort are based on the interest rates applicable on the first day of
the reinsurance treaty notice periods for reinsurance and the dates of
recognition for underlying business. For 2022 and 2023 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 rate - insurance contracts JRL
2023 2022 (restated)
Valuation rate at New business cohort Valuation rate at New business cohort
31 December
(Locked-in rates)
31 December
(Locked-in rates)
All products GIfL DB All products GIfL DB
1 year 6.9% 7.1% 7.0% 6.6% 5.4% 5.6%
5 year 5.5% 6.5% 6.3% 6.3% 4.9% 5.3%
10 year 5.4% 6.2% 6.0% 5.9% 4.5% 4.9%
20 year 5.5% 6.0% 5.9% 5.8% 4.5% 4.8%
30 year 5.5% 5.9% 5.6% 5.6% 4.5% 4.7%
Discount rates have been disclosed in aggregate and have not been split
according to their profitability groupings.
Discount rate - insurance contracts PLACL
2023 2022 (restated)
Valuation rate at Valuation rate at
31 December 31 December
GIfL/DB GIfL/DB
1 year 6.8% 6.6%
5 year 5.5% 6.3%
10 year 5.4% 5.9%
20 year 5.5% 5.7%
30 year 5.5% 5.5%
Care new business forms an immaterial part of the Group's insurance contract
liabilities and therefore not shown in the table above.
(iv) Inflation
Assumptions for annuity escalation are required for RPI, CPI and LPI
index-linked liabilities, the majority of which are within the Defined Benefit
business. The inflation curve assumed in each case is that which is implied by
market swap rates, using a mark to model basis for LPI inflation, taking into
account any escalation caps and/or floors applicable. This methodology is
unchanged compared to the previous period.
For the purposes of calculating movements in the CSM relating to each group of
contracts, for JRL separate weighted average inflation curves for each index
are calculated and locked-in for each annual cohort. The inflation curves from
each day are weighted by the business volumes completed on that day to which
that inflation variant applies.
(v) Future expenses
Assumptions for future costs of maintaining policies are set with reference to
analysis of the existing expense base and actual fees payable under the
contracts for those services outsourced. The assumptions cover both the direct
and indirect costs of maintaining policies. The JRL GIfL maintenance expense
assumption used was £25.37 per plan (2022: £23.98), and the JRL DB
maintenance assumption used was £68.49 per scheme member (2022: £62.73). The
PLACL GIfL maintenance expense assumption used was £28.85 per plan (2022:
£28.42), and the PLACL DB maintenance assumption used was £203.50 per scheme
member (2022: £207.49).
Assumptions for future policy expense levels are determined from the Group's
recent expense analyses and incorporate an annual inflation rate allowance of
3.6% (2022: 3.90%) derived from the expected retail price and consumer price
indices implied by inflation swap rates and an additional allowance for
earnings inflation. The annual inflation rate allowance is regarded as a
financial assumption and therefore all changes in expense inflation rates are
recognised in the profit or loss account.
(vi) 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 by 20% up to the 70th percentile and amounts
to £0.3bn (2022 £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 (2022: c£0.1bn).
The Group determines the risk adjustment for non-financial risk using a "value
at risk" technique. The primary non-financial risks allowed for are longevity
and expenses, which is consistent with the primary life underwriting risks
allowed for in Solvency II reporting. On an annual basis, the Group uses the
probability distributions of the future net of reinsurance cash flows from
insurance contracts on a one-year time horizon as used within JRL's internal
model for Solvency II reporting for the aforementioned non-financial risks,
which are then converted to ultimate horizon distributions in order to
determine stress parameters at the target percentile. The risk adjustment in
PLACL uses the same risk adjustment stress factors as determined for JRL as
these represent the compensation the Group requires in light of there being no
standalone PLACL internal model for Solvency II reporting. Financial risks are
reflected as adjustments to discount rates (by comparison, both financial and
non-financial risks are included in the Solvency II SCR).
The risk adjustment for non-financial risk is then calculated as the excess of
the value at risk at the target confidence level percentile over the expected
present value of the future cash flows. The Group targets an ultimate
confidence interval at the 70th percentile. At the point of calibration, this
calibration represents an approximately one-in-ten year stress on a one-year
basis. The calibration is carried out on an annual basis ahead of the
financial reporting year end, therefore the actual confidence interval as at
the valuation date may differ slightly, for example, due to economic movements
in the intervening period.
The Group's IFRS risk adjustment for non-financial risk is considered by
management to provide an economic view of the profitability of new business
and is therefore used for pricing purposes as well as representing the basis
used within the new business profits KPI.
The confidence level is targeted on a net of reinsurance basis as this
reflects how insurance risk is managed by the Group. The reinsurance risk
adjustment represents the amount of risk being transferred by the holder of
the reinsurance contract to the issuer of that contract. Reinsurance contracts
held by the Group transfer longevity risk proportional to the underlying
insurance contract. Consequently, the same risk adjustment stresses for this
non-financial risk are applied to both gross and reinsurance contracts to
determine the respective risk adjustment for each. Expense and operational
risks are not transferred to reinsurers as part of the reinsurance contract
held by the Group and hence there are no stresses applied for these in the
reinsurance risk adjustment.
Allowance is made for diversification between risks within legal entities, but
not between the different legal entities within the Group.
(c) Movements analyses - insurance contracts
(i) Insurance contracts analysis of remaining coverage
Year ended 31 December 2023 Liability for Incurred claims Total
remaining coverage
£m
£m
£m
Opening insurance contract liabilities balance (restated) (19,720) 73 (19,647)
Changes in the statement of comprehensive income
Insurance revenue 1,555 - 1,555
Insurance service expenses
- Incurred claims and directly attributable expenses - (1,377) (1,377)
- Amortisation of insurance acquisition cash flows (19) - (19)
(19) (1,377) (1,396)
Insurance service result 1,536 (1,377) 159
Investment component 233 (233) -
Net finance expenses from insurance contracts (2,006) - (2,006)
Exchange rate movements 26 - 26
Total changes in the statement of comprehensive income (211) (1,610) (1,821)
Cash flows
Premiums received (4,494) - (4,494)
Claims and other insurance service expenses paid, - 1,648 1,648
including investment components
Insurance acquisition cash flows 183 - 183
Total cash flows (4,311) 1,648 (2,663)
Closing insurance contract liabilities balance (24,242) 111 (24,131)
Year ended 31 December 2022 (restated) Liability for Incurred claims Total
remaining coverage
£m
£m
£m
Opening insurance contract liabilities balance (23,154) 68 (23,086)
Changes in the statement of comprehensive income
Insurance revenue 1,325 - 1,325
Insurance service expenses
- Incurred claims and directly attributable expenses - (1,188) (1,188)
- Amortisation of insurance acquisition cash flows (8) - (8)
(8) (1,188) (1,196)
Insurance service result 1,317 (1,188) 129
Investment component 292 (292) -
Net finance expenses from insurance contracts 4,823 - 4,823
Exchange rate movements (8) - (8)
Total changes in the statement of comprehensive income 6,424 (1,480) 4,944
Cash flows
Premiums received (3,114) - (3,114)
Claims and other insurance service expenses paid, - 1,485 1,485
including investment components
Insurance acquisition cash flows 124 - 124
Total cash flows (2,990) 1,485 (1,505)
Closing insurance contract liabilities balance (19,720) 73 (19,647)
Liabilities for remaining coverage represent the present value of cash flows
due for payment in future years adjusted for non-financial risk, together with
the value of unamortised CSM. This balance includes guarantee period payments
due in future years (together with related CSM) regardless of whether or not
the guarantees have crystallised.
Incurred claims represent the value of annuity payments due in the current
year. Payments of annuities in advance, notably where due dates fall on
non-working days, are treated as prepaid incurred claims.
There were no material loss components during the year.
Insurance service result
Insurance revenue and insurance service expenses are explained in more detail
in notes 2 and 3 respectively.
Investment component
Investment component represents the value of payments due to annuitants in the
year that fall within guarantee periods. These payments are made to annuitants
or their beneficiaries regardless of any insurance event and are excluded from
insurance revenue and insurance service expenses.
Transfer payments and tax-free cash paid to DB scheme members at retirement
are treated by the Group as non-insurance cash flows, not relating to
any insurance event, and are therefore also included as investment component
and also excluded from insurance revenue and insurance service expenses.
This is further explained in accounting policy note 1.5.9.1.
Net finance expenses from insurance contracts
Net finance expenses are explained in note 6.
Exchange rate movements
Exchange rate movements of £26m in 2023 (2022: £8m) reflect the impact of
change in converting the reserves of Just Retirement South Africa into
sterling at year end exchange rates.
Cash flows
Premiums received and claims paid represent the cash flows received from, and
paid to, policyholders in the year respectively. Insurance acquisition cash
flows represent the costs of acquiring new business incurred in the year.
(ii) Insurance contracts analysed by measurement component
Year ended 31 December 2023 Estimate of present value of future cash flows Risk adjustment for non-financial risk Contractual service margin Total
£m
£m
£m
Contracts under FRA and GMM Contracts under FVA
£m
£m
Opening insurance contract liabilities balance (restated) (17,030) (674) (589) (1,354) (19,647)
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service provided - - 47 109 156
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) (53) (150) -
Insurance service result 826 (240) (386) (41) 159
Net finance expenses from insurance contracts (1,917) (10) (37) (42) (2,006)
Exchange rate movement 26 - - - 26
Total changes in the statement of comprehensive income (1,065) (250) (423) (83) (1,821)
Cash flows
Premiums received (4,494) - - - (4,494)
Claims and other insurance service expenses paid, 1,648 - - - 1,648
including investment components
Insurance acquisition cash flows 183 - - - 183
Total cash flows (2,663) - - - (2,663)
Closing insurance contract liabilities balance (20,758) (924) (1,012) (1,437) (24,131)
Year ended 31 December 2022 (restated) Estimate of present value of future cash flows £m Risk adjustment for non-financial risk Contractual service margin Total
£m
£m
Contracts under FRA and GMM Contracts under FVA
£m
£m
Opening insurance contract liabilities balance (restated) (20,574) (1,023) (262) (1,227) (23,086)
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service provided - - 18 102 120
Change in risk adjustment for non-financial risk for risk expired - 13 - - 13
Experience adjustments (4) - - - (4)
Changes that relate to future service
Contracts initially recognised in the year 469 (149) (320) - -
Changes in estimates that adjust the CSM 172 41 (16) (197) -
Insurance service result 637 (95) (318) (95) 129
Net finance income/(expenses) from insurance contracts 4,420 444 (9) (32) 4,823
Exchange rate movement (8) - - - (8)
Total changes in the statement of comprehensive income 5,049 349 (327) (127) 4,944
Cash flows
Premiums received (3,114) - - - (3,114)
Claims and other insurance service expenses paid, including investment 1,485 - - - 1,485
components
Insurance acquisition cash flows 124 - - - 124
Total cash flows (1,505) - - - (1,505)
Closing insurance contract liabilities balance (17,030) (674) (589) (1,354) (19,647)
Changes that relate to current service
CSM recognised in the period is computed based on the provision of benefits
based on the policy as outlined in note 1.5.6 and note 2 Insurance revenue.
