TIDMJUST
RNS Number : 7709H
Just Group PLC
15 March 2018
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NEWS RELEASE www.justgroupplc.co.uk
15 March 2018
JUST GROUP PLC
RESULTS FOR THE YEARED 31 DECEMBER 2017
DISCIPLINED GROWTH, HIGHER MARGINS
Just Group plc(1) (the "Group", "Just") announces its results
for the year ended 31 December 2017(2).
Highlights
-- The Group's focus on profit over volume has delivered
a 35% pro forma(2) increase in adjusted operating
profit(3) . Statutory net profit in the 12 months
to December 2017 was GBP155m, up from GBP148m in
the 18 months to December 2016
-- New business profit(3) increased to GBP170m, up
37% compared to pro forma 2016(2) . New business
margin rose to 9.0% from 6.8% pro forma(2) , reflecting
our pricing discipline and the merger synergies.
Retirement Income sales rose by 4% compared to
the pro forma(2) 2016 level
-- We achieved a cost synergy run rate of GBP52m,
one year ahead of schedule and 30% above our initial
target. The merger is now substantially complete
-- After the year end the Group issued a GBP230m 7
year 3.5% Tier 3 bond. If it had been in place
at 31 December it would have increased our reported
solvency coverage ratio from 141% to 156%. We also
arranged a new banking facility and achieved an
inaugural credit rating during the year
-- Our Embedded Value(3) per share rose to 228p, with
IFRS Tangible Net Asset Value at 165p per share.
The Board proposes a final dividend up 6% to 2.55p,
making 3.72p of total dividends for the year, also
up 6%.
Rodney Cook, Group Chief Executive Officer, said:
"I am hugely proud of all that we have achieved during 2017. We
helped more customers than ever before to achieve a fair, secure
and fulfilling retirement. The Group also delivered on the promise
of the merger for shareholders. We increased operating profit by
35%, driven by our focus on profit over volume and by our
relentless pursuit of merger synergies.
Our capital structure and financial flexibility also improved
during the year. We recently put our new investment grade credit
rating to work and issued a GBP230m Tier 3 bond on attractive
terms, adding to our capital strength.
This increased financial flexibility positions us well to take
advantage of the opportunities in our growth markets. The defined
benefit de-risking market outlook is particularly exciting, as
corporate Britain seeks to complete the move to defined
contribution pensions, and as trustees re-assess the reliance on
sponsors' covenants. We expect substantial growth in the defined
benefit market over the next decade. The proportion of individual
customers shopping around to buy a retirement income continues to
grow, which increases our addressable market more quickly than the
overall guaranteed income for life market. The lifetime mortgage
market is growing particularly strongly as more and more homeowners
choose this route to improve their quality of later life without
having to sell their family home.
With the building blocks of our strategy firmly in place we can
face the future with renewed confidence. Our medically underwritten
pricing model works particularly effectively when we have more
risks to choose from, and the outlook in our three key markets is
supportive. Our focus is shifting back from integration to
innovation, and we are investing in our business to grow in new
areas and to diversify our sources of revenue. The results in 2017
reinforce our belief that we have a sustainable business model in
growing markets which will deliver well into the future. The 6%
increase in the dividend for the year reflects our confidence for
2018. All that remains is for me to thank the Just team for their
contribution to an outstanding first full year of operation."
Notes
1. Following the merger with Partnership Assurance Group plc in
April 2016, Just Retirement Group plc changed its name first to JRP
Group plc and then following the 2017 Annual General Meeting to
Just Group plc.
2. Just Group plc changed its accounting reference date from 30
June to 31 December during 2016. The statutory comparative period
therefore covered the 18 months to 31 December 2016, including
Partnership Assurance Group's results for the nine months from
April to December 2016. The Directors have reported pro forma
comparative financial information on a calendar year basis as if
the two businesses were merged from 1 January 2016 in order to
better explain the operating and financial performance of the
Group.
3. 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 APM used give a more representative view of the
underlying performance of the Group. APM are identified in the
glossary at the end of this announcement.
FINANCIAL CALAR DATE
=================================== =================
Business update for the period 17 May 2018
ending 31 March 2018
=================================== =================
Annual General Meeting 17 May 2018
=================================== =================
Record date for proposed final 4 May 2018
dividend
=================================== =================
Payment of final dividend, subject 25 May 2018
to shareholder approval
=================================== =================
Expected announcement of interim 6 September 2018
results for the six months ending
30 June 2018
=================================== =================
Enquiries
Investors / Analysts Media
James Pearce, Director Stephen Lowe, Group Communications
of Group Finance Director
Telephone: +44 (0) 7715 Telephone: +44 (0) 1737
085 099 827 301
james.pearce@wearejust.co.uk press.office@wearejust.co.uk
Paul Kelly, Investor Relations Temple Bar Advisory
Manager Alex Child-Villiers
Telephone: +44 (0) 20 7444 William Barker
8127 Telephone: +44 (0) 20 7002
paul.kelly@wearejust.co.uk 1080
================================ =====================================
A presentation for analysts will take place at 10.00am today at
Nomura, One Angel Lane, London, EC4R 3AB. A live webcast will also
be available on www.justgroupplc.co.uk at 10:00am.
Due to security restrictions at the venue attendance is limited
to those who have registered.
A copy of this announcement, the presentation slides and
transcript will be available on the Group's website.
www.justgroupplc.co.uk
JUST GROUP PLC
GROUP COMMUNICATIONS
Vale House, Roebuck Close
Bancroft Road, Reigate
Surrey RH2 7RU
Forward-looking statements disclaimer:
This announcement in relation to Just Group plc and its
subsidiaries (the "Group") contains, and we may make other
statements (verbal or otherwise) containing, forward-looking
statements about the Group's current plans, goals and expectations
relating to future financial conditions, performance, results,
strategy and/or objectives.
Statements containing the words: 'believes', 'intends',
'expects', 'plans', 'seeks', 'targets', 'continues' and
'anticipates' or other words of similar meaning are forward-looking
(although their absence does not mean that a statement is not
forward-looking). Forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances
that 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 economic and
business conditions; asset prices; market-related risks such as
fluctuations in interest rates and exchange rates, and the
performance of financial markets generally; the policies and
actions of governmental and/or regulatory authorities including,
for example, new government initiatives related to the provision of
retirement benefits or the costs of social care; the impact of
inflation and deflation; market competition; changes in assumptions
in pricing and reserving for insurance business (particularly with
regard to mortality and morbidity trends, gender pricing and lapse
rates); risks associated with arrangements with third parties,
including joint ventures and distribution partners; inability of
reinsurers to meet obligations or unavailability of reinsurance
coverage; 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.
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 within
this announcement. The forward-looking statements only speak as at
the date of this document and the Group undertakes no obligation to
update or change any of the forward-looking statements contained
within this announcement or any other forward-looking statements it
may make. Nothing in this announcement should be construed as a
profit forecast.
Chief Executive Officer's Statement
FOCUSED ON GROWING PROFITS
We are focused on growing profits and in 2017 have delivered
increasing new business margins and profits
Introduction
I am pleased to present my CEO Statement for 2017. This year
marks the first full year's results post-merger (for the combined
two predecessor businesses, now reporting as Just Group plc), and I
am immensely proud of all we have achieved. We have demonstrated
that we can adapt and respond to the changing retirement and
regulatory landscapes to meet the needs of our customers, deliver
improved margins, sustainable growth in profits and have created
value for our shareholders.
Performance review
We compete in attractive growth markets and our strategy is
focused on growing profits not headline sales. Expanding markets
enable us to achieve profitable growth as selecting the most
attractive risks is easier when there is more business to choose
from. During 2017 we have improved margins and delivered
significant growth in new business operating profit and adjusted
operating profit. New business operating profit was GBP169.8m for
2017, an increase of 37% compared to the prior year, and adjusted
operating profit before tax grew in the same period by 35% and was
GBP220.6m. IFRS profit before tax for 2017 was GBP181.3m, an
increase of 5% compared to 2016.
In addition, we have delivered synergy benefits of GBP52m on a
run rate basis from the merger which is in excess of both our
original target of GBP40m and our revised target of GBP45m. This
has contributed materially to the Group's new business
profitability.
Our product range across Retirement Income, Drawdown and
Lifetime Mortgages is well established and presents a comprehensive
offering to at-retirement and in-retirement customers. During the
year, Retirement Income sales rose by 4% to GBP1,889.9m. Lifetime
Mortgages advances were GBP510.0m.
Once again we are proud to have been awarded Financial Adviser 5
Star service awards in both the Life & Pensions and Mortgages
categories, for the 13th and 10th consecutive years respectively.
This is a great achievement and a well-deserved reflection of the
Just customer experience that we have been working so hard to
deliver each and every day.
Capital and dividends
During the year the Group's primary insurance subsidiary, Just
Retirement Limited ("JRL"), achieved an inaugural Insurer Financial
Strength credit rating of A+, and in addition JRL and Just Group
plc achieved Issuer Default Ratings of single A.
Furthermore, the Group improved its liquidity options by
agreeing a GBP200m revolving credit facility with three banks which
remains undrawn.
The Group's Solvency Capital Requirement coverage ratio was
estimated at 141% at 31 December 2017 (31 December 2016: 151%), as
expected due to the transitional measures for technical provisions
("TMTP") recalculation and strong new business volumes written
during the year, with the majority of our own funds comprised of
Tier 1 capital. Our economic capital ratio at 31 December 2017 was
238% (31 December 2016: 216%).
Since year end our capital position has been strengthened
further by our successful issue of GBP230m 7 year Tier 3 capital at
a 3.5% coupon in February 2018.
The PRA continues to publish industry wide consultation papers
and supervisory statements setting out its expectations for certain
aspects of prudential regulation. There is a possibility that the
implementation of one or more of these could result in a change to
the regulatory capital position of the Group. We maintain frequent
dialogue with regulators to ensure we implement the emerging
policies appropriately.
The Board has proposed a final dividend of 2.55p per share, a
total of 3.72p per share for 2017. This is an increase of 6% from
2016.
Colleagues
In each of our markets we have teams focused on delivering for
our customers. It is the hard work, creativity and determination of
these teams that enable Just to succeed. Our colleagues ensure we
continue to respond effectively to the changing external
environment and their resilience and enthusiasm were critical to
the Group achieving the excellent set of results we have reported.
My thanks go to all our colleagues across the Group for their hard
work and support throughout the year and for their determination to
make a positive difference to our customers' lives.
And finally...
We have delivered what we set out to achieve during the year,
including the implementation of our new brand, Just. The rollout of
the new brand has provided the opportunity to bring together the
best of our predecessor companies and has encouraged our talented
colleagues across the Group to create new ways of achieving our
mission to deliver a fair, fulfilling and secure retirement for our
customers. The outlook remains favourable for each of our key
businesses. We have demonstrated our ability to grow profits and
position the Group to select the most attractive risks so that we
may grow sustainably and deliver value to our shareholders,
outstanding service to our customers and opportunities for our
people.
Rodney Cook
Group Chief Executive Officer
Note
Except where stated, commentary in the CEO's Statement relates
to the period 1 January 2017 to 31 December 2017 and comparisons to
the pro forma period 1 January 2016 to 31 December 2016.
Financial Review
STRONG performance
Strong performance reflecting the Group's continued focus on
margin and the benefits of synergies achieved post--merger
The Financial Review presents the results of the Group on both
statutory and pro forma reporting bases.
Just Retirement merged with Partnership to form Just Group at
the beginning of April 2016, and the accounting reference date was
subsequently changed from 30 June to 31 December. On a statutory
basis, the prior period comparative results are therefore the 18
month period ended 31 December 2016, and include the results of
Partnership Assurance Group plc ("Partnership") only for the nine
months following the merger.
In order to present information that enables a clearer
comparison of results for 2017, the Group has chosen to present
additional pro forma financial information for the 12 months ended
31 December 2016 prepared on the basis that the merger between Just
Retirement and Partnership had already taken place as at 1 January
2016. Pro forma information is unaudited. A reconciliation of pro
forma financial information to financial information for the 18
months to 31 December 2016 is given at the end of this section.
Within the Financial Review, the Group has presented a number of
alternative performance measures ("APMs"), used in addition to IFRS
statutory performance measures. The Board believes that the use of
APMs gives a more representative view of the underlying performance
of the Group. The APMs used by the Group are: new business
operating profit, in-force operating profit, underlying operating
profit, adjusted operating profit, new business sales, adjusted
earnings per share, Group European embedded value and economic
capital coverage ratio. Further information on APMs can be found in
the glossary together with a reference to where the APM has been
reconciled to the nearest statutory equivalent.
Adjusted operating profit
Adjusted operating profit is presented in the table below with
comparative information on a pro forma basis representing the
operating profit for the year ended 31 December 2016 for both Just
Retirement and Partnership as if they had been merged throughout
that period. The underlying assumptions have been aligned to be
consistent across both Group companies.
Adjusted operating profit before tax
The increase in adjusted operating profit before tax of 35%,
from GBP163.7m on a pro forma basis for the year ended 31 December
2016, to GBP220.6m for the year to 31 December 2017, is mainly a
reflection of the Group's continued focus on margin over volume, as
well as the benefits of the merger synergies. There has also been a
net positive contribution in the current year from the review of
the assumptions underlying the calculation of the Group's insurance
liabilities. These have partly been offset by a small increase to
the losses and expenses incurred by the Group's non-insurance
entities and holding companies, and increased reinsurance and
finance costs.
New business operating profit
New business operating profit has increased by 37% on a pro
forma basis. This mainly reflected the increased margin achieved
which has risen from 6.8% to 9.0%. The volume of Retirement Income
sales rose by 4% compared to the prior period, demonstrating our
prioritisation of margin rather than volume. The margin improvement
was achieved through risk selection, pricing discipline, lower unit
costs from synergy savings, and more efficient asset-liability
management. In addition, the investment returns within our new
business margin assumptions benefited from sustained attractive
lifetime mortgage spreads.
In-force operating profit
The in-force operating profit was slightly lower than in the
prior period, mainly as a result of tightening corporate bond
spreads.
Underlying operating profit
The increase in underlying operating profit reflects movements
in new business operating profit and in-force operating profit as
explained above.
Operating experience and assumption changes
The favourable operating experience variances and assumption
changes were as a result of number of changes.
In relation to expense reserves, the delivery of integration
synergies has reduced the running per-policy costs, which has led
to the release of c.GBP90m of maintenance expense reserves.
The operating experience variances actually experienced in the
year amounted to a negative variance of GBP15m, being mainly driven
by early mortgage mortality.
In relation to mortality, a review has been completed on the
mortality basis of our mortgage and non-medically underwritten
defined benefit books to reflect the slower rate of longevity
improvement in the general population. The strain arising from our
mortgage mortality assumption changes was partly offset by
mortality releases from our non-medically underwritten DB reserves
and leading to a net charge of GBP30m.
These items, when combined with some other smaller negative
items of less than GBP10m, resulted in a net income statement
benefit of GBP35m in Operating experience and assumption
changes.
Other Group companies' operating results
The operating result for other Group companies changed from a
loss of GBP12.4m on a pro forma basis for the year to 31 December
2016 to a loss of GBP15.1m for the year to 31 December 2017. During
the year the Group brought the JRS and TOMAS businesses together as
HUB Financial Solutions, which is expected to improve the
efficiency of these business activities. This line item also
includes expenses relating to the Group's holding companies.
Reinsurance and finance costs
The increase in reinsurance and finance costs in 2017 mainly
reflects the inclusion of a full year's worth of interest costs
relating to the GBP250m Tier 2 debt issued in October 2016.
Adjusted operating profit - pro forma basis comparatives
Pro forma year ended
Year ended 31 December 2016
31 December 2017 Unaudited Change
GBPm GBPm %
============================================ ================== ===================== =======
New business operating profit 169.8 123.9 37
============================================ ================== ===================== =======
In-force operating profit 71.3 75.3 (5)
============================================ ================== ===================== =======
Underlying operating profit 241.1 199.2 21
============================================ ================== ===================== =======
Operating experience and assumption changes 34.6 2.6 1,231
============================================ ================== ===================== =======
Other Group companies' operating results (15.1) (12.4) 22
============================================ ================== ===================== =======
Reinsurance and finance costs (40.0) (25.7) 56
============================================ ================== ===================== =======
Adjusted operating profit before tax(1) 220.6 163.7 35
============================================ ================== ===================== =======
1 see reconciliation to IFRS profit before tax at the end of this Financial Review.
New business sales
New business sales for the year to 31 December 2017 are
presented in the table below together with comparative sales on a
pro forma basis representing sales for the year to 31 December 2016
for both Just Retirement and Partnership.
Retirement Income sales increased by 4% on a pro forma basis.
Total new business sales increased by 2%, from GBP2,407.9m on a pro
forma basis for the year ended 31 December 2016, to GBP2,457.1m for
the year ended 31 December 2017. The main reasons for these
increases are explained below.
DB sales were GBP997.8m for 2017 (2016 pro forma DB sales:
GBP943.4m), increasing by 6% year on year. The momentum in DB
continues to be strong and it is expected to grow substantially
over the next decade. We have made a strong start in 2018 and are
quoting on a healthy pipeline of new Buy-in and Buy-out
business.
GIfL sales increased by 5% year on year to GBP820.5m, compared
to pro forma 2016 sales of GBP778.1m. During 2017 GIfL sales
benefited from individual customers transferring from their defined
benefit pension schemes into a pensions drawdown and GIfL mix. The
GIfL outlook remains positive for the Group, especially as the
trend for retirees to shop around the market gathers momentum.
Care Plan sales for 2017 were GBP71.6m, down from pro forma 2016
sales of GBP97.2m, reflecting renewed emphasis on risk selection,
and political uncertainty in relation to Care provision around the
time of the general election. The Group remains one of the market
leaders in this sector.
Drawdown sales were GBP51.2m for the year ended 31 December 2017
(pro forma 2016: GBP25.2m) and mainly represent Flexible Pension
Plan ("FPP") sales. The FPP allows consumers to take advantage of
Pensions Freedoms and this product continues to grow in popularity.
During the year we closed our sub-scale Protection product to new
business. Protection sales for 2017 were GBP6.0m (2016 pro forma
sales: GBP4.7m).
Lifetime mortgage advances were GBP510.0m in the year (pro forma
2016: GBP559.3m). We take a risk based approach towards our
mortgage appetite and use the longer duration characteristics of
these assets to provide an optimum backing ratio relative to the
shape of the liabilities we write during a particular period.
NEW BUSINESS SALES - pro forma basis comparatives
Pro forma
year
ended
Year ended 31
31 December
December 2016
2017 Unaudited Change
GBPm GBPm %
================================ =========== =========== =======
Defined Benefit De-risking
Solutions ("DB") 997.8 943.4 6
================================ =========== =========== =======
Guaranteed Income for Life
Solutions ("GIfL") 820.5 778.1 5
================================ =========== =========== =======
Care Plans ("CP") 71.6 97.2 (26)
================================ =========== =========== =======
Retirement Income sales 1,889.9 1,818.7 4
================================ =========== =========== =======
Drawdown 51.2 25.2 103
================================ =========== =========== =======
Total Retirement sales 1,941.1 1,843.9 5
================================ =========== =========== =======
Protection 6.0 4.7 28
================================ =========== =========== =======
Lifetime Mortgage ("LTM") loans
advanced 510.0 559.3 (9)
================================ =========== =========== =======
Total new business sales 2,457.1 2,407.9 2
================================ =========== =========== =======
Earnings per share
Adjusted earnings per share ("EPS") for the Group is shown in
the table below, with comparatives on a pro forma basis. Adjusted
EPS (based on adjusted operating profit after attributed tax) shows
a 36% increase compared to the pro forma comparative figure. This
increase reflects the trends in operating profit described above,
together with a reduction in the tax rate attributed to operating
profit from 20.00% to 19.25%, in line with effective tax rates.
Adjusted earnings per share - pro forma basis comparatives
Pro forma unaudited
Year ended 31 December Year ended 31 December
2017 2016
=================================== ===================================
Weighted Weighted
average Earnings average Earnings
Earnings number per share Earnings number per share
GBPm of shares pence GBPm of shares pence
========= ========= =========== =========== ========= =========== ===========
Adjusted 178.1 930.0 19.15 131.0 930.8 14.07
Capital management
The Group continues to manage its business on both regulatory
and economic capital bases.
Just Group plc estimated Solvency II capital position
The Solvency II regime came into effect on 1 January 2016. The
Group has approval to apply the matching adjustment ("MA") and
transitional measures for technical provisions ("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").
The Group's Solvency II position was as follows:
31 December
2017
31 December
(estimated) 2016(1)
Unaudited GBPm GBPm
============================= ============= ============
Capital resources
============================= ============= ============
Own funds 2,269 2,100
Solvency Capital Requirement (1,606) (1,394)
============================= ============= ============
Excess own funds 663 706
============================= ============= ============
Solvency coverage ratio 141% 151%
============================= ============= ============
1 Just Group plc Solvency Financial Condition Report published 30 June 2017.
Movement in excess capital resources(1)
Unaudited GBPm
====================================================== ======
Excess own funds at 31 December 2016 706
====================================================== ======
Notional TMTP recalculation at 31 December
2016 (40)
====================================================== ======
In-force surplus (including impact of TMTP
amortisation) 128
====================================================== ======
New business strain and expenses (105)
====================================================== ======
Cost vs expected 2018 cost base (22)
====================================================== ======
Integration costs (21)
====================================================== ======
Dividends and interest (59)
====================================================== ======
Other, including economic and investment fluctuations 76
====================================================== ======
Excess own funds at 31 December 2017 663
====================================================== ======
1 All figures are net of tax.
Estimated Group Solvency II sensitivities:
Unaudited % GBPm
===================================== ==== ======
Solvency coverage ratio/excess own
funds at 31 December 2017 141 663
===================================== ==== ======
-50 bps fall in interest rates (no
TMTP recalculation) -18 (257)
===================================== ==== ======
-50 bps fall in interest rates (with
TMTP recalculation) -6 (38)
===================================== ==== ======
+100 bps credit spreads -4 (66)
===================================== ==== ======
+10% LTM early redemption 1 9
===================================== ==== ======
-10% property values(1) -12 (174)
===================================== ==== ======
-5% mortality -13 (192)
===================================== ==== ======
1 Represents a 10% permanent fall below the assumed long-term trend for property prices.
The Group's capital position has benefited from our continued
focus on margin and pricing discipline together with careful asset
liability management. The Group's Solvency Capital Requirement
coverage ratio was estimated at 141% at 31 December 2017 after the
effect of the required TMTP recalculation at year end. This has
fallen from the 151% reported at 31 December 2016 but this figure
did not assume any TMTP recalculation. If we had anticipated the
TMTP recalculation within the 31 December 2016 figure the
comparative SCR coverage ratio would have been 148% on a comparable
basis. Additionally, as expected, the SCR coverage ratio was
impacted by new business strain from the strong new business
volumes written during the year.
Since the year end, the Group's capital position has been
further strengthened by the successful issue of GBP230m 7 year Tier
3 capital in February 2018. If this Tier 3 capital had been in
issue at the year end, the SCR coverage ratio would have benefitted
by circa 15 percentage points, increasing to an estimated 156% at
31 December 2017. The increase in risk-free rates since 31 December
2017 has also had a beneficial effect on the Group's capital
position.
The table above analyses the movement in excess own funds in the
12 months to 31 December 2017.
Summary of Just Group plc economic capital position
The table below shows the Group's economic capital position as
at 31 December 2017. The capital coverage ratio at 31 December 2017
remains strong at 238%, a 22 percentage point increase on the prior
year (31 December 2016: 216%). The increase in economic capital
mainly reflects the impact of new business written over the period
and the impact of expense synergies from the merger.
31 December 2017 31 December 2016
Unaudited GBPm GBPm
========================= ================= =================
Available capital 2,835 2,670
========================= ================= =================
Required capital (1,191) (1,234)
========================= ================= =================
Surplus Economic capital 1,644 1,436
========================= ================= =================
Capital Solvency ratio 238% 216%
========================= ================= =================
European Embedded Value ("EEV")
The Embedded Value result for Just Group plc for the year ended
31 December 2017 is summarised in the table below. EEV reporting is
not a statutory requirement, but supplementary disclosure intended
to facilitate users' understanding of the Group. The Directors have
therefore chosen not to include comparative figures including
Partnership for just nine months of an 18 month comparative period.
Comparative data for the year ended 31 December 2016 is instead
provided on a pro forma basis only as if the merger had taken place
on 1 January 2016. The underlying assumptions in the comparative
period were aligned across both companies.
Operating EEV earnings of GBP152.6m mainly relate to GBP160.8m
from new business written in the period and a positive contribution
of GBP33m from in-force business, offset by interest costs and
operating expenses. Non-operating earnings include integration
costs and the impact of revaluation of the Group's own debt. The
Group paid a dividend of GBP33.2m in the period representing the
final 2016 dividend and interim 2017 dividend.
EEV earnings for the 12 month period ended 31 December 2017 have
reduced by GBP161.9m compared to the prior year. This reduction is
primarily due to the EEV earnings for 2016 including large positive
economic variances from the fall in risk-free rates over 2016.
Statement of change in European embedded value
Pro forma(1)
Year ended Year ended
31 December 2017 31 December 2016
Unaudited GBPm GBPm
=================================== ================== ==================
Opening Group EEV 2,047.0 1,772.6
=================================== ================== ==================
Operating EEV earnings 152.6 175.3
=================================== ================== ==================
Non-operating EEV earnings (31.9) 107.2
=================================== ================== ==================
Total EEV earnings 120.7 282.5
=================================== ================== ==================
Other movements in IFRS net equity 8.0 12.4
=================================== ================== ==================
Dividend (33.2) (20.5)
=================================== ================== ==================
Closing Group EEV 2,142.5 2,047.0
=================================== ================== ==================
1 The opening Group EEV at 1 January 2016 has been stated on
harmonised assumptions, and after methodology changes made
following the introduction of the Solvency II regulatory regime at
1 January 2016.
Reconciliation of IFRS shareholders' net equity to EEV
31 December 31 December
2017 2016
Unaudited GBPm GBPm
======================================= ============ ============
Shareholders' net equity on IFRS basis 1,740.5 1,610.6
======================================= ============ ============
Goodwill (33.1) (33.1)
======================================= ============ ============
Intangibles (160.4) (183.9)
======================================= ============ ============
Adjustments to IFRS 20.3 58.4
======================================= ============ ============
EEV net worth 1,567.3 1,452.0
======================================= ============ ============
Value of in-force business 575.2 595.0
======================================= ============ ============
Group EEV 2,142.5 2,047.0
======================================= ============ ============
Statutory financial information and Key Performance
Indicators
The current year statutory financial information is for the year
ended 31 December 2017, and the comparative period statutory
financial information is for the 18 month period ended 31 December
2016. The comparative period statutory financial information
includes the results of Partnership Assurance Group from the date
of its acquisition at the beginning of April 2016. The Group's
accounting reference date was changed from 30 June to 31 December
during 2016, resulting in an 18 month accounting period.
Key Performance Indicators ("KPIs")
The Board has adopted the following metrics, which are
considered to give an understanding of the Group's underlying
performance drivers. These measures are referred to as key
performance indicators. The Board regularly reviews the KPIs
against our strategic objectives to ensure that we continue to have
the appropriate set of measures in place to assess and report on
our progress.
Year ended 18 months ended
31 December 2017 31 December 2016
GBPm GBPm
============================== ================== ==================
New business sales 2,457.1 3,480.6
============================== ================== ==================
New business operating profit 169.8 171.7
============================== ================== ==================
In-force operating profit 71.3 89.3
============================== ================== ==================
Adjusted operating profit 220.6 215.7
============================== ================== ==================
IFRS profit before tax 181.3 198.8
============================== ================== ==================
31 December 31 December
2017 2016
GBPm GBPm
====================================== ============ ============
IFRS net assets 1,740.5 1,610.6
====================================== ============ ============
European embedded value 2,142.5 2,047.0
====================================== ============ ============
Solvency II capital coverage ratio(1) 141% 151%
====================================== ============ ============
Economic capital coverage ratio 238% 216%
====================================== ============ ============
1 Estimated at 31 December 2017.
New business sales
GBP2,457.1m (18 months ended 31 December 2016: GBP3,480.6m)
The decrease between the two periods reflects the longer period
of account in the comparative accounting period. The section at the
beginning of the Financial Review shows our new business sales for
2017 on a pro forma basis 12 months basis.
New business operating profit
GBP169.8m (18 months ended 31 December 2016: GBP171.7m)
New business was written on a higher margin during 2017 than in
the comparative period for the 18 months to 31 December 2016.
However, due to the longer period of account in 2016, the absolute
value of this KPI has decreased from the prior period to the
current period. A comparison of the year to 31 December 2017 to the
year to 31 December 2016 on a pro forma basis is given at the
beginning of the Financial Review section.
In-force operating profit
GBP71.3m (18 months ended 31 December 2016: GBP89.3m)
The movement in in-force operating profit is due to the longer
period of account in the comparative period. A comparison of the
year to 31 December 2017 to the year to 31 December 2016 on a pro
forma basis, is given at the beginning of the Financial Review
section.