Change in risk adjustment for non-financial risk for risk expired is also
explained in note 2. 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 experience
adjustment of £(8)m in 2023 (2022: £(4)m) should be viewed in the context of
£1,648m (2022: £1,485m) of claims and expenses paid, and reflected
investment management expenses in excess of amounts held within the opening
reserve as the Group pursued a strategy of investing in higher yielding
illiquid assets; mortality experience was favourable.
Changes that relate to future service
Contracts initially recognised in the year
The value of contracts initially recognised in the year is presented in note
26(e).
Changes in estimates that adjust the CSM
Changes in estimates that adjust the CSM represent changes in projected future
years cash flows that arise from experience in the period and non-economic
assumption changes, measured at locked-in discount rates.
In 2023, the £292m release from estimate of present value of future cash
flows mainly reflected the improvement to longevity assumptions and was offset
by a £89m increase in the risk adjustment reserve following the recalibration
of risk stress parameters at the year end. The 2022 results also included an
improvement to longevity assumptions which was the main driver behind the
increase in estimate of present value of future cash flows of £172m; the
recalibration of the risk adjustment lead to a £41m release at locked in
discount rates.
Net finance (expenses)/income from insurance contracts
Total net finance expenses from insurance contracts of £2,006m in 2023
compared with net finance income of £4,823m in 2022, with the year on year
change driven by the decrease in yields experienced in 2023 which followed the
substantial increase in 2022. The net finance expense represents a combination
of unwind of discount rates and impact of changes in discount rates for the
Estimate of present value of future cash flows and Risk adjustment, and unwind
of discount rates alone for the CSM, which is measured using locked-in
discount rates.
The £79m of accretion of CSM (discount unwind of which £37m was in FRA/GMM
cohorts and £42m in FVA cohorts) in 2023 compared with £41m in 2022, with
the increase reflecting a combination of higher discount rates applicable to
the 2023 cohort and an increase on prior years due to the upwards shape of the
yield curves for earlier years.
Cash flow items are described in the previous section.
(d) Movements analysis - reinsurance contracts
(i) Reinsurance contracts analysis of remaining coverage
Year ended 31 December 2023 Remaining coverage Incurred claims Total
£m
£m
£m
Opening reinsurance contract asset (restated) 769 7 776
Opening reinsurance contract liability (restated) (114) (7) (121)
Net opening balance 655 - 655
Changes in the statement of comprehensive income
Reinsurance expenses (857) - (857)
Claims recovered - 816 816
Net expenses from reinsurance contracts (857) 816 (41)
Net finance expenses from reinsurance contracts 108 - 108
Total changes in the statement of comprehensive income (749) 816 67
Cash flows
Premiums paid 1,196 - 1,196
Claims received - (900) (900)
Total cash flows 1,196 (900) 296
Closing reinsurance contract asset 1,136 7 1,143
Closing reinsurance contract liability (34) (91) (125)
Net closing balance 1,102 (84) 1,018
Year ended 31 December 2022 (restated) Remaining coverage Incurred claims Total
£m
£m
£m
Opening reinsurance contract asset 700 16 716
Opening reinsurance contract liability (159) (6) (165)
Net opening balance 541 10 551
Changes in the statement of comprehensive income
Reinsurance expenses (599) - (599)
Claims recovered - 569 569
Net expenses from reinsurance contracts (599) 569 (30)
Net finance expenses from reinsurance contracts (91) - (91)
Total changes in the statement of comprehensive income (690) 569 (121)
Cash flows
Premiums paid 804 - 804
Claims received - (579) (579)
Total cash flows 804 (579) 225
Closing reinsurance contract asset 769 7 776
Closing reinsurance contract liability (114) (7) (121)
Net closing balance 655 - 655
Liabilities for remaining coverage represent the present value of reinsurance
cash flows due for payment in future years adjusted for non-financial risk,
together with the value of unamortised CSM.
Incurred claims represent the value of net reinsurance settlements on
longevity swaps, facultative reinsurance, and other reinsurance arrangements
during the period.
As noted in note 1.5.3, reinsurance contracts in each legal entity are
allocated to either a portfolio of treaties transferring longevity and
inflation risks, or a portfolio transferring longevity risk alone. Portfolios
may be in either net asset or liability positions including CSM.
Within the table above, the value of fixed legs of longevity swaps are
presented as Reinsurance expenses and Premiums paid, and the value of floated
legs of longevity swaps are presented as Claims recovered and Claims received.
The net expenses from reinsurance contracts in 2023 of £41m (2022: £30m) are
explained in note 4.
Premiums paid of £1,196m in 2023 mainly represented new quota share premiums
of £397m and current year fixed leg values on longevity swaps of £761m
(2022: £246m and £525m respectively).
(ii) Reinsurance contracts analysed by measurement component
Year ended 31 December 2023 Estimate of present value of future cash flows Risk adjustment for non-financial risk Contractual service margin Total
£m
£m
£m
Contracts under FRA and GMM Contracts under FVA
£m
£m
Opening reinsurance contract asset (restated) 589 80 32 75 776
Opening reinsurance contract liability (restated) (665) 319 88 137 (121)
Net opening balance (76) 399 120 212 655
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service received - - (7) (20) (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 63 73 -
Net (expenses)/income from reinsurance contracts (378) 191 93 53 (41)
Net finance income from reinsurance contracts 94 2 6 6 108
Total changes in the statement of comprehensive income (284) 193 99 59 67
Cash flows
Premiums paid 1,196 - - - 1,196
Claims received (900) - - - (900)
Total cash flows 296 - - - 296
Closing reinsurance contract asset 937 106 32 68 1,143
Closing reinsurance contract liability (1,001) 486 187 203 (125)
Net closing balance (64) 592 219 271 1,018
Year ended 31 December 2022 (restated) Estimate of present value of future cash flows £m Risk adjustment for non-financial risk Contractual service margin Total
£m
£m
Contracts under FRA and GMM Contracts under FVA
£m
£m
Opening reinsurance contract asset 546 116 - 54 716
Opening reinsurance contract liability (803) 487 32 119 (165)
Net opening balance (257) 603 32 173 551
Changes in the statement of comprehensive income
Changes that relate to current service
CSM recognised for service received - - (3) (22) (25)
Change in risk adjustment for non-financial risk for risk expired - (5) - - (5)
Changes that relate to future service
Contracts initially recognised in the period (165) 115 50 - -
Change in estimates that adjust the CSM (61) (35) 40 56 -
Net expenses from reinsurance contracts (226) 75 87 34 (30)
Net finance expenses from reinsurance contracts 182 (279) 1 5 (91)
Total changes in the statement of comprehensive income (44) (204) 88 39 (121)
Cash flows
Premiums paid 804 - - - 804
Claims received (579) - - - (579)
Total cash flows 225 - - - 225
Closing reinsurance contract asset 589 80 32 75 776
Closing reinsurance contract liability (665) 319 88 137 (121)
Net closing balance (76) 399 120 212 655
The changes that relate to current service in 2023 of £41m (2022: £30m) are
explained in note 4.
The value of contracts initially recognised in the year are explained in note
26(e).
The change in estimates that adjust the CSM recognised in the estimate of
present value of future cash flows and risk adjustment in 2023 of £(200)m and
£64m respectively represent the reinsurers' share of the equivalent gross
changes of £292m and £(89)m respectively explained in note 26(cii).
Net finance income from reinsurance contracts of £108m (2022: £91m expenses)
reflect the impact of changes in discount rates and unwinding of discounting.
Accretion of the reinsurance CSM was £12m in 2023 compared with £6m in 2022,
with the increase reflecting an additional year's cohort and the upwards shape
of the yield curve applying to the in-force business, as noted earlier for
gross business.
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:
2023 2022
£m
(restated)
£m
Insurance contracts issued
Insurance acquisition cash flows (183) (124)
Estimate of present value of future cash outflows (3,580) (2,797)
Estimate of present value of future cash inflows 4,305 3,390
Estimates of net present value of cash flows 542 469
Risk adjustment (162) (149)
Contractual service margin 380 320
The amount recognised in the CSM represents the value of new business acquired
in the period valued based on point of sale economic and non-economic
assumptions.
Insurance acquisition cash flows are deducted from CSM at point of sale and
recognised in Insurance revenue and Insurance services expenses over the life
of contracts. The total of £183m in 2023 increased compared with the prior
year amount of £124m mainly reflecting growth in business volumes combined
with higher investment acquisition costs as the Group has increased its
investment in illiquid assets.
The estimate of present value of future cash outflows of £3,580m (2022:
£2,797m) represents the present value of claims and maintenance expenses
quantified at the discount rates applicable at date of inception of contracts.
The expense loading is determined based on incremental marginal costs
including overheads that are attributable to the new contracts signed in the
current period and does not include costs which have been previously allocated
to existing contracts in prior years. The increase reflects the increase in
business sold in the year, with premiums receivable increasing from £3,390m
in 2022 to £4,305m in 2023.
2023 2022 (restated)
Originated with Originated with Total Originated with Total
a positive CSM
a negative CSM
£m
a negative CSM
£m
£m
£m £m
Reinsurance contracts ceded
Estimate of present value of future net cash outflows (19) (149) (168) (165) (165)
Risk adjustment 31 100 131 115 115
Contractual service margin 12 (49) (37) (50) (50)
A negative reinsurance CSM reflect costs that will be incurred by the Group on
entering into the reinsurance arrangement, whereas a positive CSM for
reinsurance reflects when a gain is made on entering into a reinsurance
contract. Under IFRS 17, reinsurance CSM can be either positive or negative at
initial recognition, and then amortised over the life of the underlying
contracts based on coverage units.
During 2023 the Group broadened its use of reinsurers for new DB business
which resulted in recognition of contracts with positive CSM.
(f) Contractual service margin run-off
The following represents the current view of the run-off of the CSM.
31 December 2023 CSM release before the impact of accretion After accretion
Insurance Net reinsurance Net Net after
contract liability
£m
£m
accretion
£m
£m
Within 1 year 172 (31) 141 61
1-2 years 170 (30) 140 67
2-3 years 168 (30) 138 68
3-4 years 167 (30) 137 72
4-5 years 164 (30) 134 74
5-10 years 777 (149) 628 363
10-20 years 1,247 (266) 981 614
20-30 years 724 (174) 550 376
Over 30 years 437 (114) 323 264
Total 4,026 (854) 3,172 1,959
31 December 2022 (restated) CSM release before the impact of accretion After accretion
Insurance Net reinsurance Net Net after accretion
contract liability
£m
£m
£m
£m
Within 1 year 133 (21) 112 55
1-2 years 131 (21) 110 58
2-3 years 129 (20) 109 59
3-4 years 127 (20) 107 61
4-5 years 125 (20) 105 64
5-10 years 584 (95) 489 308
10-20 years 928 (166) 762 523
20-30 years 515 (105) 410 304
Over 30 years 274 (62) 212 179
Total 2,946 (530) 2,416 1,611
(g) Estimated timing of net cash outflows from insurance contract liabilities
The following table shows the insurance contract balances analysed by
duration. The total balances are split by duration of payments in proportion
to the policy cash flows estimated to arise during the year, measured as the
expected undiscounted net cash flows.