Adjusted operating profit
GBP220.6m (18 months ended 31 December 2016: GBP215.7m)
The movement in adjusted operating profit mainly reflects the
movements in new business and in-force operating profits explained
above, as well as the positive contribution from changes in
operating experience and assumption changes during the year, offset
by lower finance and reinsurance costs in the year to 31 December
2017 compared to the longer period of account in the comparative
period. A comparison of the year to 31 December 2017 to the year to
31 December 2016 on a pro forma basis is given at the beginning of
the Financial Review section.
IFRS profit before tax
GBP181.3m (18 months ended 31 December 2016: GBP198.8m)
The IFRS profit before tax mainly comprised the operating profit
of GBP220.6m and favourable investment and economic profits of
GBP22.6m, partly offset by integration costs of GBP25.6m and
GBP24.7m of amortisation of intangible assets.
IFRS net assets
GBP1,740.5m (31 December 2016: GBP1,610.6m)
The Group's total equity at 31 December 2017 was GBP1,740.5m,
GBP129.9m higher than at 31 December 2016. The growth in net assets
mainly reflects the profit after tax of GBP155.1m for the period
less the 2016 final dividend and 2017 interim dividend.
European embedded value ("EEV")
GBP2,142.5m (31 December 2016: GBP2,047.0m)
EEV at 31 December 2017 was GBP2,142.5m, an increase of GBP95.5m
compared to the closing value at 31 December 2016. The increase
principally reflects the value of new business written in the
period less the 2016 final dividend and 2017 interim dividend.
Solvency II capital coverage ratio
Estimated 141% (31 December 2016: 151%)
Solvency II has been the Group's regulatory capital basis since
1 January 2016. The Group's Solvency II capital coverage ratio at
31 December 2017 was estimated as 141% (31 December 2016: 151%). As
expected, this ratio reduced due to TMTP recalculation and strong
new business volumes written during the year. Since the year end,
the Group's capital position has been further strengthened by the
issue of GBP230m 7 year Tier 3 capital, in February 2018.
Economic capital coverage ratio
238% (31 December 2016: 216%)
Economic capital is a key risk-based capital measure. Economic
capital remained strong during the year. The increase in economic
capital mainly reflects the impact of new business written over the
period and the impact of expense synergies from the merger.
IFRS results
The current year statutory financial information is for the year
ended 31 December 2017, and the comparative period statutory
financial information is for the 18 month period ended 31 December
2016. The comparative period statutory financial information
includes the results of Partnership Assurance Group from the date
of its acquisition at the beginning of April 2016.
Adjusted operating profit before tax
The underlying trends in the profit components are explained in
the KPI section above.
Non-recurring and project expenditure
Non-recurring and project expenditure decreased from GBP21.1m
for the 18 month period ended 31 December 2016 to GBP11.6m for the
year ended 31 December 2017 and relates to a number of projects
across the Group including Solvency II and the reorganisation of
our corporate solutions and distribution businesses to form HUB
Financial Solutions. In the prior period the Group incurred
significant one-off costs relating to preparation for the Solvency
II regulatory reporting regime, which commenced on 1 January
2016.
Investment and economic profits
Investment and economic profits were GBP22.6m (18 month period
ended 31 December 2016: GBP93.1m), mainly reflecting the impact of
narrowing credit spreads, and positive corporate bond default
experience. There were no bond defaults during the period within
our portfolio during the year. These gains were partly offset by
changes to economic property assumptions. The prior period figure
benefited from a significant fall in risk-free rates.
Acquisition integration costs
Integration costs of GBP25.6m (18 month period ended 31 December
2016: GBP40.7m) related to the costs arising from the post-merger
integration of Just Retirement and Partnership. The restructuring
has delivered GBP52m of synergies on a run rate basis.
Acquisition transaction costs
Transaction costs of GBP23.4m in the prior period reflected the
one-off costs incurred in relation to the acquisition of
Partnership Assurance Group plc. This included advisory fees, legal
fees and stamp duty.
IFRS results
Year ended 18 months ended
31 December 2017 31 December 2016
GBPm GBPm
================================================= ================== ==================
New business operating profit 169.8 171.7
================================================= ================== ==================
In-force operating profit 71.3 89.3
================================================= ================== ==================
Underlying operating profit 241.1 261.0
================================================= ================== ==================
Operating experience and assumption changes 34.6 2.5
================================================= ================== ==================
Other Group companies' operating results (15.1) (18.4)
================================================= ================== ==================
Reinsurance and bank finance costs (40.0) (29.4)
================================================= ================== ==================
Adjusted operating profit before tax 220.6 215.7
================================================= ================== ==================
Non-recurring and project expenditure (11.6) (21.1)
================================================= ================== ==================
Investment and economic profits 22.6 93.1
================================================= ================== ==================
Acquisition integration costs (25.6) (40.7)
================================================= ================== ==================
Acquisition transaction costs - (23.4)
================================================= ================== ==================
Amortisation and impairment of intangible assets (24.7) (24.8)
================================================= ================== ==================
IFRS profit before tax 181.3 198.8
================================================= ================== ==================
Amortisation and impairment of intangible assets
Amortisation mainly relates to the value of the acquired
in-force business asset of GBP142.7m, which is being amortised over
10 years in line with the expected run-off of the in-force
business. Amortisation of the acquired in-force business relating
to Partnership Assurance Group plc during the year to 31 December
2017 was GBP14.3m (18 month period ended 31 December 2016:
GBP10.7m). Additionally in the prior period there were charges of
GBP3.8m relating to the impairment of brand and property lease
intangible assets.
Highlights from Condensed consolidated statement of
comprehensive income
The table below presents the Condensed consolidated statement of
comprehensive income for the Group, with key line item
explanations. The information is extracted from the statutory
consolidated statement of comprehensive income and is for the year
ended 31 December 2017 compared to the 18 month period ended 31
December 2016. The 18 month period ended 31 December 2016 includes
nine months of Partnership results.
18 months
Year ended ended
31 December 31 December
2017 2016
GBPm GBPm
========================================== ============= =============
Gross premiums written 1,893.4 2,693.5
========================================== ============= =============
Reinsurance premiums ceded (17.1) (1,553.4)
========================================== ============= =============
Reinsurance recapture 467.5 1,166.9
========================================== ============= =============
Net premium revenue 2,343.8 2,307.0
========================================== ============= =============
Net investment income 621.1 1,616.8
========================================== ============= =============
Fee and commission income 5.8 17.1
========================================== ============= =============
Total revenue 2,970.7 3,940.9
========================================== ============= =============
Net claims paid (638.1) (692.1)
========================================== ============= =============
Change in insurance liabilities (1,656.5) (2,406.7)
========================================== ============= =============
Change in investment contract liabilities (6.3) (15.5)
========================================== ============= =============
Acquisition costs (43.1) (53.6)
========================================== ============= =============
Other operating expenses (238.4) (341.5)
========================================== ============= =============
Finance costs (207.0) (232.7)
========================================== ============= =============
Total claims and expenses (2,789.4) (3,742.1)
========================================== ============= =============
Profit before tax 181.3 198.8
========================================== ============= =============
Income tax (26.2) (51.3)
========================================== ============= =============
Profit after tax 155.1 147.5
========================================== ============= =============
Gross premiums written
Gross premiums written for the year ended 31 December 2017 were
GBP1,893.4m (18 month period ended 31 December 2016: GBP2,693.5m).
The decrease between the two periods reflects the longer
comparative accounting period.
Net premium revenue
Net premium revenue increased slightly from GBP2,307.0m for the
18 months ended 31 December 2016 to GBP2,343.8m for the year ended
31 December 2017. The prior period included the impact of
reinsurance recaptures following the restructuring of a number of
reinsurance arrangements ahead of the commencement of Solvency II.
The current period reflects a fall in reinsurance premiums ceded
following the adoption of a strategy of use of longevity swaps
rather than quota share reinsurance.
Net investment income
Net investment income decreased from GBP1,616.8m for the 18
months ended 31 December 2016, to GBP621.1m for the year ended 31
December 2017. The main components of investment income are
interest earned and changes in fair value of the Group's corporate
bond, mortgage and other fixed income assets. The result for the
comparative period reflected the impact of the falling long-term
investment rate over the period, as well as the acquisition of
Partnership and a longer accounting period.
Net claims paid
Net claims paid decreased by GBP54.0m from GBP692.1m for the 18
month period ended 31 December 2016 to GBP638.1m for the year ended
31 December 2017. The decrease from the prior period is as a result
of the longer accounting period to 31 December 2016, the underlying
trend year on year is an increase in net claims paid, reflecting
the growth of the in-force book.
Change in insurance liabilities
Change in insurance liabilities decreased from a GBP2,406.7m
cost for the 18 months ended 31 December 2016 to a GBP1,656.5m cost
for the year ended 31 December 2017. The reduced cost compared to
the prior period partly reflects the longer accounting period to 31
December 2016, and also reflects the impact of reinsurance
recaptures during the prior period as noted in net premium revenue
above.
Acquisition costs
Acquisition costs have decreased by GBP10.5m from GBP53.6m for
the 18 months ended 31 December 2016 to GBP43.1m for the year ended
31 December 2017 reflecting mainly the longer accounting period in
the prior period, but also taking into account increased commission
paid on LTM sales compared to the previous period.
Other operating expenses
Other operating expenses decreased by GBP103.1m from GBP341.5m
for the 18 months ended 31 December 2016 to GBP238.4m for the year
ended 31 December 2017. The decrease mainly reflects the longer
accounting period in the prior period, together with costs of
integration during 2016. The current period also benefits from
post-merger synergy savings.
Finance costs
Finance costs decreased by GBP25.7m from GBP232.7m for the 18
months ended 31 December 2016 to GBP207.0m for the year ended 31
December 2017. The current year includes a full year's interest on
the Just Group plc subordinated debt, issued in October 2016,
although overall finance costs have decreased compared to the prior
period due to the longer accounting period in 2016.
Income tax
The income tax charge for the year ended 31 December 2017 was
GBP26.2m, an effective tax rate of 14.5% (18 months ended 31
December 2016: income tax charge of GBP51.3m and an effective tax
rate of 25.8%). The effective tax rate for the current year has
been driven by one-off adjustments to tax recognised on prior year
profits.
Highlights from Condensed consolidated statement of financial
position
The table presents selected items from the Condensed
consolidated statement of financial position, with key line item
explanations below. The information below is extracted from the
statutory consolidated statement of financial position.
31 December 31 December
2017 2016
GBPm GBPm
========================================= ============ ============
Assets
========================================= ============ ============
Financial investments 18,287.1 17,319.6
========================================= ============ ============
Reinsurance assets 5,285.3 6,057.1
========================================= ============ ============
Other assets 592.5 517.8
========================================= ============ ============
Total assets 24,164.9 23,894.5
========================================= ============ ============
Share capital and share premium 188.0 185.0
========================================= ============ ============
Other reserves 881.1 881.1
========================================= ============ ============
Accumulated profit and other adjustments 671.4 544.5
========================================= ============ ============
Total equity 1,740.5 1,610.6
========================================= ============ ============
Liabilities
========================================= ============ ============
Insurance liabilities 16,633.0 15,748.0
========================================= ============ ============
Other financial liabilities 5,045.4 5,740.8
========================================= ============ ============
Insurance and other payables 85.5 113.1
========================================= ============ ============
Other liabilities 660.5 682.0
========================================= ============ ============
Total liabilities 22,424.4 22,283.9
========================================= ============ ============
Total equity and liabilities 24,164.9 23,894.5
========================================= ============ ============
Financial investments
Financial investments increased by GBP1.0bn from GBP17.3bn at 31
December 2016 to GBP18.3bn at 31 December 2017; the increase being
mainly a result of the continued investment of new business
premiums into corporate bonds, gilts, loans secured by mortgages,
and other fixed income investments. The quality of the corporate
bond portfolio remains high, with 61% of the Group's corporate bond
and gilts portfolio rated A or above (31 December 2016: 62%) and is
well balanced across a range of industry sectors. The loan-to-value
ratio of the mortgage portfolio at 31 December 2017 was
approximately 29% (31 December 2016: 28%).
The sector analysis of the Group's financial investments
portfolio at 31 December 2017 is shown below and is well balanced
across a variety of industry sectors.
The following table provides a breakdown by credit rating of
financial investments.
31 December 31 December 31 December 31 December
2017 2017 2016 2016
GBPm % GBPm %
=========================== ============ ============ ============ ============
AAA(1) 1,751.1 9.6 1,359.9 7.9
=========================== ============ ============ ============ ============
AA and gilts 1,523.0 8.3 1,603.2 9.2
=========================== ============ ============ ============ ============
A 3,397.2 18.6 3,471.0 20.0
=========================== ============ ============ ============ ============
BBB 3,944.8 21.6 3,759.0 21.7
=========================== ============ ============ ============ ============
BB or below 151.0 0.8 150.7 0.9
=========================== ============ ============ ============ ============
Unrated(1) 471.3 2.6 381.6 2.2
=========================== ============ ============ ============ ============
Loans secured by mortgages 7,048.7 38.5 6,594.2 38.1
=========================== ============ ============ ============ ============
Total 18,287.1 100.0 17,319.6 100.0
=========================== ============ ============ ============ ============
1 Includes units held in liquidity funds.
Sector analysis
31 December 31 December 31 December 31 December
2017 GBPm 2017 % 2016 GBPm 2016 %
=================== ============ ============ ============ ============
Basic materials 256.8 1.4 239.2 1.4
=================== ============ ============ ============ ============
Communications 817.3 4.5 871.3 5.0
=================== ============ ============ ============ ============
Auto manufacturers 291.9 1.6 273.7 1.6
=================== ============ ============ ============ ============
Consumer 846.3 4.6 896.1 5.2
=================== ============ ============ ============ ============
Energy 290.3 1.6 281.6 1.6
=================== ============ ============ ============ ============
Banks 2,227.3 12.2 2,355.6 13.6
=================== ============ ============ ============ ============
Insurance 819.3 4.5 841.6 4.8
=================== ============ ============ ============ ============
Financial - other 912.2 5.0 1,187.5 6.9
=================== ============ ============ ============ ============
Government 1,264.9 6.9 927.5 5.4
=================== ============ ============ ============ ============
Industrial 705.2 3.8 472.6 2.7
=================== ============ ============ ============ ============
Utilities 1,806.7 9.9 1,625.8 9.4
=================== ============ ============ ============ ============
Liquidity funds 897.9 4.9 645.5 3.7
=================== ============ ============ ============ ============
Lifetime Mortgages 6,833.3 37.4 6,430.4 37.1
=================== ============ ============ ============ ============
Other 317.7 1.7 271.2 1.6
=================== ============ ============ ============ ============
Total 18,287.1 100.0 17,319.6 100.0
=================== ============ ============ ============ ============
Reinsurance assets
Reinsurance assets decreased from GBP6.1bn at 31 December 2016
to GBP5.3bn at 31 December 2017. This reduction in the reinsurance
assets was as a result of reinsurance recapture, and increased use
of reinsurance swaps rather than quota share treaties following the
introduction of Solvency II.