31 December 2023 Insurance Reinsurance Reinsurance Net
contract liability
contract liabilities
£m
£m contract assets
£m
£m
Less than 1 year 1,731 (73) 30 1,688
1-2 years 1,715 (75) 31 1,671
2-3 years 1,697 (76) 33 1,654
3-4 years 1,679 (76) 34 1,637
4-5 years 1,662 (76) 35 1,621
5-10 years 7,971 (378) 187 7,780
10-20 years 13,317 (659) 324 12,982
20-30 years 8,325 (408) 86 8,003
Over 30 years 5,802 (253) (130) 5,419
Total value (undiscounted) 43,899 (2,074) 630 42,455
Carrying value (discounted) 21,789 (1,039) 426 21,176
31 December 2022 (restated) Insurance Reinsurance Reinsurance Net
contract liability
contract assets
contract liabilities
£m
£m
£m £m
Less than 1 year 1,508 (55) 28 1,481
1-2 years 1,492 (56) 30 1,466
2-3 years 1,473 (56) 30 1,447
3-4 years 1,450 (55) 31 1,426
4-5 years 1,430 (55) 32 1,407
5-10 years 6,800 (265) 157 6,692
10-20 years 11,012 (427) 220 10,805
20-30 years 6,237 (198) 42 6,081
Over 30 years 3,556 (47) (32) 3,477
Total value (undiscounted) 34,958 (1,214) 538 34,282
Carrying value (discounted) 17,704 (669) 346 17,381
The tables above present the timing and amount of expected future cash flows
excluding both current insurance related accruals and prepayments, and the CSM
release as presented in Note 26(f). Contractual amounts payable on demand
include amounts that DB scheme members may transfer out in the deferred phase
prior to retirement of £2,868m at 31 December 2023 (31 December 2022:
£1,467m).
(h) Sensitivity analysis
The Group has estimated the impact on profit before tax for the year 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 20.
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.
Sensitivity factor Description of sensitivity factor applied
Interest rate and The impact of a change in the market interest rates by +/- 1% (e.g. if a
investment return current interest rate is 5%, the impact of an immediate change to 4% and 6%
respectively). The test consistently allows for similar changes to both assets
and liabilities
Expenses The impact of an increase in maintenance expenses by 10%
Base mortality rates The impact of a decrease in base table mortality rates by 5% applied to both
Retirement Income liabilities and loans secured by residential mortgages
Mortality improvement rates The impact of a level increase in mortality improvement rates of 10% for both
Retirement Income liabilities and LTMs. This sensitivity applies a
multiplicative adjustment to the improvement rates.
Immediate property price fall The impact of an immediate decrease in the value of properties on loans
secured by residential mortgages by 10%
Future property price growth The impact of a reduction in future property price growth on loans secured by
residential mortgages by 0.5%
Future property price volatility The impact of an increase in future property price volatility on loans secured
by residential mortgages by 1%
Voluntary redemptions The impact of an increase in voluntary redemption rates on loans secured by
residential mortgages by 10%
Credit defaults The impact of an increase in the credit default assumption of 10bps
Impact of sensitivities
31 December 2023 Insurance Reinsurance contracts Net insurance contract liabilities Valuation Net impact on profit and loss
contract liabilities
(net) held
of assets
£m
£m
£m £m £m
Interest rate and investments + 1% Fulfilment cash flows 1,970 (77) 1,893 - -
Contractual service margin - - - - -
Profit/(loss) before tax 1,970 (77) 1,893 (1,933) (40)
Interest rate and investments -1% Fulfilment cash flows (2,366) 100 (2,266) - -
Contractual service margin - - - - -
Profit/(loss) before tax (2,366) 100 (2,266) 2,316 49
Maintenance expenses +10% Fulfilment cash flows (30) - (30) - -
Contractual service margin 31 - 31 - -
Profit/(loss) before tax 1 - 1 (5) (5)
Decrease in base mortality by 5% Fulfilment cash flows (327) 196 (131) - -
Contractual service margin 476 (293) 182 - -
Profit/(loss) before tax 148 (97) 51 (14) 37
Mortality improvements rates +10% Fulfilment cash flows (178) 106 (72) - -
Contractual service margin 263 (172) 91 - -
Profit/(loss) before tax 85 (66) 20 (3) 17
Immediate fall of 10% in house prices Fulfilment cash flows (46) 2 (44) - -
Contractual service margin - - - - -
Profit/(loss) before tax (46) 2 (44) (68) (113)
Future property price growth reduces by 0.5% Fulfilment cash flows (38) 2 (36) - -
Contractual service margin - - - - -
Profit/(loss) before tax (38) 2 (36) (38) (74)
Future property price volatility increase by 1% Fulfilment cash flows (18) 1 (17) - -
Contractual service margin - - - - -
Profit/(loss) before tax (18) 1 (17) (27) (44)
Voluntary redemptions increase Fulfilment cash flows (24) 1 (23) - -
by 10%
Contractual service margin - - - - -
Profit/(loss) before tax (24) 1 (23) 19 (4)
Credit default allowance - increase by 10bps(1) Fulfilment cash flows (213) 9 (204) - -
Contractual service margin - - - - -
Profit/(loss) before tax (213) 9 (204) - (204)
1 Over that included in the discount rate section in note 26(b).
31 December 2022 (restated) Insurance Reinsurance contracts Net insurance contract liabilities Valuation of assets Net impact on profit and loss
contract liabilities
(net) held
£m £m £m
£m £m
Interest rate and investments + 1% Fulfilment cash flows 1,555 (37) 1,518 - -
Contractual service margin - - - - -
Profit/(loss) before tax 1,555 (37) 1,518 (1,545) (28)
Interest rate and investments -1% Fulfilment cash flows (1,860) 47 (1,813) - -
Contractual service margin - - - - -
Profit/(loss) before tax (1,860) 47 (1,813) 1,838 25
Maintenance expenses +10% Fulfilment cash flows (28) 1 (27) - -
Contractual service margin 27 - 27 - -
Profit/(loss) before tax (1) 1 - (5) (5)
Decrease in base mortality by 5% Fulfilment cash flows (269) 157 (112) - -
Contractual service margin 428 (256) 173 - -
Profit/(loss) before tax 160 (99) 60 (13) 47
Mortality improvements rates +10% Fulfilment cash flows (160) 86 (74) - -
Contractual service margin 253 (155) 98 - -
Profit/(loss) before tax 93 (69) 24 (4) 20
Immediate fall of 10% in house prices Fulfilment cash flows (59) 3 (56) - -
Contractual service margin - - - - -
Profit/(loss) before tax (59) 3 (56) (63) (119)
Future property price growth reduces by 0.5% Fulfilment cash flows (50) 2 (48) - -
Contractual service margin - - - - -
Profit/(loss) before tax (50) 2 (48) (37) (85)
Future property price volatility increase by 1% Fulfilment cash flows (25) 1 (24) - -
Contractual service margin - - - - -
Profit/(loss) before tax (25) 1 (24) (26) (49)
Voluntary redemptions increase by 10% Fulfilment cash flows (33) 1 (32) - -
Contractual service margin - - - - -
Profit/(loss) before tax (33) 1 (32) 19 (13)
Credit default allowance - increase by 10bps(1) Fulfilment cash flows (170) 5 (165) - -
Contractual service margin - - - - -
Profit/(loss) before tax (170) 5 (165) - (165)
1 Over that included in the discount rate section in note 26(b).
A guide to the sensitivity table is provided below:
Metric Impact
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.
Contractual service margin Positive values represent a reduction in the CSM
Negative values represent an increase in the CSM
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.
27. Investment contract liabilities
Year ended Year ended
31 December 2023
31 December 2022
£m
£m
At 1 January 33 34
Deposits received from policyholders 12 14
Payments made to policyholders (1) (12)
Change in contract liabilities recognised in profit or loss (9) (3)
At 31 December 35 33
(a) Terms and conditions of investment contracts
The Group has written Capped Drawdown products for the at-retirement market.
In return for a single premium, these contracts pay a guaranteed lump sum on
survival to the end of the fixed term. There is an option at the outset to
select a lower sum at maturity and regular income until the earlier of death
or maturity. Upon death of the policyholder and subject to the option selected
at the outset, there may be a return of premium less income received or income
payable to a dependant until the death of that dependant. Capped Drawdown
pension business is classified as investment contracts as there is no transfer
of longevity risk due to the premium protection option within these fixed term
contracts.
The Group has also written linked endowment contracts and term-certain GIfL
contracts for the at-retirement market in South Africa which are classified as
investment contracts.
(b) Principal assumptions underlying the calculation of investment contracts
Valuation discount rates
Valuation discount rate assumptions for investment contracts are set with
regard to yields on supporting assets. The yields on lifetime mortgage assets
are derived using the assumptions described in note 20(d)(iii) with allowance
for risk through the deductions related to the NNEG. An explicit allowance for
credit risk is included by making an explicit deduction from the yields on
debt and other fixed income securities, loans secured by commercial mortgages,
and other loans based on an expectation of default experience of each asset
class and application of a prudent loading. Allowances vary by asset category
and by rating.
Our underlying default methodology allows for the impact of credit rating
downgrades and changes in spreads and hence we have maintained the same
methodology at 31 December 2023. As explained in note 20(d)(viii) the discount
rate used for the fixed term annuity product treated as investment business is
based on a curve where 6.88% is the one-year rate and 5.47% is the five-year
rate (31 December 2022: 5.67%).
28. Loans and borrowings
Carrying value Fair value
2023 2022 2023 2022
£m
£m
£m
£m
£250m 9.0% 10-year subordinated debt 2026 (Tier 2) issued 152 174 164 188
by Just Group plc (£150m principal outstanding)
£125m 8.125% 10-year subordinated debt 2029 126 122 127 130
(Tier 2) issued by Just Group plc
£250m 7.0% 10.5-year subordinated debt 2031 non-callable 251 248 252 245
for first 5.5 years (Green Tier 2) issued by Just Group plc
£230m 3.5% 7-year subordinated debt 2025 (Tier 3) 157 155 151 141
issued by Just Group plc (£155m principal outstanding)
Total 686 699 694 704
The £250m 7.0% bond is callable after October 2025. The maturity analysis in
note 26(d) assumes it is called at the first possible date.
The Group also has an undrawn revolving credit facility held by the Parent
Company of up to £300m for general corporate and working capital purposes
available until 13 June 2025. Interest is payable on any drawdown loans at a
rate of SONIA plus a margin of between 1.50% and 2.75% per annum depending on
the Group's ratio of net debt to net assets.
Movements in borrowings during the year were as follows:
Year ended Year ended
31 December 2023
31 December 2022
£m
£m
At 1 January 699 774
Coupon payments (48) (44)
Repayment of Just Group plc Tier 2 subordinated debt (24) (76)
Financing cash flows (72) (120)
Transfer brought forward interest from accruals 10 -
Interest charged at the effective interest rate 48 44
Amortisation of issue costs 1 1
Non-cash movements 59 45
At 31 December 686 699
During the year the Company redeemed a further £24m of the 2026 9% Tier 2
subordinated debt (2022: £76m). A loss of £2m (2022: £5m) was recognised on
redemption.
29. Other financial liabilities
31 December 2023 31 December 2022
£m
(restated)
£m
Derivative financial liabilities 2,487 3,046
Repurchase obligation 2,569 -
Obligations for repayment of cash collateral received 532 623
Total 5,588 3,669
Derivative financial liabilities are classified as mandatorily FVTPL and are
analysed in note 30 below. The restatement of Other financial liabilities
including the treatment of reinsurance deposit-back monies under IFRS 17 and
commitments for future investments is explained in note 1.2.