Other assets
Other assets mainly comprise cash and cash equivalents, and
intangible assets.
Insurance liabilities
Insurance liabilities increased from GBP15.7bn at 31 December
2016 to GBP16.6bn at 31 December 2017. The increase in liabilities
arose as a result of new insurance business written less claims
paid, and some reduction due to the effect of rising long-term
interest rates.
Other financial liabilities
Other financial liabilities decreased from GBP5.7bn at 31
December 2016 to GBP5.0bn at 31 December 2017. These liabilities
are mainly reinsurance-related and include deposits received from
reinsurers, reinsurance financing and other reinsurance-related
balances. The change in the financial liability reflects the
liabilities arising on new business written during the period,
offset by claims paid, reinsurance recapture and the effect of
rising long-term interest rates in the period.
Insurance and other payables
Insurance and other payables decreased by GBP27.6m from
GBP113.1m at 31 December 2016 to GBP85.5m at 31 December 2017. This
change was mainly due to timing differences in the settlement of
investment transactions.
Other liabilities
Other liability balances decreased by GBP21.5m from GBP682.0m at
31 December 2016 to GBP660.5m at 31 December 2017. These balances
relate to a number of areas including investment contract
liabilities, subordinated debt, provisions, which have decreased
following the completion of merger integration work, and
corporation tax.
Total equity
Total equity increased by GBP129.9m from GBP1,610.6m at 31
December 2016 to GBP1,740.5m at 31 December 2017, reflecting profit
after tax for the period of GBP155.1m, dividends paid of GBP33.2m
and shares issued in respect of incentive schemes.
Dividends
The Group paid an interim dividend of 1.17 pence per share in
respect of the year ended 31 December 2017. The Board has
recommended a final dividend of 2.55 pence per share, bringing the
total dividend for the year ended 31 December 2017 to 3.72 pence
per share (18 month period ended 31 December 2016: 4.4 pence per
share).
Reconciliation of pro forma financial information to financial
information for the 18 months to 31 December 2016
The comparative figures discussed in the Financial Review are
the pro forma financial results for the calendar year to 31
December 2016 assuming that the merger of Just Retirement and
Partnership had taken place before the beginning of the year to 31
December 2016. The statutory comparative figures show the Group's
results for the eighteen months ended December 2016, including
Partnership since its acquisition at the beginning of April 2016.
In the opinion of the Directors, the pro forma information provides
a more meaningful comparison for evaluating the performance of the
Just Group in 2017.
Below are reconciliations between comparative pro forma adjusted
operating profits and comparative pro forma sales to the equivalent
comparative KPIs computed on a statutory basis. Reconciliation
between the sales KPI and gross written premiums and the adjusted
operating profit KPI and IFRS profit before tax, are set out in
note 7 to the financial statements. The Board believes that
adjusted operating profit, which excludes effects of short-term
economic and investment changes, provides a better view of the
longer-term performance and development of the business and aligns
with the longer-term nature of the products.
Reconciliation of pro forma comparative financial information
new business sales to new business sales KPI
Unaudited GBPm
===================================================== ========
Pro forma new business sales (unaudited), year to
31 December 2016 2,407.9
===================================================== ========
New business sales relating to Partnership Assurance
Group plc between 1 January 2016 and 31 March 2016 (160.5)
===================================================== ========
Post-acquisition new business sales 2,247.4
===================================================== ========
Effect of change in reporting date, for 6 months
to 31 December 2015 1,233.2
===================================================== ========
New business sales 18 months to 31 December 2016 3,480.6
===================================================== ========
Reconciliation of pro forma comparative financial information
adjusted operating profit to adjusted operating profit KPI
Unaudited GBPm
================================================= ======
Pro forma adjusted operating profit before
tax (unaudited), year to 31 December 2016 163.7
================================================= ======
Operating loss relating to Partnership Assurance
Group plc between 1 January 2016 and 31 March
2016 2.2
================================================= ======
Post-acquisition adjusted operating profit,
year to 31 December 2016 165.9
================================================= ======
Effect of change in reporting date, for 6
months to 31 December 2015 49.8
================================================= ======
Adjusted operating profit, 18 months to 31
December 2016 215.7
================================================= ======
SIMON THOMAS
Group Chief Financial Officer
Risk Management
STRONG RISK CULTURE
Through our strong risk culture, we are confident of making
better decisions to achieve business success
Principal risks and uncertainties
Risk management
Purpose
We use risk management to make better informed business
decisions that generate value for shareholders while delivering
appropriate outcomes for our customers and providing confidence to
other stakeholders. Our risk management processes are designed to
ensure that our understanding of risk underpins how we run the
business.
Risk framework
Our risk management framework is developed in line with our risk
environment and best practice. The framework, owned by the Group
Board, covers all aspects of risk management, including risk
governance, reporting and policies. Our appetite for different
types of risk is embedded across the business to create a culture
of confident risk taking.
Risk evaluation and reporting
We evaluate risks in our operating environment and decide how
best to manage them within our risk appetite. Management regularly
reviews its risks and produces reports to provide assurance that
material risks in the business are being mitigated. The Risk
function, led by the Group Chief Risk Officer ("GCRO"), challenges
the management team on the effectiveness of its risk evaluation and
mitigation. The GCRO provides the Group Board's Risk and Compliance
Committee with his independent assessment of the principal risks to
the business and emerging risk themes.
Financial risk modelling is used to assess the amount of each
risk type against our risk appetite. This modelling is aligned to
both our economic capital and regulatory capital metrics to allow
the Board to understand the capital requirements for our principal
risks. By applying stress and scenario testing, we gain insights
into how risks might impact the Group in different
circumstances.
Own Risk and Solvency Assessment
The Group's Own Risk and Solvency Assessment ("ORSA") further
embeds comprehensive risk reviews into our Group management
structure. Our annual ORSA report is a key part of our business
cycle and informs strategic decision making. ORSA updates are
prepared each quarter to keep the Board apprised of the Group's
evolving risk profile.
Principal Risks and Uncertainties
Mitigation and management
Description and impact action
===================================== ====================================
Risks from our chosen market Risk outlook - Stable
environment
Strategic objective
1 2 3 4 5
Change in the period - No
change
The Group operates in a market Our approach to legislative
where changes in pensions change is to participate
legislation can have a considerable actively and engage with
effect on our strategy and policymakers, and this will
could reduce our sales and not change.
profitability or require The Group offers a range
us to hold more capital. of retirement options, allowing
The Group has developed propositions it to remain agile in this
to enable customers to have changing environment, and
more flexible retirement has flexed its offerings
solutions. Customers' need in response to market dynamics.
for a secure income in retirement We believe we are well placed
continues and the Group expects to adapt to changing customer
that demand for guaranteed demand, supported by our
income for life solutions brand promise, innovation
will continue. credentials and financial
strength.
The most influential factors
in the successful delivery
of the Group's plans are
closely monitored to help
inform the business. The
factors include market forecasts
and market share, supported
by insights into customer
and competitor behaviour.
===================================== ====================================
Risks from our pricing assumptions Risk outlook - Stable
Strategic objective
1 2 3 4 5
Change in the period - No
change
Writing long-term DB de-risking, To manage the risk of our
GIfL and equity release business longevity assumptions being
requires a range of assumptions incorrect, the Group has
to be made based on market the benefit of extensive
data and historical experience, underwritten mortality data
including customers' longevity, to provide insights and
corporate bond yields, interest enhanced understanding of
rates, property values and the longevity risks that
expenses. These assumptions the Group chooses to take.
are applied to the calculation Longevity and other decrement
of the reserves needed for experience is analysed to
future liabilities and solvency identify any outcomes materially
margins using recognised different from our assumptions
actuarial approaches. and is used for the regular
The Group's assumptions on review of the reserving
these risk factors may be assumptions for all products.
materially inaccurate, requiring Some longevity risk exposure
them to be recalibrated. is shared with reinsurance
This could affect the level partners, who perform due
of reserves needed, with diligence on the Group's
an impact on profitability approach to risk selection.
and the Group's solvency There is a related counterparty
position. risk of a reinsurer not
meeting its repayment obligations.
This risk is typically mitigated
through the reinsurer depositing
the reinsurance premiums
back to the Group or into
third party trusts and by
collateral arrangements.
For equity release, the
Group underwrites the properties
against which it lends using
valuations from expert third
parties. The Group's property
risk is controlled by limits
to the initial loan-to-property
value ratio, supported by
product design features,
limiting specific property
types or regions, and monitoring
of the exposure to adverse
house price movements.
===================================== ====================================
Risks from regulatory changes Risk outlook - Stable
Strategic objective
1 2 3 4 5
Change in the period - No
change
The financial services industry We monitor and assess regulatory
continues to see a high level developments on an on-going
of regulatory activity and basis and engage fully with
intense regulatory supervision. the regulators. Our aims
This reflects in part an are to implement any required
increasing concern about changes effectively, and
the effect of the economic to deliver better outcomes
environment on the ability for our customers and competitive
of insurers to continue to advantage for the business.
be able to meet policyholder Just has an approved partial
obligations. The regulatory internal model to calculate
agenda for the coming year a Group Solvency Capital
covers many areas directly Requirement, and intends
relevant to the Group. to progress an internal
Further to the implementation model major change application
of Solvency II, the PRA has for Partnership Life Assurance
published and continues to Company Limited to use the
publish supervisory statements Group internal model.
that set out its expectations The Group has recalculated
for certain aspects of prudential its transitional measure
regulation. This includes on technical provisions
to date statements relating ("TMTP") in accordance with
to illiquid assets, matching the Solvency II directive
adjustments and transitional which allows for a recalculation
provisions. There is a risk of the TMTP every 24 months.
that the implementation of We will continue to engage
one or more of these statements with the PRA to understand
could result in a negative and seek to influence its
impact on the regulatory developing views on prudential
capital position of the Group. regulation. The Group is
The Financial Conduct Authority also engaging with industry
("FCA") is developing a strategy bodies to ensure an appropriate
to address the challenges implementation of supervisory
for financial services of statements.
the ageing UK population We actively seek to participate
and is pursuing reviews and in all regulatory initiatives
initiatives pertinent to which may affect or provide
the retirement and mortgage future opportunities for
markets. the Group. We aim to champion
The EU General Data Protection outcomes that are positive
Regulation ("GDPR") comes for consumers by ensuring
into effect on 25 May 2018. their retirement needs are
Although many of the GDPR's understood. We develop our
requirements are already strategy by giving consideration
present in the UK Data Protection to planned political and
Act 1998 ("DPA"), its requirements regulatory developments
are more prescriptive and and allow for contingencies
the rights of consumers are should outcomes differ from
clearer and easier to enforce. our expectations.
The Solvency II risk margin We manage sensitive personal
is particularly sensitive data in accordance with
to movements in interest existing DPA requirements
rates, which can increase and are adjusting our existing
its volatility. The matching practices and processes
adjustment to meet Solvency to meet the requirements
II requirements makes management of the new regime.
of liquidity within the Group
more complex.
The ultimate terms of the
UK's exit from the EU could
have significant consequences
for the regulation and legislation
that apply to Just's operations.
===================================== ====================================
Risks from the economic environment Risk outlook - Increasing
Strategic objective
1 2 3 4 5
Change in the period - No
change
The premiums paid by the Economic conditions are
Group's customers are invested actively monitored and alternative
to enable future benefits scenarios modelled to better
to be paid. The economic understand the potential
environment and financial impacts of significant economic
market conditions have a changes on the amount of
significant influence on capital required to be held
the value of assets and liabilities to cover risks, and to inform
and on the income the Group management action plans.
receives. An adverse economic It is anticipated that the
environment could increase UK's withdrawal from the
the risk of credit downgrades EU will have limited direct
and defaults in our corporate impact on the Group as it
bond portfolio. is predominantly UK-based
The lack of clarity regarding with no services provided
the UK's future trading arrangements into other countries of
with the EU has introduced the EEA, and its customers
material uncertainty for and policyholders are predominantly
the UK's macro-economic outlook UK-based. However, the Group
in the medium and long-term. remains exposed to the indirect
It is too early to be clear impact that the UK's withdrawal
on the long-term implications may have on the UK economy
of departure from the EU as a whole, including its
for the UK economy and indeed residential housing market.
the wider economic impacts Any changes to the regulatory
on the rest of Europe and environment as a result
the world. Market conditions of the UK's withdrawal are
may become more volatile. being monitored.
In an environment of low The Group's strategy is
interest rates, investors to buy and hold high-quality,
may be more willing to accept lower-risk assets in its
higher credit and liquidity investment portfolio to
risk to improve investment ensure that it has sufficient
returns. These conditions income to meet outgoings
could make it difficult to as they fall due. Portfolio
source sufficient assets credit risk is managed by
to offer attractive DB de-risking specialist fund managers
and GIfL terms. Low credit executing a diversified
spreads similarly affect investment strategy in investment
the income that can be made grade assets within counterparty
available, although margins limits.
from our equity release portfolio In a low interest rate environment,
help offset this risk. improved returns are sought
Most defined benefit pension by diversifying the types,
schemes link member benefits geographies and industry
to inflation through indexation. sectors of investment assets.
As the Group's Defined Benefit Such diversification creates
De-risking business volumes an exposure to foreign exchange
grow, its exposure to inflation risk, which is controlled
risk increases. using derivative instruments.
A fall in residential property Swaps and swaptions are
values could reduce the amounts used to reduce exposures
received from equity release to interest rate volatility.
redemptions and may also The credit exposure to the
affect the relative attractiveness counterparties with whom
of the equity release product we transact these instruments
to customers. The regulatory is mitigated by collateral
capital needed to support arrangements.
the possible shortfall in The Group's exposure to
the redemption of equity inflation risk through the
release mortgages also increases Defined Benefit De-risking
if property values drop. business is managed with
Uncertainty following the inflation hedges.
UK's withdrawal from the Liquidity risk is managed
EU could result in property by ensuring that assets
values stagnating or even of a suitable maturity and
falling in some, or all, marketability are held to
UK regions. Conversely, significant meet liabilities as they
future rises in property fall due. Sufficient liquid
values could increase early assets are maintained so
mortgage redemptions, leading the Group can readily access
to an earlier receipt of the cash it needs should
anticipated cash flows and business cash inflows unexpectedly
reinvestment risk. reduce.
Market risks may affect the There is little short-term
liquidity position of the volatility in the Group's
Group by, for example, having cash flows, which can be
to realise assets to meet reliably estimated in terms
liabilities during stressed of timing and amount. Regular
market conditions or to service cash flow forecasts predict
collateral requirements due liquidity levels both short
to the changes in market term and long term and stress
value of financial derivatives. tests help us understand
any potential periods of
strain. The Group's liquidity
requirements have been comfortably
met over the past year and
forecasting confirms that
this position can be expected
to continue for both investments
and business operations.
===================================== ====================================
Risks arising from operational Risk outlook - Stable
processes and IT systems
Strategic objective
1 2 3 4 5
Change in the period - No
change
The Group relies on its operational The Group maintains a suite
processes and IT systems of risk management tools
to conduct its business, to help identify, measure,
including the pricing and monitor, manage and report
sale of its products, measuring its operational risks including
and monitoring its underwriting those arising from operational
liabilities, processing applications processes and IT systems.
and delivering customer service These include a risk management
and maintaining accurate system, risk and control
records. These processes assessments, risk event
and systems may not operate management, loss reporting,
as expected, may not fulfil scenario analysis and risk
their intended purpose or reporting through the ORSA.
may be damaged or interrupted The Group maintains plans
by human error, unauthorised and controls to minimise
access, natural disaster the risk of business disruption
or similarly disruptive events. and information security
Any failure of the Group's related events. Detailed
IT and communications systems incident and crisis management
and/or third party infrastructure plans also exist to ensure
on which it relies could effective responses. These
lead to costs and disruptions are supported by specialist
that could adversely affect third parties for our workplace
its business as well as harm recovery centre.
its reputation. Our approach to information
As witnessed in 2017, large security is under constant
organisations are increasingly review as the cyber-threat
becoming targets for cyber-crime, landscape evolves. Due diligence
particularly those organisations is performed on all partners
that hold customers' personal to ensure that they work
details. The Group is no to the same high security
exception and a cyber-attack standards as the Group.
could affect customer confidence, The Group continues to invest
or lead to financial losses. in its information security
control environment but
we recognise that the speed
of change in cyber-threats
means that a risk exposure
remains.
===================================== ====================================
Risks to the Group's brands Risk outlook - Stable
and reputation
Strategic objective
1 2 3 4 5
Change in the period - No
change
We believe everyone deserves The Group actively seeks
a fair, fulfilling and secure to differentiate its business
retirement. Our aim is to from competitors by investing
help people to rethink retirement in brand-enhancing activities.
to achieve this. Our Just Fairness to customers and
brand reflects the way we high service standards are
intend to conduct our business at the heart of the Just
and treat our customer and brand, and we encourage
wider stakeholder groups. our colleagues to take pride
There is a risk that the in the quality of service
Group's brands and reputation they provide to our customers.
could be damaged if the Group Engaging our colleagues
is perceived to be acting, in the Just brand and its
even unintentionally, below associated values has been,
the standards we set for and remains, a critical
ourselves. Damage to our part of our internal activity.
brand or reputation may adversely The Group maintains a system
affect our underlying profitability, of internal control, and
through reducing sales volumes, associated policies and
restricting access to distribution operational procedures,
channels and attracting increased that defines the standards
regulatory scrutiny. we expect of all colleagues.
Additionally, the Group's
brands and reputation could
be threatened by external
risks such as regulatory
intervention or enforcement
action, either directly or
as a result of contagion
from other companies in the
sectors in which we operate.
Strategic objectives
1 Grow our markets and broaden our distribution reach
2 Give customers a distinctly 'Just' experience every time
3 Make smart risk choices
4 Focus on strong financial management
5 Diversify our business away from any single business line or
market
Consolidated statement of comprehensive income
for the year ended 31 December 2017
Year 18 months
ended ended
31 December 31 December
2017 2016
Note GBPm GBPm
======================================== ===== ============= =============
Gross premiums written 1,893.4 2,693.5
======================================== ===== ============= =============
Reinsurance premiums ceded (17.1) (1,553.4)
======================================== ===== ============= =============
Reinsurance recapture 467.5 1,166.9
======================================== ===== ============= =============
Net premium revenue 2,343.8 2,307.0
======================================== ===== ============= =============
Net investment income 3 621.1 1,616.8
======================================== ===== ============= =============
Fee and commission income 5.8 17.1
======================================== ===== ============= =============
Total revenue 2,970.7 3,940.9
======================================== ===== ============= =============
Gross claims paid (1,098.8) (1,204.5)
======================================== ===== ============= =============
Reinsurers' share of claims paid 460.7 512.4
======================================== ===== ============= =============
Net claims paid (638.1) (692.1)
======================================== ===== ============= =============
Change in insurance liabilities:
======================================== ===== ============= =============
Gross amount (884.7) (2,687.1)
======================================== ===== ============= =============
Reinsurers' share (304.3) 1,447.3
======================================== ===== ============= =============
Reinsurance recapture (467.5) (1,166.9)
======================================== ===== ============= =============
Net change in insurance liabilities (1,656.5) (2,406.7)
======================================== ===== ============= =============
Change in investment contract
liabilities 23 (6.3) (15.5)
======================================== ===== ============= =============
Acquisition costs 4 (43.1) (53.6)
======================================== ===== ============= =============
Other operating expenses 5 (238.4) (341.5)
======================================== ===== ============= =============
Finance costs 6 (207.0) (232.7)
======================================== ===== ============= =============
Total claims and expenses (2,789.4) (3,742.1)
======================================== ===== ============= =============
Profit before tax 7 181.3 198.8
======================================== ===== ============= =============
Income tax 8 (26.2) (51.3)
======================================== ===== ============= =============
Profit for the period 155.1 147.5
======================================== ===== ============= =============
Other comprehensive income:
======================================== ===== ============= =============
Items that may be reclassified
subsequently to profit or loss:
======================================== ===== ============= =============
Exchange differences on translating
foreign operations - 0.4
======================================== ===== ============= =============
Total comprehensive income for
the period 155.1 147.9
======================================== ===== ============= =============
Profit attributable to:
======================================== ===== ============= =============
Equity holders of Just Group plc 155.1 147.5
======================================== ===== ============= =============
Profit for the period 155.1 147.5
======================================== ===== ============= =============
Total comprehensive income attributable
to:
======================================== ===== ============= =============
Equity holders of Just Group plc 155.1 147.9
======================================== ===== ============= =============
Total comprehensive income for
the period 155.1 147.9
======================================== ===== ============= =============
Basic earnings per share (pence) 12 16.68 20.16
======================================== ===== ============= =============
Diluted earnings per share (pence) 12 16.54 20.02
======================================== ===== ============= =============
The notes are an integral part of these financial
statements.
Consolidated statement of changes in equity
for the year ended 31 December 2017
Shares
held Total
Share Share Reorganisation Merger by Accumulated shareholders'
Year ended 31 capital premium reserve reserve trusts profit(2) equity
December 2017 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ===== ========= ========= =============== ========= ======== ============ ===============
Balance at 1
January 2017 93.3 91.7 348.4 532.7 (1.6) 546.1 1,610.6
================== ===== ========= ========= =============== ========= ======== ============ ===============
Profit for the
year - - - - - 155.1 155.1
================== ===== ========= ========= =============== ========= ======== ============ ===============
Other
comprehensive
income for the
year - - - - - - -
================== ===== ========= ========= =============== ========= ======== ============ ===============
Total
comprehensive
income for the
year - - - - - 155.1 155.1
================== ===== ========= ========= =============== ========= ======== ============ ===============
Contributions
and distributions
================== ===== ========= ========= =============== ========= ======== ============ ===============
Shares issued 21 0.5 2.5 - - - - 3.0
================== ===== ========= ========= =============== ========= ======== ============ ===============
Dividends 13 - - - - - (33.2) (33.2)
================== ===== ========= ========= =============== ========= ======== ============ ===============
Share-based
payments - - - - (3.4) 8.4 5.0
================== ===== ========= ========= =============== ========= ======== ============ ===============
Total
contributions
and distributions 0.5 2.5 - - (3.4) (24.8) (25.2)
================== ===== ========= ========= =============== ========= ======== ============ ===============
Balance at 31
December 2017 93.8 94.2 348.4 532.7 (5.0) 676.4 1,740.5
================== ===== ========= ========= =============== ========= ======== ============ ===============
Shares
held Total
Share Share Reorganisation Merger by Accumulated shareholders'
18 months ended capital premium reserve reserve trusts profit(2) equity
31 December 2016 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================== ===== ========= ========= =============== ========= ======== ============ ===============
Balance at 1
July 2015 50.1 1.2 348.4 - (0.7) 415.0 814.0
================== ===== ========= ========= =============== ========= ======== ============ ===============
Profit for the
period - - - - - 147.5 147.5
================== ===== ========= ========= =============== ========= ======== ============ ===============
Other
comprehensive
income for the
period - - - - - 0.4 0.4
================== ===== ========= ========= =============== ========= ======== ============ ===============
Total
comprehensive
income for the
period - - - - - 147.9 147.9
================== ===== ========= ========= =============== ========= ======== ============ ===============
Contributions
and distributions
================== ===== ========= ========= =============== ========= ======== ============ ===============
Shares issued
(net of issue
costs)(1) 21 43.2 90.5 - 532.7 - - 666.4
================== ===== ========= ========= =============== ========= ======== ============ ===============
Dividends 13 - - - - - (32.9) (32.9)
================== ===== ========= ========= =============== ========= ======== ============ ===============
Share-based
payments - - - - (0.9) 16.1 15.2
================== ===== ========= ========= =============== ========= ======== ============ ===============
Total
contributions
and distributions 43.2 90.5 - 532.7 (0.9) (16.8) 648.7
================== ===== ========= ========= =============== ========= ======== ============ ===============
Balance at 31
December 2016 93.3 91.7 348.4 532.7 (1.6) 546.1 1,610.6
================== ===== ========= ========= =============== ========= ======== ============ ===============
1 Share issue costs recognised directly in equity were GBP4.1m.
2 Includes Currency translation reserve.
The notes are an integral part of these financial
statements.
Consolidated statement of financial position
as at 31 December 2017
2017 2016
Note GBPm GBPm
====================================================== ===== ========= =========
Assets
====================================================== ===== ========= =========
Intangible assets 14 193.5 217.0
====================================================== ===== ========= =========
Property, plant and equipment 15 19.6 17.1
====================================================== ===== ========= =========
Financial investments 16 18,287.1 17,319.6
====================================================== ===== ========= =========
Investment in joint ventures and associates 0.3 0.3
====================================================== ===== ========= =========
Reinsurance assets 22 5,285.3 6,057.1
====================================================== ===== ========= =========
Deferred tax assets 17 13.0 10.3
====================================================== ===== ========= =========
Current tax assets 29 3.7 11.1
====================================================== ===== ========= =========
Prepayments and accrued income 18 56.5 53.3
====================================================== ===== ========= =========
Insurance and other receivables 19 44.5 137.3
====================================================== ===== ========= =========
Cash and cash equivalents 20 261.4 71.4
====================================================== ===== ========= =========
Total assets 24,164.9 23,894.5
====================================================== ===== ========= =========
Equity
====================================================== ===== ========= =========
Share capital 21 93.8 93.3
====================================================== ===== ========= =========
Share premium 21 94.2 91.7
====================================================== ===== ========= =========
Reorganisation reserve 348.4 348.4
====================================================== ===== ========= =========
Merger reserve 21 532.7 532.7
====================================================== ===== ========= =========
Shares held by trusts (5.0) (1.6)
====================================================== ===== ========= =========
Accumulated profit 676.4 546.1
====================================================== ===== ========= =========
Total equity attributable to owners of Just Group plc 1,740.5 1,610.6
====================================================== ===== ========= =========
Liabilities
====================================================== ===== ========= =========
Insurance liabilities 22 16,633.0 15,748.0
====================================================== ===== ========= =========
Investment contract liabilities 23 220.7 222.3
====================================================== ===== ========= =========
Loans and borrowings 24 343.9 343.1
====================================================== ===== ========= =========
Other financial liabilities 25 5,045.4 5,740.8
====================================================== ===== ========= =========
Deferred tax liabilities 17 39.2 46.4
====================================================== ===== ========= =========
Other provisions 28 2.1 8.5
====================================================== ===== ========= =========
Current tax liabilities 29 9.2 27.3
====================================================== ===== ========= =========
Accruals and deferred income 30 45.4 34.4
====================================================== ===== ========= =========
Insurance and other payables 31 85.5 113.1
====================================================== ===== ========= =========
Total liabilities 22,424.4 22,283.9
====================================================== ===== ========= =========
Total equity and liabilities 24,164.9 23,894.5
====================================================== ===== ========= =========
The notes are an integral part of these financial
statements.
The financial statements were approved by the Board of Directors
on 14 March 2018 and were signed on its behalf by:
Simon Thomas
Director
Consolidated statement of cash flows
for the year ended 31 December 2017
Year ended
31 December 2017 18 months ended 31 December 2016
Note GBPm GBPm
======================================================== ===== ================== =================================
Cash flows from operating activities
======================================================== ===== ================== =================================
Profit before tax 181.3 198.8
======================================================== ===== ================== =================================
Depreciation of equipment 1.8 2.6
======================================================== ===== ================== =================================
Loss on disposal of equipment 3.1 -
======================================================== ===== ================== =================================
Amortisation of intangible assets 25.2 24.3
======================================================== ===== ================== =================================
Impairment of intangible assets - 3.8
======================================================== ===== ================== =================================
Share-based payments 5.0 15.2
======================================================== ===== ================== =================================
Interest income (636.4) (683.1)
======================================================== ===== ================== =================================
Interest expense 207.0 232.7
======================================================== ===== ================== =================================
Increase in financial investments (410.3) (2,794.5)
======================================================== ===== ================== =================================
Decrease/(increase) in reinsurance assets 771.8 (280.5)
======================================================== ===== ================== =================================
Increase in prepayments and accrued income (3.2) (47.0)
======================================================== ===== ================== =================================
Decrease/(increase) in insurance and other receivables 92.5 (61.7)
======================================================== ===== ================== =================================
Increase in insurance liabilities 885.0 2,687.9
======================================================== ===== ================== =================================
Decrease in investment contract liabilities (1.6) (6.0)
======================================================== ===== ================== =================================
(Decrease)/increase in deposits received from reinsurers (675.9) 98.2
======================================================== ===== ================== =================================
Increase in accruals and deferred income 11.0 4.3
======================================================== ===== ================== =================================
(Decrease)/increase in insurance and other payables (27.6) 53.6
======================================================== ===== ================== =================================
(Decrease)/increase in other creditors (22.6) 219.4
======================================================== ===== ================== =================================
Interest received 399.0 388.1
======================================================== ===== ================== =================================
Interest paid (170.8) (208.6)
======================================================== ===== ================== =================================
Taxation paid (46.8) (35.9)
======================================================== ===== ================== =================================
Net cash inflow/(outflow) from operating activities 587.5 (188.4)
======================================================== ===== ================== =================================
Cash flows from investing activities
======================================================== ===== ================== =================================
Cash acquired on the acquisition of Partnership
Assurance Group plc 2 - 268.6
======================================================== ===== ================== =================================
Additions to internally generated intangible assets (1.7) -
======================================================== ===== ================== =================================
Acquisition of property and equipment (7.4) (10.3)
======================================================== ===== ================== =================================
Net cash (Outflow)/inflow from investing activities (9.1) 258.3
======================================================== ===== ================== =================================
Cash flows from financing activities
======================================================== ===== ================== =================================
Increase in borrowings - 202.1
======================================================== ===== ================== =================================
Interest paid (32.6) (6.0)
======================================================== ===== ================== =================================
Dividends paid (33.2) (32.9)
======================================================== ===== ================== =================================
Issue of ordinary share capital (net of costs) 3.0 96.9
======================================================== ===== ================== =================================
Net cash (outflow)/inflow from financing activities (62.8) 260.1
======================================================== ===== ================== =================================
Net increase in cash and cash equivalents 515.6 330.0
======================================================== ===== ================== =================================
Cash and cash equivalents at start of period 643.7 313.7
======================================================== ===== ================== =================================
Cash and cash equivalents at end of period 1,159.3 643.7
======================================================== ===== ================== =================================
Cash available on demand 261.4 71.4
======================================================== ===== ================== =================================
Units in liquidity funds 897.9 572.3
======================================================== ===== ================== =================================
Cash and cash equivalents at end of period 20 1,159.3 643.7
======================================================== ===== ================== =================================
The notes are an integral part of these financial
statements.