As described in note 19, the Group has entered into a number of repurchase
agreements whereby a fixed amount is repayable at a certain date. At the
inception of these agreements they had durations of between 12 and 21 months.
The repurchase agreements are measured at amortised cost in the financial
statements. The fair value of these agreements is £2,569m (2022 not
applicable).
Obligations to repay cash collateral is measured at amortised cost and there
is no material difference between the fair value and amortised cost of the
instruments.
30. Derivative financial instruments
The Group uses various derivative financial instruments to manage its exposure
to interest rates, counterparty credit risk, inflation and foreign exchange
risk.
Derivatives 31 December 2023 31 December 2022
(restated)
Asset fair value Liability fair value Notional amount Asset Fair value Liability fair value Notional Amount
£m
£m
£m
£m
£m
£m
Foreign currency swaps 515 857 16,607 413 1,320 12,663
Interest rate swaps 1,435 1,512 26,995 1,408 1,580 13,648
Inflation swaps 409 102 5,681 438 80 4,293
Forward swaps 4 1 630 5 10 546
Total return swaps - - - 13 14 -
Put options on property index (NNEG hedges) - 14 380 - 19 705
Interest rate options - 1 100 - - -
Investment asset derivatives 14 - - - 23 149
Total 2,377 2,487 50,393 2,277 3,046 32,004
As explained in note 1.2.2, derivative liabilities are restated by £23m in
respect of future funding commitments.
The Group's derivative financial instruments are not designated as hedging
instruments and changes in their fair value are included in profit or loss.
All over-the-counter derivative transactions are conducted under standardised
International Swaps and Derivatives Association Inc. master agreements, and
the Group has collateral agreements between the individual Group entities and
relevant counterparties in place under each of these market master agreements.
As at 31 December 2023, the Group had pledged collateral of £4,016m (2022:
£1,286m), of which £2,614m were gilts measured at amortised cost (2022:
nil), £696m were corporate bonds (2022: £394m) and £706m held in deposits
(2022: £892m), which continue to be recognised in financial investments in
the statement of financial position as the Group retains the significant risks
and rewards of ownership.
The Group has received cash collateral of £532m (2022: £623m).
31. Other payables
31 December 2023 31 December 2022
£m
(restated)
£m
Outstanding investment purchases - 66
Other payables 11 21
Lease liability 9 9
Total 20 96
Other payables are restated for reclassifications as explained in note 1.2.2.
As a result of adoption of IFRS 17, all balances within the boundary of IFRS
17 insurance and reinsurance contracts are reclassified within note 26. In
addition, as explained in note 1.2.2, outstanding investment purchases at 31
December 2022 are restated by £148m.
32. Commitments
The Group had £2m of capital commitments at 31 December 2023 in respect of
fit-out works to be undertaken during 2024 to the Group's replacement Belfast
office (2022: nil).
At 31 December 2023, the Group had £210m unfunded commitments (2022 restated:
£148m) primarily related to investments.
33. Contingent liabilities
There are no contingent liabilities as at 31 December 2023 (2022: £nil).
34. Financial and insurance risk management
This note presents information about the major financial and insurance risks
to which the Group is exposed, and its objectives, policies and processes for
their measurement and management. Financial risk comprises exposure to market,
credit and liquidity risk.
(a) Insurance risk
The Group's insurance risks include exposure to longevity, mortality and
morbidity and exposure to factors such as levels of withdrawal from lifetime
mortgages and management and administration expenses. The writing of long-term
insurance contracts requires a range of assumptions to be made and risk arises
from these assumptions being materially inaccurate. The Group's main insurance
risk arises from adverse experience compared with the assumptions used in
pricing products and valuing insurance liabilities.
Individually underwritten GIfL policies are priced using assumptions about
future longevity that are based on historic experience information, lifestyle
and medical factors relevant to individual customers, and judgements about the
future development of longevity improvements. Our DB business uses our DB
pricing platform and we perform regular insurer price monitoring utilising our
bulk quotation service. In the event of an increase in longevity, the
actuarial reserve required to make future payments to customers may increase.
Loans secured by mortgages are used as part of the portfolio to match the
liabilities arising from writing long-term insurance policies. In the event
that early repayments on LTMs in a given period are higher than anticipated,
less interest will have accrued on the mortgages and the amount repayable will
be less than assumed at the time of sale. In the event of an increase in
longevity, although more interest will have accrued and the amount repayable
will be greater than assumed at the time of the sale, the associated cash
flows will be received later than had originally been anticipated. In
addition, a general increase in longevity would have the effect of increasing
the total amount repayable, which would increase the LTV ratio and could
increase the risk of failing to be repaid in full as a consequence of the
no-negative equity guarantee. There is also exposure to morbidity risk as the
LTM is repayable when the customer moves into long-term care.
(i) Management of insurance risk
Underpinning the management of insurance risk are:
· the use of controls around the development of suitable products and
their pricing;
· adherence to approved underwriting requirements;
· the development and use of medical information including PrognoSys™
for both pricing and reserving to assess longevity risk;
· the use of reinsurance to transfer longevity risk outside the Group.
The Group retains oversight of the risks transferred, uses a range of
reinsurers and monitors exposures to ensure the Group remains within the
reinsurance counterparty risk appetite;
· review and approval of insurance assumptions used by the Board; and
· regular monitoring and analysis of actual experience and expense
levels.
(ii) Concentrations of insurance risk
Improved longevity arises from enhanced medical treatment and improved life
circumstances. Concentration risk to individual groups whose longevity may
improve faster than the population is managed by writing business across a
wide range of different medical and lifestyle conditions to avoid excessive
exposure. Reinsurance is also an important mitigant to concentrations of
insurance risk.
(b) Market risk
Market risk is the risk of loss or of adverse change in the financial
situation from fluctuations in the level and in the volatility of market
prices of assets, liabilities and financial instruments, together with the
impact of changes in interest rates. Market risk is implicit in the insurance
business model and arises from exposure to interest rates, residential
property markets, credit spreads, inflation and exchange rates. The Group is
not exposed to any material levels of equity risk. Some very limited equity
risk exposure arises from investment into credit funds which have a mandate
that allows preferred equity to be held. Changes in the value of the Group's
investment portfolio will also affect the Group's financial position. In
addition falls in the financial markets can reduce the value of pension funds
available to purchase Retirement Income products and changes in interest rates
can affect the relative attractiveness of Retirement Income products.
In mitigation, Retirement Income product premiums are invested to match the
asset and liability cash flows as closely as practicable. In practice, it is
not possible to eliminate market risk fully as there are inherent
uncertainties surrounding many of the assumptions underlying the projected
asset and liability cash flows.
Just has several EUR denominated bonds that have coupons linked to EURIBOR,
which are hedged into fixed GBP coupons. If EURIBOR were no longer produced,
there is a risk that the bond coupons would not match the swap EUR leg
payments. In mitigation, Just would restructure the related cross currency
asset swap to match the new coupon rate.
For each of the material components of market risk, described in more detail
below, the Group's Market Risk Policy sets out the Group's risk appetite and
management processes governing how each risk should be measured, managed,
monitored and reported.
(i) Interest rate risk
The Group is exposed to interest rate risk arising from the changes in the
values of assets or liabilities as a result of changes in risk-free interest
rates. The Group seeks to limit its exposure through appropriate asset and
liability matching and hedging strategies. The Group actively hedges its
interest rate exposure to protect balance sheet positions on both Solvency II
and IFRS bases in accordance with its risk appetite framework and principles.
The Group's main exposure to changes in interest rates is concentrated in the
investment portfolio, loans secured by mortgages and its insurance
obligations. Changes in investment and loan values attributable to interest
rate changes are mitigated by corresponding and partially offsetting changes
in the value of insurance liabilities. The Group monitors this exposure
through regular reviews of the asset and liability position, capital
modelling, sensitivity testing and scenario analyses. Interest rate risk is
also managed using derivative instruments e.g. swaps.
The following table indicates the earlier of contractual repricing or maturity
dates for the Group's significant financial assets.
2023 Less than One to Five to Over No fixed term Total
one year
five years
ten years
ten years
£m
£m
£m
£m
£m
£m
Units in liquidity funds 1,141 - - - - 1,141
Investment funds 97 398 - - - 495
Debt securities and other fixed income securities 527 1,625 2,513 8,989 - 13,654
Deposits with credit institutions 706 - - - - 706
Loans secured by residential mortgages - - - - 5,681 5,681
Loans secured by commercial mortgages 87 378 202 97 - 764
Long income real estate(1) - 4 - 775 - 779
Infrastructure loans - 72 246 795 - 1,113
Other loans 1 146 4 13 - 164
Derivative financial assets 48 177 573 1,579 - 2,377
Total investments measured at FVTPL 2,607 2,800 3,538 12,248 5,681 26,874
Gilts - subject to repurchase agreements - - - 2,549 - 2,549
Total investments measured at amortised cost - - - 2,549 - 2,549
Total financial investments 2,607 2,800 3,538 14,797 5,681 29,423
1. Includes residential ground rents of £176m.
2022 (restated) Less than One to Five to Over No fixed term Total
one year
five years
ten years
ten years
£m
£m
£m
£m
£m
£m
Units in liquidity funds 1,174 - - - - 1,174
Investment funds 83 338 - - - 421
Debt securities and other fixed income securities(1) 675 1,425 2,389 6,864 - 11,353
Deposits with credit institutions 908 - - - - 908
Loans secured by residential mortgages - - - - 5,306 5,306
Loans secured by commercial mortgages 67 339 125 53 - 584
Long income real estate - - - 247 - 247
Infrastructure loans(1) - 24 160 764 - 948
Other loans 2 118 6 8 - 134
Derivative financial assets 52 157 322 1,746 - 2,277
Total 2,961 2,401 3,002 9,682 5,306 23,352
1. Restated to correct the treatment of future funding commitments as
explained in note 1.2.2. .
A sensitivity analysis of the impact of interest rate movements on profit
before tax is included in note 26(h).
(ii) Property risk
The Group's exposure to property risk arises from the provision of lifetime
mortgages which creates an exposure to the UK residential property market. A
substantial decline or sustained underperformance in UK residential property
prices, against which the Group's lifetime mortgages are secured, could result
in the mortgage debt at the date of redemption exceeding the proceeds from the
sale of the property.
Demand for lifetime mortgage products may also be impacted by a fall in
property prices. It may diminish consumers' propensity to borrow and reduce
the amount they are able to borrow due to reductions in property values.
The risk is managed by controlling the loan value as a proportion of the
property's value at outset and obtaining independent third party valuations on
each property before initial mortgages are advanced. Lifetime mortgage
contracts are also monitored through dilapidation reviews. House prices are
monitored and the impact of exposure to adverse house prices (both regionally
and nationally) is regularly reviewed. Further mitigation is through
management of the volume of Lifetime Mortgages, including disposals, in the
portfolio in line with the Group's LTM backing ratio target, and the
establishment of the NNEG hedges.
A sensitivity analysis of the impact of residential property price movements
is included in note 20(d)(iii) and note 26(h).
The Group is also exposed to commercial property risk indirectly through the
investment in loans secured by commercial mortgages. Mitigation of such risk
is covered by the credit risk section below.
(iii) Inflation risk
Inflation risk is the risk of change in the value of assets or liabilities
arising from changes in actual or expected inflation or in the volatility of
inflation. Exposure to long-term inflation occurs in relation to the Group's
own management expenses and its writing index-linked Retirement Income
contracts. Its impact is managed through the application of disciplined cost
control over management expenses and through matching inflation-linked assets
including inflation swaps, and inflation-linked liabilities for the long-term
inflation risk.