Notes to the Consolidated financial statements
1. Significant accounting policies
General information
Just Group plc (formerly JRP Group plc) (the "Company") was
incorporated and registered in England and Wales on 13 June 2013 as
a public company limited by shares. The Company's registered office
is Vale House, Roebuck Close, Bancroft Road, Reigate, Surrey, RH2
7RU.
1.1. Basis of preparation
The consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union effective for accounting
periods commencing on or before 1 January 2017 and those parts of
the Companies Act 2006 applicable to companies reporting under
IFRS.
The financial information set out above does not constitute
statutory accounts for the year ended 31 December 2017 or the
period ended 31 December 2016 but is derived from those accounts.
Statutory accounts for 2016 have been delivered to the registrar of
companies, and those for 2017 will be delivered in due course. The
auditor has reported on those accounts; their reports were (i)
unqualified, (ii) did not include a reference to any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 498 (2) or (3) of the Companies Act 2006.
The financial statements of Just Group plc have been prepared on
a going concern basis. The directors of the Company have a
reasonable expectation that the Group and the Company have adequate
resources to continue in operational existence for the foreseeable
future. In accordance with the requirements of IAS 1 the financial
statements' assets and liabilities have been presented based on
order of liquidity which provides information that is more reliable
and relevant for a financial institution.
The following new accounting standards, interpretations and
amendments to existing accounting standards in issue, but not yet
effective, have not been early adopted by the Group. Unless stated,
the new and amended standards and interpretations are being
assessed but are not expected to have a significant impact on the
Group's financial statements:
-- Amendments to IFRS 4, Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts (effective 1 January 2018).
The amendments to IFRS 4 allow the deferral of the application
of IFRS 9 until accounting periods commencing on 1 January 2021.
This is intended to align with the effective date of IFRS 17, the
replacement insurance contracts standard. This option, which the
Group intends to adopt, is subject to meeting criteria relating to
the predominance of insurance activity. At 31 December 2017, the
Group's insurance liabilities in relation to its total liabilities
were 96% and deferral of IFRS 9 was applicable.
The impact of adopting the amendments to IFRS 4 from 1 January
2018 is that additional disclosures will be required to allow
comparison with those entities which have adopted IFRS 9 from 1
January 2018. On application of IFRS 9 there is potential for
certain financial assets that are currently classified as fair
value through profit or loss to be reclassified as fair value
through other comprehensive income. However, the Group anticipates
that it will continue to designate these assets as fair value
through profit or loss under IFRS 9 under the option to do so when
it eliminates or significantly reduces an accounting mismatch which
would otherwise occur. Therefore the Group believes the impact of
adopting the amendments to IFRS 4 is not significant.
-- IFRS 15, Revenue from contracts with customers (effective 1 January 2018).
IFRS 15 specifies how and when an entity recognises revenue,
providing a single, principles-based model to be applied to all
contracts with customers, whilst requiring more informative and
relevant disclosures. Insurance contracts, although contracts with
customers, are outside the scope of IFRS 15. The core principle of
IFRS 15 is that an entity recognises revenue to depict the transfer
of promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. In the year to 31
December 2017 the main source of non-insurance contract income was
fee and commission income, which amounted to GBP5.8m. Under the
Group's existing accounting policies, fee and commission income is
recognised when the service is rendered. Therefore, the application
of IFRS 15 will not result in a material difference to when revenue
is recognised by the Group based on the current recognition policy
of non-insurance contract income.
-- IFRS 16, Leases (effective 1 January 2019).
IFRS 16 specifies how to recognise, measure, present and
disclose leases. The standard provides a single accounting model,
requiring lessees to recognise assets and liabilities for leases
unless the term is 12 months or less, or the underlying asset has a
low value.
The effect of applying this standard at 31 December 2017 would
be to recognise operating lease assets and lease payment
liabilities on the balance sheet with an approximate value of
GBP11.9m.
-- IFRS 17, Insurance Contracts (effective 1 January 2021, not yet endorsed by the EU).
IFRS 17 provides a comprehensive approach for accounting for
insurance contracts including their valuation, income statement
presentation and disclosure. The Group has initiated a project to
assess the financial and operational implications of the standard
and to prepare for adoption.
1.2. Significant 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 Consolidated statement of
comprehensive income, Consolidated statement of financial position,
other primary statements and Notes to the consolidated financial
statements.
The major areas of judgement used as part of accounting policy
application are summarised below.
Accounting policy Item involving Critical accounting
judgement judgement
================= ====================== ===========================
1.6 Classification Assessment of significance
of insurance and of insurance risk
investment contracts transferred.
================= ====================== ===========================
1.18 Financial investments Classification
of financial investments,
including assessment
of market observability
of valuation inputs.
================= ====================== ===========================
All estimates are based on management's knowledge of current
facts and circumstances, assumptions based on that knowledge and
predictions of future events and actions. Actual results may differ
significantly from those estimates.
The table below sets out those items the Group considers
susceptible to changes in critical estimates and assumptions
together with the relevant accounting policy.
Accounting policy Item involving estimates Critical estimates
and notes and assumptions and assumptions
================== ============================= ===========================
1.18, 16(a) and Measurement of fair The critical estimates
(d) value of loans secured used in valuing
by residential mortgages loans secured by
residential mortgages
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 risk-free
curve and used to
discount the mortgage
cash flows.
================== ============================= ===========================
1.19, 22, 25 Measurement of reinsurance The critical estimates
assets and deposits used in measuring
received from reinsurers the value of reinsurance
arising from reinsurance assets include the
arrangements projected future
cash flows arising
from reinsurers'
share of the Group's
insurance liabilities.
Deposits received
from reinsurers
are measured in
accordance with
the reinsurance
contract and taking
account of an appropriate
discount rate for
the timing of the
expected cash flows
of the liabilities.
The key assumptions
used in the valuation
include discount
rates and mortality
experience, as described
below, and assumptions
around the reinsurers'
ability to meet
its claim obligations.
================== ============================= ===========================
1.22, 22(b), 23(b) Measurement of insurance The critical estimates
liabilities arising used in measuring
from writing Retirement insurance liabilities
Income insurance/investment include the projected
contracts future Retirement
Income payments
and the cost of
administering payments
to policyholders.
The key assumptions
are the discount
rates and mortality
experience used
in the valuation
of future Retirement
Income payments.
The valuation discount
rates are derived
from yields on supporting
assets after deducting
allowances for default.
Mortality assumptions
are derived from
the appropriate
standard mortality
tables, adjusted
to reflect the future
expected mortality
experience of the
policyholders.
Further detail can
be found in notes
22 and 23.
================== ============================= ===========================
1.16, 2, 14 Assessment of carrying Intangible assets
value of intangible recognised on the
assets recognised acquisition of PAG
on acquisition of in 2016, including
Partnership Assurance the value of the
Group ("PAG") acquired in-force
business are reviewed
for indicators of
impairment and if
such indicators
exist, are tested
for impairment.
The key impairment
testing assumptions
include the choice
of discount rate
used, which represents
a weighted-average
cost of capital
determined using
a capital asset
pricing model ("CAPM")
approach.
1.3. Consolidation principles
The consolidated financial statements incorporate the assets,
liabilities, results and cash flows of the Company and its
subsidiaries.
Subsidiaries are those investees over which the Group has
control. The Group has control over an investee if all of the
following are met: (1) it has power over the investee; (2) it is
exposed, or has rights, to variable returns from its involvement
with the investee; and (3) 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
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.
1.4. 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 Office Committee.
The internal reporting used by the CODM includes product
information (which comprises analysis of product revenues, LTM
advances and amounts written under investment contracts) and
information on adjusted operating profit and profit before tax for
the Group's operating segments.
Product information is analysed by product line and includes DB,
GIfL, Care Plans, Protection, LTM and Capped Drawdown products.
An operating segment is a component of the Group that engages in
business activities from which it earns revenues and incurs
expenses.
The operating segments from which the Group derives revenues and
incurs expenses are as follows:
-- The writing of insurance products for distribution to the at-
or in-retirement market, which is undertaken through the activities
of the life company (this is referred to as the insurance segment
in note 7, Segmental reporting);
-- 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.
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.
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.
1.5. 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 period. Foreign exchange differences
arising on translation to sterling are accounted for through other
comprehensive income.
1.6. Classification of insurance and investment contracts
The measurement and presentation of assets, liabilities, income
and expenses arising from life and pensions business contracts 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.
Any contracts not considered to be insurance contracts under
IFRS are classified as investment contracts. Capped Drawdown
pension business and Flexible Pension Plan contracts are classified
as investment contracts as there is no transfer of longevity risk
due to the fixed term and unit-linked natures of these respective
contracts.
1.7. Premium revenue
Premium revenue in respect of Individual GIfL contracts is
accounted for when the premiums are received, which coincides with
when the liability to pay the GIfL contract is established.
Premium revenue in respect of Defined Benefit De-risking
contracts is accounted for when the Company becomes 'on risk',
which is the date from which the policy is effective. If a timing
difference occurs between the date from which the policy is
effective and the receipt of payment, the amount due for payment
but not yet received is recognised as a receivable in the
Consolidated statement of financial position.
Premium revenue in respect of Care Plans and Protection policies
are recognised in the accounting period in which the insurance
contract commences.
Facilitated adviser charges, are not accounted for within
premium revenue, and do not represent a charge on the Group.
Deposits collected under investment contracts are not accounted
for through the Consolidated statement of comprehensive income,
except for fee income and attributable investment income, but are
accounted for directly through the Consolidated statement of
financial position as an adjustment to the investment contract
liability.
Reinsurance premiums payable in respect of reinsurance treaties
are accounted for when the reinsurance premiums are due for payment
under the terms of the contract. Reinsurance premiums previously
incurred can be recaptured under certain conditions, notably once
reinsurance financing for an underwriting year is fully repaid.
1.8. Net investment income
Investment income consists of interest receivable for the period
and realised and unrealised gains and losses on financial assets
and liabilities at fair value through profit and loss.
Interest income is recognised as it accrues.
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 represent the difference between the carrying value at
the end of the reporting period and the carrying value at the start
of the reporting period or purchase value during the year, less the
reversal of previously recognised unrealised gains and losses in
respect of disposals made during the period.
1.9. Fee and commission income
Fee and commission income, which consists of fee income for
initial advances made on loans secured by mortgages, investment
management fees, administration fees and commission, are recognised
as the services are rendered. Revenue is recognised in full on
acceptance and inception of the contract by the product provider as
there are no post-placement obligations. In addition, operating
income includes fees from software licensing which are recognised
across the license period.
1.10. Claims paid
Policyholder benefits are accounted for when due for payment.
Reinsurance paid claim recoveries are accounted for in the same
period as the related claim.
Death claims are accounted for when notified.
1.11. Acquisition costs
Acquisition costs comprise direct costs such as commission and
indirect costs of obtaining and processing new business.
Acquisition costs are not deferred as they relate to single premium
business.
1.12. Leases
Leases, where a significant portion of the risks and rewards of
ownership are retained by the lessor, are classified as operating
leases. Payments made under operating leases, net of any incentives
received from the lessor, are charged to profit or loss on a
straight-line basis over the term of the lease.
1.13. Finance costs
Finance costs on deposits received from reinsurers are
recognised as an expense in the period in which they are incurred.
Interest on reinsurance financing is accrued in accordance with the
terms of the financing arrangements.
Interest on loans and borrowings is accrued in accordance with
the terms of the loan agreement. Loan issue costs are capitalised
and amortised on a straight-line basis over the term of the loan
issued. Interest expense is calculated using the effective interest
rate method.
1.14. 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 is expensed in the Consolidated
statement of comprehensive income on a straight-line basis over the
vesting period, with a corresponding credit to equity, based on the
Group's estimate of the equity instruments that will eventually
vest. 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 change 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.
1.15. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the
weighted-average number of ordinary shares outstanding during the
period. The calculation of the weighted-average number of ordinary
shares excludes ordinary shares held in trusts on behalf of
employee share schemes.
For diluted earnings per share, the weighted-average number of
ordinary shares outstanding during the period, excluding ordinary
shares held in trusts on behalf of employee share schemes, is
adjusted to assume conversion of potential ordinary shares, such as
share options granted to employees, if their conversion would
dilute earnings per share.
1.16. Intangible assets
Intangible assets consist of goodwill, which is deemed to have
an indefinite useful life, Purchased Value of In-Force ("PVIF"),
brand and purchased and internally developed software (including
PrognoSys(TM) ), which are deemed to have finite useful lives.
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
the relevant future economic benefits attributable to the asset
will flow to the Group, and are measured at cost less accumulated
amortisation and any impairments.
PVIF, representing the present value of future profits from the
purchased in-force business, is recognised upon acquisition and is
amortised over its expected remaining economic life up to 16 years
on a straight-line basis.
PrognoSys(TM) is the Group's proprietary underwriting engine.
The Group has over two million person-years of experience collected
over twenty 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, which range from three
to 16 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.
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.
The significant intangible assets recognised by the Group, their
useful economic lives and the methods used to determine the cost of
intangibles acquired in a business combination are as follows:
Intangible asset Estimated useful economic Valuation method
life
===================== ========================== =========================
PVIF Up to 16 years Estimated value in-force
using European Embedded
Value model
===================== ========================== =========================
Brand 2 - 5 years Estimated royalty stream
if the rights were
to be licensed
===================== ========================== =========================
Distribution network 3 years Estimated discounted
cash flow
===================== ========================== =========================
Software 2 - 3 years Estimated replacement
cost
===================== ========================== =========================
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:
Estimated useful
Intangible asset economic life
================ =================
PrognoSys(TM) 12 years
================ =================
Software 3 years
================ =================
1.17. Property, plant and equipment
Land and buildings are measured at their revalued amounts less
subsequent depreciation, and impairment losses are recognised at
the date of revaluation. Valuations are performed with sufficient
frequency 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. However,
to the extent that it reverses a revaluation deficit of the same
asset previously recognised in profit or loss, the increase is
recognised in profit or loss. 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.
Buildings are depreciated on a straight-line basis over the
estimated useful lives of the buildings of 25 years.
Equipment is stated 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 as follows:
Computer equipment - 3 to 4 years
Furniture and fittings - 2 to 10 years
1.18. Financial investments
Classification
The Group classifies financial investments in accordance with
IAS 39 whereby, subject to specific criteria, they are accounted
for at fair value through profit and loss. This comprises assets
designated by management as fair value through profit and loss on
inception, as they are managed on a fair value basis, and
derivatives that are classified as held for trading. These
investments are measured at fair value with all changes thereon
being recognised in investment income in the Consolidated statement
of comprehensive income.
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. Transaction costs are expensed through profit and
loss.
Loans secured by residential mortgages are recognised when cash
is advanced to borrowers.
The Group receives and pledges collateral in the form of cash or
gilts in respect of derivative contracts. Collateral received is
recognised as an asset in the Consolidated statement of financial
position with a corresponding liability for the repayment in other
financial liabilities. Collateral pledged is recognised in the
Consolidated statement of financial position within the appropriate
asset classification.
Derivatives are recognised at fair value through profit and
loss. The fair values are obtained from quoted market prices or, if
these are not available, by using standard valuation techniques
based on discounted cash flow models or option pricing models. 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.
The Group's policy is to derecognise financial investments when
it is deemed that substantially all the risks and rewards of
ownership have been transferred.
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 such as discounted cash flow
analysis.
Determining the fair value of financial investments when the
markets are not active
The Group holds certain financial investments for which the
markets are not active. These comprise financial investments which
are not quoted in active markets and include loans secured by
residential mortgages, derivatives and other financial investments
for which markets are not active. When the markets are not active,
there is generally no or limited observable market data that can be
used in the fair value measurement of the financial investments.
The determination of whether an active market exists for a
financial investment requires management's judgement.
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, and
discounted cash flow analysis. 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 following three-level hierarchy on the basis of the lowest
level of inputs that are significant to the fair value measurement
of the financial investment concerned:
Level 1: Quoted price (unadjusted) in active markets for
identical assets and liabilities;
Level 2: Inputs other than quoted prices included within Level 1
that are observable either directly or indirectly (i.e. derived
from prices); and
Level 3: Significant inputs for the asset or liability that are
not based on observable market data (unobservable inputs).
1.19. Reinsurance
Reinsurance assets
Amounts recoverable from reinsurers are measured in a consistent
manner with insurance liabilities and are classified as reinsurance
assets. If a reinsurance asset is impaired, the carrying value is
reduced accordingly and that impairment loss is recognised in the
Consolidated statement of comprehensive income.
Financial liabilities
Where reinsurance contracts entered into by the Group are
structured to provide financing, with financing components to be
repaid in future periods, such amounts are classified as
"reinsurance finance" and included in other financial liabilities
in the Consolidated statement of financial position.
Where reinsurance contracts entered into by the Group require
deposits received from reinsurers to be repaid, such amounts are
classified as "deposits received from reinsurers" and included in
other financial liabilities in the Consolidated statement of
financial position. Where the liability carries no insurance risk,
it is initially recognised at fair value at the date the deposited
asset is recognised and subsequently re-measured at fair value at
each balance sheet date. The resulting gain or loss is recognised
in the Consolidated statement of comprehensive income. Fair value
is determined as the amount payable discounted from the first date
that the amount is required to be paid. All other deposits received
from reinsurers are valued in accordance with the terms of the
reinsurance contracts, which take into account an appropriate
discount rate for the timing of expected cash flows.
Amounts receivable/payable
Where reinsurance contracts the Group has entered into include
longevity swap arrangements, such contracts are settled on a net
basis and amounts receivable from or payable to the reinsurers are
included in the appropriate heading under either Insurance and
other receivables or Insurance and other payables.
1.20. Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand,
deposits held at call with banks, and other short-term highly
liquid investments with less than 90 days' maturity from the date
of acquisition.
1.21. 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 are 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.
1.22. Insurance liabilities
Measurement
Long-term insurance liabilities arise from the Group writing
Retirement Income contracts, including Defined Benefit De-risking
solutions, long-term care insurance, and whole of life and term
protection insurance. Their measurement uses estimates of projected
future cash flows arising from payments to policyholders plus the
costs of administering them. Valuation of insurance liabilities is
derived using discount rates, adjusted for default allowance, and
mortality assumptions, taken from the appropriate mortality tables
and adjusted to reflect actual and expected experience.
Liability adequacy test
The Group performs adequacy testing on its insurance liabilities
to ensure the carrying amount is sufficient to cover the current
estimate of future cash flows. Any deficiency is immediately
charged to the Consolidated statement of comprehensive income.
1.23. Investment contract liabilities
Investment contracts are measured at fair value through profit
and loss in accordance with IAS 39. 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, but with an
adjustment to amortise any day-one gain over the life of the
contract.
1.24. Loans and borrowings
Loans and borrowings are initially recognised at fair value, net
of transaction costs, and subsequently amortised through profit and
loss over the period to maturity at the effective rate of interest
required to recognise the discounted estimated cash flows to
maturity.
1.25. Other provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of economic benefits will be required to settle the
obligation, and a reliable estimate of the amount of the obligation
can be made. The amount recorded as a provision is the best
estimate of the expenditure required to settle the obligation at
the balance sheet date. Where the effect of the time value of money
is material, the provision is the present value of the expected
expenditure.
1.26. 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. Tax, including tax relief for losses if
applicable, is allocated over profits before taxation and amounts
charged or credited to components of other comprehensive income and
equity as appropriate.
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 revaluation of certain financial assets and liabilities,
including technical provisions and other insurance items and tax
losses carried forward, and include amortised transitional tax
adjustments resulting from changes in tax basis.
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.
2. Acquisition of Partnership Assurance Group plc
On 4 April 2016, the Group completed the acquisition of 100% of
the ordinary share capital of Partnership Assurance Group plc
("PAG") through an all share exchange which gave PAG shareholders
0.834 Just Retirement Group plc ("JRP") shares for every PAG share
held, with effective control having passed on 1 April 2016. In
total, 368,376,421 new JRP shares were issued and commenced trading
on 4 April 2016. As a result, PAG shareholders held approximately
40% of the enlarged share capital of the Combined Group. At the
closing price of 154.60 pence on 1 April 2016, the share exchange
represented consideration of GBP569.5m. As part of the acquisition
certain employee share schemes granted to PAG employees have been
exchanged for equivalent JRP employee share schemes. The fair value
cost of replacing those schemes, included in the consideration for
PAG, was GBP2.4m.
When compared with total consideration of GBP571.9m, goodwill of
GBP0.3m arose on acquisition, as follows:
Fair value
Assets GBPm
=================================================== ===========
Acquired value of in-force business and intangible
assets - before goodwill 169.6
=================================================== ===========
Property, plant and equipment 8.7
=================================================== ===========
Financial investments 5,293.9
=================================================== ===========
Investment in joint ventures and associates 0.2
=================================================== ===========
Reinsurance assets 3,299.5
=================================================== ===========
Deferred tax assets 8.3
=================================================== ===========
Prepayments and accrued income 3.1
=================================================== ===========
Insurance and other receivables 41.5
=================================================== ===========
Cash and cash equivalents 268.6
=================================================== ===========
Total assets 9,093.4
=================================================== ===========
Liabilities
=================================================== ===========
Insurance liabilities 5,619.8
=================================================== ===========
Loans and borrowings 94.3
=================================================== ===========
Financial liabilities 2,737.2
=================================================== ===========
Deferred tax liabilities 32.5
=================================================== ===========
Current tax liabilities 1.3
=================================================== ===========
Insurance and other payables 36.7
=================================================== ===========
Total liabilities 8,521.8
=================================================== ===========
Net assets 571.6
=================================================== ===========
Goodwill arising on acquisition 0.3
=================================================== ===========
Total net assets acquired 571.9
=================================================== ===========
Fair value of shares exchanged 569.5
=================================================== ===========
Fair value cost of exchanging employee share
schemes 2.4
=================================================== ===========
Total consideration 571.9
=================================================== ===========
The issue of new shares in the Company in exchange for shares of
PAG attracted merger relief under section 612 of the Companies Act
2006. Of the GBP569.5m, GBP36.8m was credited to share capital
(representing 10 pence per ordinary share) and the remaining
GBP532.7m was credited to the merger reserve within equity.
Fair value and accounting policy adjustments
Insurance liabilities and reinsurance assets
On completion of the acquisition, the economic assumptions
applied to the actuarial models used to determine the value of
insurance liabilities and reinsurance assets were reviewed across
the Group. Following this review, consistent economic and other
assumptions were applied to all Group entities, resulting in an
increase of GBP37.3m to PAG's insurance liabilities and an increase
of GBP6.2m to PAG's reinsurance assets recognised on acquisition.
Similarly, consistent economic assumptions were applied to the
models used to determine the fair value of loan assets secured by
mortgages, resulting in an increase of GBP30.7m to the value of
PAG's mortgage loan assets.
Financial liabilities
PAG's subordinated debt liability was recognised at fair value
on acquisition. The fair value represented a GBP5.8m reduction to
the amortised cost of the debt liability. The methodology applied
to the valuation of reinsurance deposit back liabilities in
Partnership Life Assurance Company Limited was also reviewed and a
Group accounting basis adopted. Together with the impact of other
basis alignments, this resulted in a GBP74.7m increase in the value
of PAG's financial liabilities.
Acquired value of in-force business and intangible assets
An asset of GBP142.7m was recognised on acquisition representing
the present value of future profits from the acquired in-force
business as at 1 April 2016. Future profit streams were discounted
using a weighted-average cost of capital of 11.1%, which was
determined using a capital asset pricing model ("CAPM") approach.
This is being amortised in accordance with the Group's accounting
policies.
Intangible assets of GBP26.9m represent PAG's distribution and
customer relationships, brands, technology and software including
IP, and other intangibles. These balances are being amortised over
their remaining useful economic lives, in accordance with the
Group's accounting policies.
Goodwill arising on acquisition
The acquisition resulted in goodwill of GBP0.3m, representing
the excess of purchase consideration over the fair value of assets
acquired. The acquisition consideration consisted of shares in the
Group exchanged for shares in PAG at a ratio set at the
announcement of the transaction on 11 August 2015.
Profit and loss
If the acquisition had been effective on 1 July 2015, on a pro
forma basis the Group's revenue is estimated at GBP4,368.7m and
profit before tax attributable to shareholders is estimated at
GBP121.2m for the 18 month period ending 31 December 2016. In
determining these amounts, management has assumed that the fair
value adjustments that arose on the date of acquisition would have
been the same if the acquisition occurred on 1 July 2015. The pro
forma results are provided for information purposes only and do not
necessarily reflect the actual results that would have occurred had
the acquisition taken place on 1 July 2015. For the period from 1
April 2016 to 31 December 2016, GBP363.3m was recognised within the
Group's revenue and GBP24.0m was recognised within the Group's
profit before tax attributable to shareholders arising from the
acquired entities.
Acquisition costs of GBP23.4m incurred to support the
transaction were recognised within other operating expenses in the
statement of comprehensive income, during the 18 month period ended
31 December 2016.
3. Net investment income
18 months
Year ended ended
31 December 31 December
2017 2016
GBPm GBPm
==================================== ============= =============
Interest income:
==================================== ============= =============
Assets at fair value through profit
or loss 636.4 683.1
==================================== ============= =============
Movement in fair value:
==================================== ============= =============
Financial assets and liabilities
designated on initial recognition
at fair value through profit and
loss (44.0) 998.7
==================================== ============= =============
Derivative financial instruments
(note 26) 28.7 (65.2)
==================================== ============= =============
Other income - 0.2
==================================== ============= =============
Total net investment income 621.1 1,616.8
==================================== ============= =============
4. Acquisition costs
18 months
Year ended ended
31 December 31 December
2017 2016
GBPm GBPm
=========================== ============= =============
Commission 15.8 25.9
=========================== ============= =============
Other acquisition expenses 27.3 27.7
=========================== ============= =============
Total acquisition costs 43.1 53.6
=========================== ============= =============
5. Other operating expenses
18 months
Year ended ended
31 December 31 December
2017 2016
GBPm GBPm
================================== ============= =============
Personnel expenses (note 10) 113.8 138.0
================================== ============= =============
Investment expenses and charges 11.2 9.8
================================== ============= =============
Depreciation of equipment 1.8 2.6
================================== ============= =============
Operating lease rentals: land and
buildings 4.2 4.6
================================== ============= =============
Acquisition integration costs 25.6 40.7
================================== ============= =============
Acquisition transaction costs - 23.4
================================== ============= =============
Impairment of intangible assets - 3.8
================================== ============= =============
Amortisation of intangible assets 25.2 24.3
================================== ============= =============
Other costs 56.6 94.3
================================== ============= =============
Total other operating expenses 238.4 341.5
================================== ============= =============
During the period the following services were provided by the
Group's auditor at costs as detailed below:
18 months
Year ended ended
31 December 31 December
2017 2016
GBP'000 GBP'000
======================================== ============= =============
Fees payable for the audit of the
Parent Company and consolidated
accounts 41 50
======================================== ============= =============
Fees payable for other services:
======================================== ============= =============
The audit of the Company's subsidiaries
pursuant to legislation 835 468
======================================== ============= =============
Corporate finance services 175 2,425
======================================== ============= =============
Audit-related assurance services 639 705
======================================== ============= =============
Tax compliance services - 2
======================================== ============= =============
Tax advisory services - 85
======================================== ============= =============
Other assurance services 234 15
======================================== ============= =============
Auditor remuneration 1,924 3,750
======================================== ============= =============
Audit-related assurance services
provided by other firms - 77
======================================== ============= =============
Audit-related assurance services mainly include fees relating to
the audit of the Group's Solvency II regulatory returns. Other
assurance services mainly include fees relating to review
procedures in relation to the Group's interim results. Corporate
finance services relate to due diligence and reporting accountant
services. Details of the process for safeguarding the objectivity
independence of the Group's external auditor are given in the Audit
Committee Report.