(iv) Currency risk
Currency risk arises from changes in foreign exchange rates which affect the
value of assets denominated in foreign currencies.
Exposure to currency risk could arise from the Group's investment in
non-sterling denominated assets. The Group invests in fixed income securities
denominated in US dollars and other foreign currencies for its financial asset
portfolio. All material Group liabilities are in sterling. As the Group does
not wish to introduce foreign exchange risk into its investment portfolio,
derivative or quasi-derivative contracts are entered into to mitigate the
foreign exchange exposure as far as possible.
(c) Credit risk
Credit risk arises if another party fails to perform its financial obligations
to the Group, including failing to perform them in a timely manner.
Credit risk exposures arise from:
· Holding fixed income investments. The risk of default (where the
counterparty fails to pay back the capital and/or interest on a corporate
bond) is mitigated by investing only in higher quality or investment grade
assets. Concentration of credit risk exposures is managed by placing limits on
exposures to individual counterparties, sectors and geographic areas. The
Group holds a portion of its fixed income investments as loans secured against
a variety of types of collateral including but not limited to commercial real
estate and commercial ground rents as well as residential ground rents.
· Counterparties in derivative contracts - the Group uses financial
instruments to mitigate interest rate and currency risk exposures. It
therefore has credit exposure to various counterparties through which it
transacts these instruments, although this is usually mitigated by collateral
arrangements (see note 19).
· Reinsurance treaties. Reinsurance is used to manage longevity risk and
to fund new business but, as a consequence, credit risk exposure arises should
a reinsurer fail to meet its claim repayment obligations. Credit risk on
reinsurance balances is mitigated by the reinsurer depositing back more than
100% of premiums ceded under the reinsurance agreement and/or through robust
collateral arrangements.
· Reinsurance concentration risk: to reduce risk, the Group ensures it
trades with a wide range of counterparties to diversify exposures.
· Cash balances - credit risk on cash assets is managed by imposing
restrictions over the credit ratings of third parties with whom cash is
deposited, as well as the balances permitted.
· Credit risk for lifetime mortgages secured on residential property has
been considered within "property risk" above.
(i) Credit ratings of financial assets
The following table provides information regarding the credit risk exposure
for financial assets of the Group, which are neither past due nor impaired at
31 December:
2023 AAA AA A BBB BB or below Unrated Total
£m
£m
£m
£m
£m
£m
£m
Units in liquidity funds 1,135 6 - - - - 1,141
Investment funds - - - - - 495 495
Debt securities and other fixed income securities 927 2,283 4,521 5,763 160 - 13,654
Deposits with credit institutions - 100 425 181 - - 706
Loans secured by residential mortgages - - - - - 5,681 5,681
Loans secured by commercial mortgages - - - - - 764 764
Long income real estate(1) 164 20 185 410 - - 779
Infrastructure loans 64 121 151 764 13 - 1,113
Other loans - - - - 41 123 164
Derivative financial assets - 28 1,686 649 - 14 2,377
Gilts - subject to repurchase agreements - 2,549 - - - - 2,549
Reinsurance(2) - 264 193 387 - 199 1,043
Other receivables - - - - - 60 60
Total 2,290 5,371 7,161 8,154 214 7,336 30,526
1 Includes residential ground rents of £164m rated AAA and £12m rated
AA.
2 This is the reinsurance asset position excluding CSM.
2022 (restated) AAA AA A BBB BB or below £m Unrated Total
£m
£m
£m
£m
£m
£m
Units in liquidity funds 1,170 - - - 4 - 1,174
Investment funds - - - - - 421 421
Debt securities and other fixed income securities(1) 698 1,889 3,260 5,105 401 - 11,353
Deposits with credit institutions - 100 773 20 15 - 908
Loans secured by residential mortgages - - - - - 5,306 5,306
Loans secured by commercial mortgages - - - - - 584 584
Long income real estate 139 7 37 64 - - 247
Infrastructure loans(1) 71 97 142 625 13 - 948
Other loans - - - - 22 112 134
Derivative financial assets - - 1,670 607 - - 2,277
Reinsurance(2) - 276 195 - - 198 669
Other receivables - - - - - 33 33
Total 2,078 2,369 6,077 6,421 455 6,654 24,054
1 Restated to correct the treatment of future funding commitments as
explained in note 1.2.2.
2 This is the reinsurance asset position excluding CSM (2022 restated
since initially disclosed).
There are no financial assets that are either past due or impaired. The new
amortised cost portfolio of UK Sovereign gilts entered into during the
year are investment grade and deemed low credit risk. Lifetime expected
credit losses are therefore considered immaterial.
The credit rating for Cash available on demand at 31 December 2023 was between
a range of AA- and A (31 December 2022: between a range of AA and BB).
The carrying amount of those assets subject to credit risk represents the
maximum credit risk exposure.
(ii) Offsetting financial assets and liabilities
The Group has no financial assets and financial liabilities that have been
offset in the Consolidated statement of financial position as at 31 December
2023 (2022: none).
In the tables below, the amounts of assets or liabilities presented in the
Consolidated statement of financial position are offset first by financial
instruments that have the right of offset under master netting arrangement or
similar arrangements with any remaining amount reduced by cash and securities
collateral.
2023 As reported Related financial Instruments(1) Cash collateral(2) Securities Net amount
£m
£m
£m
collateral pledged
£m
£m
Derivative assets 2,362 (1,917) (376) (67) 2
Derivative liabilities (2,471) 1,917 338 211 (5)
Repurchase obligation (2,569) - - 2,569 -
2022 (restated) As reported Related financial Instruments(1 Cash collateral(2) Securities Net amount
£m ) £m
£m
collateral pledged
£m
£m
Derivative assets 2,277 (1,766) (491) (5) 15
Derivative liabilities (3,023) 1,766 783 444 (30)
1 Related financial instruments represent outstanding amounts with the
same counterparty which, under agreements such as the ISDA Master Agreement,
could be offset and settled net following certain predetermined events.
2 Cash and securities held may exceed target levels due to the
complexities of operational collateral management, timing and agreements in
place with individual counterparties. This may result in
over/under-collateralisation of derivative positions. The amount of collateral
reported in the table above is restricted to the value of the associated
derivatives recognised in the Statement of financial position.
(iii) Significant reinsurance collateral arrangements
The quota share reinsurance treaties have deposit back or other collateral
arrangements to remove the majority of the reinsurer credit risk, as described
below. The majority of longevity swaps also have collateral arrangements, for
the same purpose.
The Group has received deposits from reinsurers that are recognised as part of
the cash flows from the reinsurance contract and are included in the
measurement of reinsurance balances within note 26. Whereas certain
reinsurance arrangements give rise to deposits from reinsurers that are not
included in the Consolidated statement of financial position of the Group as
described below:
· The Group has an agreement with two reinsurers whereby financial assets
arising from the payment of reinsurance premiums, less the repayment of
claims, in relation to specific treaties, are legally and physically deposited
back with the Group. Although the funds are controlled by the Group, no future
benefits accrue to the Group as any returns on the deposits are paid to
reinsurers. Consequently, the deposits are not recognised as assets of the
Group and the investment income they produce does not accrue to the Group.
· The Group has an agreement with one reinsurer whereby assets equal to
the reinsurer's full obligation under the treaty are deposited into a
ring-fenced collateral account. The Group has first claim over these assets
should the reinsurer default, but as the Group has no control over these funds
and does not accrue any future benefit, this fund is not recognised as an
asset of the Group.
· The Group has an agreement with one reinsurer whereby assets equal to
the reinsurer's full obligation under the treaty are either deposited into a
ring-fenced collateral account of corporate bonds, or held under a funds
withheld structure of Lifetime Mortgages. The latter are legally and
physically held by the Group. Although the funds are managed by the Group (as
the Group controls the investment of the asset), no future benefits accrue to
the Group as returns on the assets are paid to reinsurers. Consequently, the
lifetime mortgages are not recognised as assets of the Group and the
investment income they produce does not accrue to the Group. The reinsurer
also deposits cash into a bank account held legally by the Group to fund
future lifetime mortgages but as this cash is ring-fenced for issued lifetime
mortgage quotes agreed by the reinsurer, it is also not recognised as an asset
by the Group.
· The Group has agreements with two reinsurers whereby assets equal to
the reinsurers' full obligation under the treaties are deposited into
ring-fenced collateral accounts of notes/shares issued through the dedicated
Investment vehicles. The investments in these vehicles are restricted only for
the purpose of these reinsurance agreements. Consequently, the collateralised
assets are not recognised as assets of the Group and the investment income
they produce does not accrue to the Group. The reinsurers also deposit cash
into a bank account held legally by the Group to fund reinsurance claims but
as this cash is ring-fenced for the reinsurers purpose, it is also not
recognised as an asset by the Group.
2023 2022
£m
£m
Deposits held in trust 787 569
The collateral that is not recognised in the Consolidated statement of
financial position does not represent a cash flow within the IFRS 17
contract boundaries.
The Group is exposed to a minimal amount of reinsurance counterparty default
risk in respect of reinsurance arrangements and calculates an allowance for
counterparty default in the reinsurance future cash flows accordingly. At 31
December 2023, this liability totalled £8m (2022: £2m).
(d) Liquidity risk
Liquidity risk is the risk of loss because the Group does not have sufficient
suitable assets available to meet its financial obligations as they fall due.
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.
Exposure to liquidity risk arises from:
· maintaining and servicing collateral requirements arising from the
changes in market value of financial derivatives used by the Group;
· needing to realise assets to meet liabilities during stressed market
conditions;
· increasing cash flow volatility in the short-term giving rise to
mismatches between cash flows from assets and requirements from liabilities;
· needing to support liquidity requirements for day-to-day operations;
· higher than expected funding requirements on existing LTM contracts, or
lower redemptions than expected; and
· ensuring financial support can be provided across the Group.
Liquidity risk is 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. There are significant barriers for policyholders to withdraw funds
that have already been paid to the Group in the form of premiums. Cash
outflows associated with insurance liabilities including any pension
commencement lump sum payments can be reasonably estimated and liquidity can
be arranged to meet this expected outflow through asset-liability matching.
The cash flow characteristics of the Lifetime Mortgages are reversed when
compared with Retirement Income products, with cash flows effectively
representing an advance payment, which is eventually funded by repayment of
principal plus accrued interest. Borrowers are able to redeem mortgages,
albeit with payment of an early redemption charge. The mortgage assets
themselves are considered illiquid, as they are not readily saleable due to
the complexity of valuation and the lack of a market in which to trade them.
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. Short-term stresses, periods
from one day up to and including one month, take into account market
volatility and focus on the worst observed movements over the last 40 years.
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.
During 2022 the Group replaced the existing revolving credit facility with a
new and undrawn revolving credit facility of up to £300m for general
corporate and working capital purposes available until 13 June 2025.
Interest is payable on any drawdown loans at a rate of SONIA plus a margin of
between 1.00% and 2.75% per annum depending on the Group's ratio of net debt
to net assets.
The table below summarises the maturity profile of the financial liabilities,
including both principal and interest payments, of the Group based on
remaining undiscounted contractual obligations:
2023 Within one year or payable on demand One to five years Five to ten years Over ten years Total
£m
£m
£m
£m
£m
Investment contract liabilities 7 38 - - 45
Subordinated debt 47 598 285 - 930
Derivative financial liabilities 1,463 4,273 5,725 17,642 29,103
Repurchase obligation 2,178 478 - - 2,656
Obligations for repayment of 532 - - - 532
cash collateral received
Other payables (excluding lease liability) 11 - - - 11
2022 (restated) (1) Within one year or payable on demand £m One to five years Five to ten years Over ten years Total
£m
£m
£m
£m
Investment contract liabilities 8 31 - 1 40
Subordinated debt(1) 49 495 465 - 1,009
Derivative financial liabilities(1) 907 4,328 4,534 13,345 23,114
Obligations for repayment of 623 - - - 623
cash collateral received
Other payables (excluding lease liability) (1) 87 - - - 87
1 2022 is restated on transition to IFRS 17. In addition subordinated
debt is restated to exclude the Restricted Tier 1 equity instrument.
Derivatives are restated to report the amounts on an undiscounted basis.
Derivatives and other payables are restated to correct the treatment of future
funding commitments as explained in note 1.2.2.
35. Capital
Group capital position
The Group's estimated capital surplus position at 31 December 2023 was as
follows:
Solvency capital requirement Minimum Group Solvency capital requirement
2023(1)(, 2) 2022(1, 2) 2023 2022(2)
£m
£m
£m
£m
Eligible own funds 3,104 2,757 2,572 2,152
Capital requirement (1,577)(3) (1,387) (462)(3) (388)
Excess own funds 1,527(3) 1,370 2,110(3) 1,764
Solvency II Capital coverage ratio 197%(3) 199% 557%(3) 555%
1 Solvency II capital coverage ratios as at 31 December 2023 and 31
December 2022 include a formal recalculation of TMTP.
2 2023 regulatory position is estimated. 2022 regulatory position is
reported as included in the Group's Solvency and Financial Condition Report as
at 31 December 2022.
3 Unaudited.
Further information on the Group's Solvency II position, including a
reconciliation between the regulatory capital position to the reported capital
surplus, is included in the Business review. This information is estimated and
therefore subject to change.
The Group and its regulated insurance subsidiaries are required to comply with
the requirements established by the Solvency II Framework directive as adopted
by the Prudential Regulation Authority ("PRA") in the UK, and to measure and
monitor its capital resources on this basis. The overriding objective of the
Solvency II capital framework is to ensure there is sufficient capital within
the insurance company to protect policyholders and meet their payments when
due. They are required to maintain eligible capital, or "Own Funds", in excess
of the value of their Solvency Capital Requirements ("SCR"). The SCR
represents the risk capital required to be set aside to absorb 1-in-200 year
stress tests over the next one-year time horizon of each risk type that the
Group is exposed to, including longevity risk, property risk, credit risk and
interest rate risk. These risks are all aggregated with appropriate allowance
for diversification benefits.
The capital requirement for Just Group plc is calculated using a partial
internal model. Just Retirement Limited ("JRL") uses a full internal model and
Partnership Life Assurance Company Limited ("PLACL") capital is calculated
using the standard formula.
Group entities that are under supervisory regulation and are required to
maintain a minimum level of regulatory capital are:
· JRL and PLACL - authorised by the PRA, and regulated by the PRA and
FCA.
· HUB Financial Solutions Limited, Just Retirement Money Limited and
Partnership Home Loans Limited - authorised and regulated by the FCA.
The Group and its regulated subsidiaries complied with their regulatory
capital requirements throughout the year.
Capital management
The Group's objectives when managing capital for all subsidiaries are:
· to comply with the insurance capital requirements required by the
regulators of the insurance markets where the Group operates. The Group's
policy is to manage its capital in line with its risk appetite and in
accordance with regulatory expectations;
· to safeguard the Group's ability to continue as a going concern, and to
continue to write new business;
· to ensure that in all reasonably foreseeable circumstances, the Group
is able to fulfil its commitment over the short term and long term to pay
policyholders' benefits;
· to continue to provide returns for shareholders and benefits for other
stakeholders;
· to provide an adequate return to shareholders by pricing insurance and
investment contracts commensurately with the level of risk; and
· to generate capital from in-force business, excluding economic
variances, management actions, and dividends, that is greater than new
business strain.
The Group regularly assesses a wide range of actions to improve the capital
position and resilience of the business. To improve resilience, the Group
purchased long-term gilts during 2023 to reduce the Group's capital exposure
to interest rate risk.
In managing its capital, the Group undertakes stress and scenario testing to
consider the Group's capacity to respond to a series of relevant financial,
insurance, or operational shocks or changes to financial regulations should
future circumstances or events differ from current assumptions. The review
also considers mitigating actions available to the Group should a severe
stress scenario occur, such as raising capital, varying the volumes of new
business written and a scenario where the Group does not write new business.
EVT Compliance
At 31 December 2023, Just passed the PRA EVT with a buffer of 1.1% (unaudited)
over the current minimum deferment rate of 3.0% (allowing for volatility of
13%, in line with the requirement for the EVT). At 31 December 2022, the
buffer was 1.5% (unaudited) compared to the minimum deferment rate of 2.0%.
Regulatory developments
The Group has applied to the PRA to include the PLACL lifetime mortgages in
the matching adjustment portfolio (via a securitisation) and to calculate the
PLACL SCR using the internal model. Subject to PRA approval, we expect to
report PLACL on an internal model basis from 31 December 2024. The Group
implemented changes related to Risk Margin reform at 31 December 2023, in line
with legislation. The impact of this is included in the reported results.
On 9 November 2023, the Government published a consultation seeking views on
capping the maximum ground rent that residential leaseholders can be required
to pay. The consultation set out five options including capping ground rents
at a peppercorn. The Group is closely monitoring the Government consultation
and the impact of this on the Group's £176m portfolio of residential ground
rents. As explained in the Business Review an adjustment has been included in
the estimated Solvency II position to reflect the impact on the value of the
asset portfolio, technical provisions and on the SCR.
As part of the further proposed UK Solvency II reforms, the Group responded to
the PRA consultation relating to matching adjustment and investment
flexibility in January 2024. In advance of the PRA publishing the final Policy
Statement ahead of the anticipated implementation date of 30 June 2024, we are
preparing for implementation and assessing the potential financial impact.
36. Group entities
In accordance with the requirements of the Companies Act 2006, information
regarding the Group's related undertakings at 31 December 2023 are disclosed
below. Related undertakings comprise subsidiaries, joint ventures, associates
and other significant holdings.
Principal activity Registered office Percentage of nominal share capital and voting rights held
Direct subsidiary
Just Retirement Group Holdings Limited(5) Holding company Reigate 100%
Partnership Assurance Group Limited(5) Holding company Reigate 100%
Indirect subsidiary
HUB Acquisitions Limited(1, 5) Holding company Reigate 100%
HUB Financial Solutions Limited Distribution Reigate 100%
Just Re 1 Limited(5) Investment activity Reigate 100%
Just Re 2 Limited(5) Investment activity Reigate 100%
Just Retirement (Holdings) Limited(5) Holding company Reigate 100%
Just Retirement (South Africa) Holdings (Pty) Limited Holding company South Africa 100%
Just Retirement Life (South Africa) Limited Life assurance South Africa 100%
Just Retirement Limited Life assurance Reigate 100%
Just Retirement Management Services Limited(5) Management services Reigate 100%
Just Retirement Money Limited Provision of lifetime mortgage products Reigate 100%
Partnership Group Holdings Limited(5) Holding company Reigate 100%
Partnership Holdings Limited(5) Holding company Reigate 100%
Partnership Home Loans Limited Provision of lifetime mortgage products Reigate 100%
Partnership Life Assurance Company Limited Life assurance Reigate 100%
Partnership Services Limited(5) Management services Reigate 100%
TOMAS Online Development Limited(5) Software development Belfast 100%
Enhanced Retirement Limited Dormant Reigate 100%
HUB Digital Solutions Limited Dormant Reigate 100%
Pension Buddy Limited Dormant Belfast 100%
(formerly HUB Online Development Limited)
HUB Pension Solutions Limited Dormant Reigate 100%
HUB Transfer Solutions Limited Dormant Reigate 100%
JRP Group Limited Dormant Reigate 100%
JRP Nominees Limited Dormant Reigate 100%
Just Annuities Limited Dormant Reigate 100%
Just Equity Release Limited Dormant Reigate 100%
Just Incorporated Limited Dormant Reigate 100%
Just Management Services (Proprietary) Limited Dormant South Africa 100%
Just Protection Limited Dormant Reigate 100%
Just Retirement Finance plc(5) Holding company Reigate 100%
Just Retirement Nominees Limited Dormant Reigate 100%
Just Retirement Solutions Limited Dormant Reigate 100%
PAG Finance Limited Dormant Jersey 100%
PAG Holdings Limited Dormant Jersey 100%
PASPV Limited Dormant Reigate 100%
PayingForCare Limited Dormant Reigate 100%
PLACL RE 1 Limited Dormant Reigate 100%
PLACL RE 2 Limited Dormant Reigate 100%
TOMAS Acquisitions Limited Dormant Reigate 100%
The Open Market Annuity Service Limited Dormant Belfast 100%
HUB Pension Consulting (Holdings) Limited(5) Holding company Reigate 100%
HUB Pension Consulting Limited(5) Pension consulting Reigate 100%
Spire Platform Solutions Limited(2, 3) Software development Portsmouth 33%(4)
White Rock Insurance (Gibraltar) PCC Limited Protected cell company Gibraltar 100%
Pineyard Unit Trust Unit trust Jersey 100%
Associate
TP2 Unit trust Unit trust Guernsey 60%
Comentis Ltd Product development Bristol 13%
1 Class "A" and Class "B" ordinary shares.
2 Class "B" ordinary shares.
3 30 June year end.
4 Control is based on Board representation rather than percentage
holding.
5 The financial statements of these subsidiary undertakings are exempt
from the requirements of the Companies Act 2006 relating to the audit of
individual financial statements by virtue of Section 479A of the Companies Act
2006.
Registered offices
Reigate office: Belfast
office: South Africa
office:
Enterprise House 3rd Floor,
Arena Building Office G01, Big Bay Office Park
Bancroft Road Ormeau
Road 16 Beach Estate
Boulevard, Big Bay
Reigate, Surrey RH2 7RP Belfast BT7
1SH Western Cape 7441
Jersey office (PAG): Portsmouth
office:
44 Esplanade
Building 3000, Lakeside North Harbour
St Helier
Portsmouth
Jersey JE4 9WG Hampshire
PO6 3EN
Consolidated structured entities
The Group holds an investment in a cell of a Protected Cell Company, White
Rock Insurance (Gibraltar) PCC Limited, 913 Europort, Gibraltar, GX 11 1AA.
Financial support provided by the Group is limited to amounts required to
cover transactions between the cell and the Group. Just is the cell owner of
the individual protected cell and owns the single insurance share associated
with the cell. The Group has provided £10m financial support in the form of a
letter of credit.
The Group holds a controlling interest in a Jersey Property Unit Trust (JPUT),
Pineyard Unit Trust, Pineyard Trustee 1 Limited, 47 Esplanade, St Helier,
Jersey JE1 0BD. The Group has determined that it controls the JPUT as a result
of the Group's ability to remove the Trustees; other than the Group and the
Trustees there are no other parties with decision making rights over the JPUT.
The Group has taken the option within IFRS 3 "Business Combinations" to apply
the concentration test to determine whether the JPUT represents a business
within the scope of IFRS 3. The conclusion of the concentration test is that
the assets of the JPUT are concentrated in the single identifiable asset of
the investment property, which the Trust is not permitted to dispose except on
termination, and as such the investment by the Group does not represent a
business combination (see note 18). The Group has consolidated the results of
the JPUT; any excess of investment purchase price over the fair value of the
assets acquired is allocated against the identifiable assets and liabilities
in proportion to their relative fair values; goodwill is not recognised.
Unconsolidated structured entities
The Group has interests in structured entities which are not consolidated as
the definition of control has not been met.
Interests in unconsolidated structured entities include investment funds and
liquidity funds and loans granted to special purpose vehicles ("SPVs") secured
by assets held by the SPVs such as commercial mortgages and long income real
estate.
As at 31 December 2023 the Group's interest in unconsolidated structured
entities, which are classified as investments held at fair value through
profit or loss, is shown below:
2023 2022
£m
£m
Loans secured by commercial mortgages 764 584
Long income real estate 779 247
Asset backed securities 7 7
Investment funds 495 399
Liquidity funds 1,141 1,174
Total 3,186 2,411
The Group's exposure to financial loss from its interest in unconsolidated
structured entities is limited to the amounts shown above. The Group is not
required to provide financial support to the entities, nor does it sponsor the
entities, or intend to do so.
Non-controlling interests
On 4 July 2018 the Group subscribed to 33% of the ordinary share capital of
Spire Platform Solutions Limited. The Group has majority representation on the
Board of the company, giving it effective control, and therefore consolidates
the company in full in the results of the Group.
The Group has no material non-controlling interests; the loss attributable to
non-controlling interests in the year was £0m (2022: £0m).
Associates
The Group holds a 60% equity stake in a Guernsey Property Unit Trust (GPUT)
"TP2 Unit Trust", M&G (Guernsey), PO Box 156, Dorey Court, Admiral Park,
St. Peter Port, Guernsey GY1 4EU.
The GPUT is a structured entity as voting rights are not the determining
factor in assessing which party controls the entity. Although the Group has a
majority equity stake, the decisions regarding the relevant activities of the
GPUT are made by the Trustee. Each investor holds veto rights, however these
are not proportionate to the equity holding and as such the veto rights do not
give any investor more power than any other investor. The Group accounts for
this investment as an Associate using the equity method.
All other associates are immaterial.
Summarised financial information for associates
Summarised balance sheet - GPUT Year ended Year ended
31 December 2023
31 December 2022
£m
£m
Assets
Financial investments 244 212
Trade and other receivables - 52
Cash and cash equivalents 3 6
Total assets 247 270
Equity
Partners capital 327 327
Retained earnings (80) (57)
Total equity 247 270
Reconciliation to carrying amount Year ended Year ended
31 December 2023
31 December 2022
£m
£m
Net assets brought forward - GPUT 270 275
Loss for the period (23) (5)
Net assets at 31 December - GPUT 247 270
Group's share - GPUT 148 193(1)
Group's share - Other associates 1 1
Carrying amount of associates 149 194
Summarised statement of comprehensive income - GPUT Year ended Year ended
31 December 2023
31 December 2022
£m
£m
Fair value loss on financial investments (15) (5)
Payments to unitholders (8) -
Loss for the period (23) (5)
1 The Group's share of the GPUT in the prior year included £30m related
to recovery of Stamp Duty Land Tax by the GPUT on behalf of the Group, which
was settled in 2023.
37. Related parties
The Group has related party relationships with its key management personnel
and subsidiary undertakings detailed in note 36.
Key management personnel comprise the Directors of the Company. There were no
material transactions between the Group and its key management personnel other
than those disclosed below.
Key management compensation is as follows:
Year ended Year ended
31 December 2023
31 December 2022
£m
£m
Short-term employee benefits 3 3
Share-based payments 2 2
Total 5 5
In addition there are loans owed by Directors of £0.4m (2022: £0.4m) which
accrue interest fixed at 4% per annum and are repayable in whole or in part at
any time.
38. Ultimate Parent Company and ultimate controlling party
The Company is the ultimate Parent and Controlling Party of the Group.
39. Post balance sheet events
Subsequent to 31 December 2023, the Directors proposed a final dividend for
2023 of 1.50 pence per ordinary share (2022: 1.23 pence), amounting to £22m
(2022: £18m) in total. Subject to approval by shareholders at the Company's
2024 AGM, the dividend will be paid on 15 May 2024 to shareholders on the
register of members at the close of business on 12 April 2024, and will be
accounted for as an appropriation of retained earnings in year ending 31
December 2024.
Additional information
The following additional financial information is unaudited.
Solvency II surplus generation
The table below shows the expected future emergence of Solvency II surplus
from the in-force book in excess of 100% of SCR over the next 35 years. The
amounts are shown undiscounted and exclude Excess Own Funds at 31 December
2023 of £1,527m.
The core surplus generation assumes that future property growth is in line
with the best estimate assumption of 3.3%. The cash flow amounts allow for
return on surplus on assets that maintain the current capital coverage ratio.
The cash flow amounts shown are before the interest and principal payments on
all debt obligations. The projection does not allow for the impact of future
new business.
Year Core surplus generation TMTP amortisation Surplus generation
£m
£m
£m
2024 221 (60) 161
2025 218 (60) 158
2026 215 (60) 155
2027 212 (60) 152
2028 210 (60) 150
2029 208 (60) 148
2030 205 (60) 145
2031 203 (60) 143
2032 199 - 199
2033 192 - 192
2034 186 - 186
2035 181 - 181
2036 173 - 173
2037 166 - 166
2038 159 - 159
2039 151 - 151
2040 143 - 143
2041 134 - 134
2042 125 - 125
2043 116 - 116
2044 - 2048 457 - 457
2049 - 2053 293 - 293
2054 - 2058 187 - 187
New business contribution
The table below shows the expected future emergence of Solvency II surplus
arising from 2023 new business at 100% of SCR over 50 years from the point of
sale. It shows the initial Solvency II capital strain in 2023. The amounts are
shown undiscounted.
Year Surplus generation
£m
Point of sale (35)
Year 1 15
Year 2 15
Year 3 17
Year 4 19
Year 5 20
Year 6 21
Year 7 23
Year 8 23
Year 9 23
Year 10 23
Year 11 23
Year 12 22
Year 13 21
Year 14 22
Year 15 21
Year 16 21
Year 17 20
Year 18 21
Year 19 20
Year 20 20
Years 21 - 30 194
Years 31 - 40 91
Years 41 - 50 35
Financial investments credit ratings
The sector analysis of the Group's financial investments portfolio by credit
rating at 31 December 2023 is shown below:
Total % AAA AA A BBB % BBB BB or below
£m
£m
£m
£m
£m
£m
£m
Basic materials 149 0.6% - 5 39 101 1% 4
Communications and technology 1,334 5.6% 125 244 260 700 10% 5
Auto manufacturers 130 0.5% - - 115 15 0% -
Consumer staples (including healthcare) 1,405 5.9% 125 228 660 371 5% 21
Consumer cyclical 197 0.8% - 8 54 135 2% -
Energy 378 1.6% - 114 30 167 2% 67
Banks 1,606 6.7% 84 119 814 589 8% -
Insurance 735 3.1% - 208 50 477 7% -
Financial - other 583 2.4% 95 133 266 89 1% -
Real estate including REITs 660 2.8% 31 46 279 272 4% 32
Government 1,767 7.4% 317 971 220 259 4% -
Industrial 543 2.3% - 65 79 380 5% 19
Utilities 2,637 11.0% - 106 833 1,686 23% 12
Commercial mortgages 764 3.2% 111 205 212 233 3% 3
Long income real estate¹ 916 3.8% 164 20 185 547 8% -
Infrastructure 2,473 10.3% 65 173 991 1,231 17% 13
Other 42 0.2% - - 42 - - -
Corporate/government bond total 16,319 68.1% 1,117 2,645 5,129 7,252 100% 176
Other assets 822 3.4%
Lifetime mortgages 5,681 23.7%
Liquidity funds 1,141 4.8%
Investments portfolio 23,963 100.0%
Derivatives and collateral 3,083
Gilts (interest rate hedging) 2,549
Total 29,595
1 Includes residential ground rents of £164m rated AAA and £12m rated AA.
NEW BUSINESS PROFIT RECONCILIATION
New business profit is deferred on the balance sheet under IFRS 17. It is the
equivalent of the previous new business profit KPI under IFRS 4 and is
determined in a similar manner, but uses risk parameters updated for IFRS 17.
The effect of these changes is detailed in the reconciliation in the Deferral
of profit in CSM section of the Business Review.
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. IFRS 17 also introduces a requirement to include the reinsurance CSM
in respect of business to be written after the reporting date up until the end
of reinsurance treaty notice periods.
Year ended Year ended
31 December 2023
31 December 2022
£m
£m
(restated)
New business CSM on gross business written 380 320
Reinsurance CSM (37) (50)
Net new business CSM 343 270
Impact of using quote date for profitability measurement 12 (4)
New business profit 355 266
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 this is the sum of the new business
profit and in-force operating profit, operating experience and assumption
changes, other Group companies' operating results, development expenditure and
financing costs. The Board believes the combination of both future profit
generated from new business written in the year and additional profit from the
in-force book of business, provides a better view of the development of the
business. The net underlying CSM increase is added back as the Board considers
the value of new business is significant in assessing business performance.
Adjusted operating profit before tax excludes the following items that are
included in profit before tax: strategic expenditure, investment and economic
profits and amortisation and impairment costs of acquired intangible assets.
In addition, it includes Tier 1 interest (as part of financing costs) which is
not included in profit before tax (because the Tier 1 notes are treated as
equity rather than debt in the IFRS financial statements). Adjusted operating
profit is reconciled to IFRS profit before tax in the Business Review.
Adjusted profit/(loss) before tax an APM, this is the profit/(loss) before
tax before deferral of profit in CSM and includes non operating items
(investment and economic movement, strategic expenditure, and interest
adjustment to reflect IFRS accounting for Tier 1 notes as equity).
Alternative performance measure ("APM") in addition to statutory IFRS
performance measures, the Group has presented a number of non-statutory
alternative performance measures within the Annual Report and Accounts. The
Board believes that the APMs used give a more representative view of the
underlying performance of the Group. APMs are identified in this glossary
together with a reference to where the APM has been reconciled to its nearest
statutory equivalent. APMs which are also KPIs are indicated as such.
Buy-in an exercise enabling a pension scheme to obtain an insurance contract
that pays a guaranteed stream of income sufficient to cover the liabilities of
a group of the scheme's members.
Buy-out an exercise that wholly transfers the liability for paying member
benefits from the pension scheme to an insurer which then becomes responsible
for paying the members directly.
Capped Drawdown a non-marketed product from Just Group previously described
as Fixed Term Annuity. Capped Drawdown products ceased to be available to new
customers when the tax legislation changed for pensions in April 2015.
Care Plan ("CP") a specialist insurance contract contributing to the costs
of long-term care by paying a guaranteed income to a registered care provider
for the remainder of a person's life.
Cash Generation 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 retired yet.
Defined benefit de-risking partnering ("DB partnering") a DB de-risking
transaction in which a reinsurer has provided reinsurance in respect of the
asset and liability side risks associated with one of our DB Buy-in
transactions.
Defined benefit ("DB") pension scheme a pension scheme, usually backed or
sponsored by an employer, that pays members a guaranteed level of retirement
income based on length of membership and earnings.
Defined contribution ("DC") pension scheme a work-based or personal pension
scheme in which contributions are invested to build up a fund that can be
used by the individual member to provide retirement benefits.
De-risk/de-risking an action carried out by the trustees of a pension scheme
with the aim of transferring investment, inflation and longevity risk from the
sponsoring employer and scheme to a third party such as an insurer.
Development expenditure relates to development of existing products,
markets, technology, and transformational projects.
Drawdown (in reference to Just Group sales or products) collective term for
investment products including Capped Drawdown.
Employee benefits consultant an adviser offering specialist knowledge to
employers on the legal, regulatory and practical issues of rewarding staff,
including non-wage compensation such as pensions, health and life insurance
and profit sharing.
Equity release products and services enabling homeowners to generate income
or lump sums by accessing some of the value of the home while continuing to
live in it - see Lifetime mortgage.
Finance costs represent interest payable on the Group's Tier 2 and
Tier 3 debt.
Gross premiums written total premiums received by the Group in relation to
its Retirement Income and Protection sales in the period, gross of commission
paid.
Guaranteed Income for Life ("GIfL") retirement income products which
transfer the investment and longevity risk to the company and provide the
retiree a guarantee to pay an agreed level of income for as long as a retiree
lives. On a "joint-life" basis, continues to pay a guaranteed income to a
surviving spouse/partner. Just provides modern individually underwritten GIfL
solutions.
IFRS profit before tax one of the Group's KPIs, representing the profit
before tax attributable to equity holders.
In-force operating profit represents profits from the in-force portfolio
before investment and insurance experience variances, and assumption changes.
It mainly represents release of risk adjustment for non-financial risk and of
allowance for credit default in the period, investment returns earned on
shareholder assets, together with the value of the (net) CSM amortisation.
Investment and economic movements reflect the difference in the period
between expected investment returns, based on investment and economic
assumptions at the start of the period, and the actual returns earned.
Investment and economic profits also reflect the impact of assumption changes
in future expected risk-free rates, corporate bond defaults and house price
inflation and volatility.
Key performance indicators ("KPIs") KPIs are metrics adopted by the Board
which are considered to give an understanding of the Group's underlying
performance drivers. The Group's KPIs are Return on equity, Retirement income
sales, Underlying organic capital generation, New business profit, Underlying
operating profit, IFRS profit before tax, New business strain, Solvency II
capital coverage ratio and Tangible net asset value per share.
Lifetime mortgage ("LTM") an equity release product that allows homeowners
to take out a loan secured on the value of their home, typically with the loan
plus interest repaid when the homeowner has passed away or moved into
long-term care.
LTM notes structured assets issued by a wholly owned special purpose entity,
Just Re1 Ltd. Just Re1 Ltd holds two pools of lifetime mortgages, each of
which provides the collateral for issuance of senior and mezzanine notes to
Just Retirement Ltd, eligible for inclusion in its matching portfolio.
Medical underwriting the process of evaluating an individual's current
health, medical history and lifestyle factors, such as smoking, when pricing
an insurance contract.
Net asset value ("NAV") IFRS total equity, net of tax, and excluding equity
attributable to Tier 1 noteholders.
Net claims paid represents the total payments due to policyholders during
the accounting period, less the reinsurers' share of such claims which are
payable back to the Group under the terms of the reinsurance treaties.
Net investment income comprises interest received on financial assets and
the net gains and losses on financial assets designated at fair value through
profit or loss upon initial recognition and on financial derivatives and
interest accrued on financial assets which are measured at amortised cost.
New business margin the new business profit divided by Retirement Income
sales (shareholder funded). It provides a measure of the profitability of
Retirement Income sales.
New business profit an APM and one of the Group's KPIs, representing the
profit generated from new business written in the year after allowing for the
establishment of reserves and for future expected cash flows and risk
adjustment and allowance for acquisition expenses and other incremental costs
on a marginal basis. New business profit is reconciled to adjusted profit
before tax, and adjusted profit before tax is reconciled to IFRS profit before
tax in the Business Review.
New business strain one of the Group's APMs, representing the capital strain
on new business written in the year after allowing for acquisition expense
allowances and the establishment of Solvency II technical provisions and
Solvency Capital Requirements.
No-negative equity guarantee ("NNEG") hedge a derivative instrument designed
to mitigate the impact of changes in property growth rates on both the
regulatory and IFRS balance sheets arising from the guarantees on lifetime
mortgages provided by the Group which restrict the repayment amounts to the
net sales proceeds of the property on which the loan is secured.
Operating experience and assumption changes represents changes to cash flows
in the current and future periods valued based on end of period economic
assumptions.
Organic capital generation/(consumption) calculated in the same way as
Underlying organic capital generation/(consumption), but includes impact of
management actions and other operating items.
Other Group companies' operating results the results of Group companies
including our HUB group of companies, which provides regulated advice and
intermediary services, and professional services to corporates, and corporate
costs incurred by Group holding companies and the overseas start-ups.
Pension Freedoms/Pension Freedom and Choice/Pension Reforms the UK
government's pension reforms, implemented in April 2015.
Peppercorn rent a very low or nominal rent.
PrognoSys™ a next-generation underwriting system, which is based on
individual mortality curves derived from Just Group's own data collected since
its launch in 2004.
Regulated financial advice personalised financial advice for retail
customers by qualified advisers who are regulated by the Financial Conduct
Authority.
Retail sales (in reference to Just Group sales or products) collective term
for GIfL and Care Plan.
Retirement Income sales (shareholder funded) an APM and one of the Group's
KPIs and a collective term for GIfL, DB and Care Plan new business sales and
excludes DB partner premium. Retirement Income sales (shareholder funded) are
reconciled in note 9 to premiums included in the analysis of movement in
insurance liabilities in note 26.
Return on equity an APM and one of the Group's KPIs. Return on equity is
underlying operating profit after attributed tax for the period divided by the
average tangible net asset value for the period and expressed as an annualised
percentage. Tangible net asset value is reconciled to IFRS total equity in the
Business Review.
Risk adjustment for non-financial risk ("RA") allowance for longevity,
expense, and insurance specific operational risks representing the
compensation required by the business when managing existing and pricing new
business.
Secure Lifetime Income ("SLI") a tax efficient solution for individuals who
want the security of knowing they will receive a guaranteed income for life
and the flexibility to make changes in the early years of the plan.
Solvency II an EU Directive that codifies and harmonises the EU insurance
regulation. Primarily this concerns the amount of capital that EU insurance
companies must hold to reduce the risk of insolvency.
Solvency II capital coverage ratio one of the Group's KPIs. Solvency II
capital is the regulatory capital measure and is focused on by the Board in
capital planning and business planning alongside the economic capital measure.
It expresses the regulatory view of the available capital as a percentage of
the required capital.
Strategic expenditure Costs incurred for major strategic investment, new
products and business lines, and major regulatory projects.
Tangible net asset value ("TNAV") IFRS total equity attributable to ordinary
shareholders, excluding goodwill and other intangible assets, and after adding
back contractual service margin, net of tax.
Tangible net asset value per share an APM and one of the Group's KPIs,
representing tangible net asset value divided by the closing number of issued
ordinary shares excluding shares held in trust.
Trustees individuals with the legal powers to hold, control and administer
the property of a trust such as a pension scheme for the purposes specified in
the trust deed. Pension scheme trustees are obliged to act in the best
interests of the scheme's members.
Underlying earnings per share this measure is calculated by dividing
underlying operating profit after attributed tax by the weighted average
number of shares in issue by the Group for the period.
Underlying operating profit an APM and one of the Group's KPIs. Underlying
operating profit is calculated in the same way as adjusted operating profit
before tax but excludes operating experience and assumption changes.
Underlying operating profit is reconciled to adjusted operating profit before
tax, and adjusted operating profit before tax is reconciled to IFRS profit
before tax in the Business Review.
Underlying organic capital generation/(consumption) an APM and one of the
Group's KPIs. Underlying organic capital generation/(consumption) is the net
increase/(decrease) in Solvency II excess own funds over the year, generated
from ongoing business activities, and includes surplus from in-force, net of
new business strain, cost overruns and other expenses and debt interest. It
excludes strategic expenditure, economic variances, regulatory adjustments,
capital raising or repayment and impact of management actions and other
operating items The Board believes that this measure provides good insight
into the ongoing capital sustainability of the business. Underlying organic
capital generation/(consumption) is reconciled to Solvency II excess own
funds, and Solvency II excess own funds is reconciled to shareholders' net
equity on an IFRS basis in the Business Review.
Value at Risk a quantification of the extent of possible insurance losses
within a portfolio over a specific time frame.
Abbreviations
ABI - Association of British Insurers
AGM - Annual General Meeting
APM - alternative performance measure
Articles - Articles of Association
CMI - Continuous Mortality Investigation
Code - UK Corporate Governance Code
CP - Care Plans
CPI - consumer prices index
DB - Defined Benefit De-risking Solutions
DC - defined contribution
DSBP - deferred share bonus plan
EBT - employee benefit trust
EPS - earnings per share
ERM - equity release mortgage
ESG - environment, social and governance
EVT - effective value test
FCA - Financial Conduct Authority
FRC - Financial Reporting Council
GDPR - General Data Protection Regulation
GHG - greenhouse gas
GIfL - Guaranteed Income for Life
GIPA - Guaranteed Income Producing Asset
Hannover - Hannover Life Reassurance Bermuda Ltd
IFRS - International Financial Reporting Standards
IP - intellectual property
ISA - International Standards on Auditing
JRL - Just Retirement Limited
KPI - key performance indicator
LCP - Lane Clark & Peacock LLP
LPI - limited price index
LTIP - Long Term Incentive Plan
LTM - lifetime mortgage
MA - matching adjustment
MAR - Market Abuse Regulation
NAV - net asset value
NNEG - no-negative equity guarantee
ORSA - Own Risk and Solvency Assessment
PAG - Partnership Assurance Group
PLACL - Partnership Life Assurance Company Limited
PPF - Pension Protection Fund
PRA - Prudential Regulation Authority
PRI - United Nations Principles for Responsible Investment
PVIF - purchased value of in-force
PwC - PricewaterhouseCoopers LLP
REIT - Real Estate Investment Trust
RPI - retail price inflation
SAPS - Self-Administered Pension Scheme
SAYE - Save As You Earn
SCR - Solvency Capital Requirement
SFCR - Solvency and Financial Condition Report
SID - Senior Independent Director
SIP - Share Incentive Plan
SLI - Secure Lifetime Income
SME - small and medium-sized enterprise
STIP - Short Term Incentive Plan
tCO2e - tonnes of carbon dioxide equivalent
TMTP - transitional measures on technical provisions
TSR - total shareholder return
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR KZGGFGRMGDZGRecent news on Just
See all newsREG - Just Group plc - Result of AGM
AnnouncementREG - Just Group plc - Director/PDMR Shareholding
AnnouncementREG - Just Group plc - Director/PDMR Shareholding
AnnouncementREG - Just Group plc - Director/PDMR Shareholding
AnnouncementREG - Just Group plc - Holding(s) in Company
Announcement