6. Finance costs
18 months
Year ended ended
31 December 31 December
2017 2016
GBPm GBPm
====================================== ============= =============
Interest payable on deposits received
from reinsurers 170.8 208.6
====================================== ============= =============
Interest payable on subordinated
debt 32.0 11.3
====================================== ============= =============
Other interest payable 4.2 12.8
====================================== ============= =============
Total finance costs 207.0 232.7
====================================== ============= =============
The interest payable on deposits received from reinsurers is as
defined by the respective reinsurance treaties and calculated with
reference to the risk-adjusted yield on the relevant backing asset
portfolio.
7. Segmental reporting
Adjusted operating profit
The Group reports adjusted operating profit as an alternative
measure of profit which is used for decision making and performance
measurement. The Board believes that adjusted operating profit,
which excludes effects of short-term economic and investment
changes, provides a better view of the longer-term performance and
development of the business and aligns with the longer-term nature
of the products. The underlying operating profit represents a
combination of both the profit generated from new business written
in the period and profit expected to emerge from the in-force book
of business based on current assumptions. Actual operating
experience where different from that assumed at the start of the
period and the impacts of changes to future operating assumptions
applied in the period are then also included in arriving at
adjusted operating profit.
New business profits represent expected investment returns on
financial instruments backing shareholder and policyholder funds
after allowances for expected movements in liabilities and
acquisition costs. Profits arising from the in-force book of
business represent the expected return on surplus assets, the
expected unwind of prudent reserves above best estimates for
mortality, expenses, corporate bond defaults and, with respect to
lifetime mortgages, no-negative guarantee and early
redemptions.
Adjusted operating profit excludes the impairment and
amortisation of goodwill and other intangible assets arising on
consolidation, and restructuring costs since these items arise
outside the normal course of business in the year. Adjusted
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 are also disclosed outside adjusted
operating profit.
Segmental analysis
The insurance segment writes insurance products for the
retirement market - which include Guaranteed Income for Life
Solutions, Defined Benefit De-risking Solutions, Care Plans,
Flexible Pension Plan and Protection - and invests the premiums
received from these contracts in debt securities, gilts, liquidity
funds and lifetime mortgage advances.
The professional services business, HUB, is included with other
corporate companies in the Other segment. This business is not
currently sufficiently significant to separate from other
companies' results and the Chief Operating Decision Maker (CODM)
does not separately consider its results at present. The Other
segment also includes the Group's corporate activities that are
primarily involved in managing the Group's liquidity, capital and
investment activities.
The Group operates in one material geographical segment which is
the United Kingdom.
Segmental reporting and reconciliation to financial
information
Year ended 31 December 18 months ended
2017 31 December 2016
============================ ============================
Insurance Other Total Insurance Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
========================== ========== ======= ======= ========== ======= =======
New business operating
profit 169.8 - 169.8 171.7 - 171.7
========================== ========== ======= ======= ========== ======= =======
In-force operating
profit 71.0 0.3 71.3 88.2 1.1 89.3
========================== ========== ======= ======= ========== ======= =======
Underlying operating
profit 240.8 0.3 241.1 259.9 1.1 261.0
========================== ========== ======= ======= ========== ======= =======
Operating experience
and assumption changes 34.6 - 34.6 2.5 - 2.5
========================== ========== ======= ======= ========== ======= =======
Other Group companies'
operating results - (15.1) (15.1) - (18.4) (18.4)
========================== ========== ======= ======= ========== ======= =======
Reinsurance and financing
costs (43.4) 3.4 (40.0) (52.0) 22.6 (29.4)
========================== ========== ======= ======= ========== ======= =======
Adjusted operating
profit before tax 232.0 (11.4) 220.6 210.4 5.3 215.7
========================== ========== ======= ======= ========== ======= =======
Non-recurring and
project expenditure (10.9) (0.7) (11.6) (18.4) (2.7) (21.1)
========================== ========== ======= ======= ========== ======= =======
Investment and economic
profits/(losses) 22.6 - 22.6 95.7 (2.6) 93.1
========================== ========== ======= ======= ========== ======= =======
Profit/(loss) before
acquisition transaction
and amortisation costs,
before tax 243.7 (12.1) 231.6 287.7 - 287.7
========================== ========== ======= ======= ========== ======= =======
Acquisition integration
costs (25.6) (40.7)
========================== ========== ======= ======= ========== ======= =======
Acquisition transaction
costs - (23.4)
========================== ========== ======= ======= ========== ======= =======
Impairment of intangible
assets - (3.8)
========================== ========== ======= ======= ========== ======= =======
Amortisation costs (24.7) (21.0)
========================== ========== ======= ======= ========== ======= =======
Profit before tax 181.3 198.8
========================== ========== ======= ======= ========== ======= =======
Segmental revenue
All net premium revenue arises from the Group's insurance
segment. Net investment income of GBP621.0m arose from the
insurance segment and GBP0.1m arose from other segments (2016:
GBP1,613.0m and GBP3.8m respectively). Fee and commission income of
GBP1.6m arose from the insurance segment and GBP4.2m arose from
other segments (2016: GBP3.5m and GBP13.6m respectively).
Product information analysis
Additional analysis relating to the Group's products is
presented below. The Group's products are from one material
geographical segment which is the United Kingdom. The Group's gross
premiums written, as shown in the Consolidated statement of
comprehensive income, is analysed by product below:
18 months
Year ended ended
31 December 31 December
2017 2016
GBPm GBPm
===================================== ============= =============
Defined Benefit De-risking Solutions
("DB") 997.8 1,644.6
===================================== ============= =============
Guaranteed Income for Life contracts
("GIfL") 820.5 949.2
===================================== ============= =============
Care Plans ("CP") 71.6 97.1
===================================== ============= =============
Protection 3.5 2.6
===================================== ============= =============
Gross premiums written 1,893.4 2,693.5
===================================== ============= =============
Drawdown and LTM products are accounted for as investment
contracts and financial investments respectively in the statement
of financial position. An analysis of the amounts advanced during
the period for these products is shown below:
18 months
ended
Year ended 31 December
31 December 2017 2016
GBPm GBPm
=================== ================== =============
Drawdown 51.2 32.4
=================== ================== =============
LTM loans advanced 510.0 729.8
=================== ================== =============
Reconciliation of gross premiums written to new business
sales
18 months
Year ended ended
31 December 31 December
2017 2016
GBPm GBPm
=========================================================================== ============= =============
Gross premiums written 1,893.4 2,693.5
=========================================================================== ============= =============
Change in premiums receivable not included in new business sales(1) 2.5 24.9
=========================================================================== ============= =============
Drawdown and LTM new business sales not included in gross premiums written 561.2 762.2
=========================================================================== ============= =============
New business sales 2,457.1 3,480.6
=========================================================================== ============= =============
1 Premiums on insurance contracts are recognised when the
contract becomes effective in accordance with the terms of the
contract. For certain contracts written by Partnership Life
Assurance Company Limited ("PLACL"), this is when the contract is
issued and completion may be later if the timing of payment
differs. PLACL contracts where payment has not been received in the
reporting period are excluded from new business sales.
8. Income tax
18 months
Year ended ended
31 December 31 December
2017 2016
GBPm GBPm
================================================== ============= =============
Current taxation
================================================== ============= =============
Current year 44.2 54.0
================================================== ============= =============
Adjustments in respect of prior periods (8.1) 14.0
================================================== ============= =============
Total current tax 36.1 68.0
================================================== ============= =============
Deferred taxation
================================================== ============= =============
Origination and reversal of temporary differences (7.3) (3.0)
================================================== ============= =============
Adjustments in respect of prior periods (2.5) (12.1)
================================================== ============= =============
Rate change (0.1) (1.6)
================================================== ============= =============
Total deferred tax (9.9) (16.7)
================================================== ============= =============
Total income tax 26.2 51.3
================================================== ============= =============
The current taxation adjustment in respect of prior period of
GBP(8.1)m relates to losses previously treated as available for
group relief in 2015 and carried forward to be utilised against
2016 taxable profits instead have been carried back to be utilised
against 2014 taxable profits and revised provision in respect of
2016 taxable profits following submission of the 2016 corporation
taxation computations. The deferred tax adjustment in respect of
prior period reflects the recognition of share based payments into
the current reporting period.
Reconciliation of total income tax to the applicable tax
rate:
18 months
Year ended ended
31 December 31 December
2017 2016
GBPm GBPm
============================================= ============= =============
Profit on ordinary activities before tax 181.3 198.8
============================================= ============= =============
Income tax at 19.25% (2016: 20.00%) 34.9 39.8
============================================= ============= =============
Effects of:
============================================= ============= =============
Expenses not deductible for tax purposes 0.4 11.8
============================================= ============= =============
Rate change 0.4 (1.6)
============================================= ============= =============
Higher rate for overseas income - -
============================================= ============= =============
Unrecognised deferred tax asset 0.5 0.4
============================================= ============= =============
Losses utilised 0.6 0.7
============================================= ============= =============
Adjustments in respect of prior periods (10.6) 1.9
============================================= ============= =============
Other - (1.7)
============================================= ============= =============
Total income tax 26.2 51.3
============================================= ============= =============
The tax rate for the current year is lower than the prior year,
due to changes in the UK corporation tax rate, which decreased from
20% to 19% from 1 April 2017. Changes to the UK corporation tax
rates were substantively enacted as part of the Finance Bill 2016
(on 6 September 2016). These include reductions to the main rate to
reduce the rate to 17% from 1 April 2020. Deferred taxes at the
balance sheet date have been measured using these enacted tax rates
and reflected in these financial statements.
The deferred tax assets and liabilities at 31 December 2017 have
been calculated based on the rate at which they are expected to
reverse.
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, 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 will be amortised
on a straight-line basis over a ten year period from 1 January
2016. The tax charge for the period to 31 December 2017 includes
profits chargeable to corporation tax arising from amortisation of
transitional balances of GBP2.5m (2016: GBP(10.1)m).
Tax balances included within these financial statements include
the use of estimates and assumptions which are based on
management's best knowledge of current circumstances and future
events and actions. This includes the determination of tax
liabilities and recoverables for uncertain tax positions. The
actual outcome may differ from the estimated position.
9. 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 period was GBP5.7m (2016: GBP6.7m). Employer
contributions to pensions for Executive Directors for qualifying
periods were GBPnil (2016: GBPnil). The aggregate net value of
share awards granted to the Directors in the period was GBP2.3m
(2016: GBP5.6m). The net value has been calculated by reference to
the closing middle-market price of an ordinary share at the date of
grant. Two Directors exercised share options during the period
whilst a Director of the Company (2016: nil).
10. Staff numbers and costs
The average number of persons employed by the Group (including
Directors) during the financial period, analysed by category, was
as follows:
18 months
Year ended ended
31 December 31 December
2017 2016
Number Number
======================== ============= =============
Directors 12 13
======================== ============= =============
Senior management 116 136
======================== ============= =============
Staff 963 1,041
======================== ============= =============
Average number of staff 1,091 1,190
======================== ============= =============
The aggregate personnel costs were as follows:
18 months
Year ended ended
31 December 31 December
2017 2016
GBPm GBPm
============================ ============= =============
Wages and salaries 90.3 106.3
============================ ============= =============
Social security costs 8.9 11.6
============================ ============= =============
Other pension costs 4.3 5.2
============================ ============= =============
Share-based payment expense 10.3 14.9
============================ ============= =============
Total personnel costs 113.8 138.0
============================ ============= =============
The Company does not have any employees.
11. Employee benefits
Defined contribution pension scheme
The Group operates a defined contribution pension scheme. The
pension cost charge for the period represents contributions payable
to the fund and amounted to GBP4.3m (2016: GBP5.2m).
Employee share plans
The Group operates a number of employee share option and share
award plans. Details of those plans are as follows:
Share Options
Just Retirement Group plc 2013 Long Term Incentive Plan
("LTIP")
The Group has made awards under the LTIP to Executive Directors
and other senior managers. 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.
Options granted in 2017 are subject to a two-year holding period
after the options have been exercised.
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:
18 months
Year ended ended
31 December 31 December
2017 2016
Number of Number of
options options
========================================================== ============= =============
Outstanding at start of period 17,157,164 7,708,723
========================================================== ============= =============
On acquisition of Partnership Assurance Group plc ("PAG") - 6,312,856
========================================================== ============= =============
Granted 4,718,136 10,179,879
========================================================== ============= =============
Forfeited (1,450,989) (1,628,885)
========================================================== ============= =============
Exercised (2,439,772) (592,801)
========================================================== ============= =============
Expired (2,247,765) (4,822,608)
========================================================== ============= =============
Outstanding at end of period 15,736,774 17,157,164
========================================================== ============= =============
Exercisable at the end of period 1,117,994 1,173,184
========================================================== ============= =============
Weighted-average share price at exercise (GBP) 1.57 1.38
========================================================== ============= =============
Weighted-average remaining contractual life (years) 1.45 1.68
========================================================== ============= =============
Options arising on the acquisition of PAG relate to options
awarded to PAG employees in 2014 and 2015 which the Group replaced
with options over shares in JRP Group plc in the same ratio as the
share exchange which achieved the acquisition of PAG. The
replacement options for the 2014 PAG options were subject to
achieving a Total Shareholder Return of JRP relative to the
constituents of a relevant comparator index or peer group, but to
vest on 31 December 2016. The performance conditions were not
achieved and all options lapsed. Of the replacement options for the
2015 PAG options, 20% are free awards which vested on 31 December
2016, 40% are subject to an adjusted operating profit growth
measure which are due to vest on 11 August 2018, and 40% are
subject to the Total Shareholder Return performance which are also
due to vest on 11 August 2018.
Options granted in the prior period include 83,596 additional
options in respect of modifications to options awarded in 2013 and
2014 to ensure option holders were not adversely affected by the
Group's placing and open offer to shareholders in October 2015.
There is no change to the fair value of the options as a result of
these modifications.
The exercise price for options granted under the LTIP is
nil.
During the year to 31 December 2017, awards of LTIPs were made
on 17 May 2017 and 3 July 2017. The weighted-average fair value and
assumptions used to determine the fair value of options granted
during the year under the LTIP are as follows:
Fair value at grant date GBP0.91
============================================ =================
Option pricing model used - Earnings Black-Scholes
per share performance
============================================ =================
Option pricing model used - TSR performance Stochastic
============================================ =================
Option pricing model used - holding Finnerty
period
============================================ =================
Share price at grant date GBP1.29
============================================ =================
Exercise price Nil
============================================ =================
Expected volatility - TSR performance 40.34%
============================================ =================
Expected volatility - holding period 40.77%
============================================ =================
Option life 3 years + 2 year
holding period
============================================ =================
Dividends Nil
============================================ =================
Risk-free interest rate - TSR performance 0.10%
============================================ =================
Risk-free interest rate - holding
period 0.34%
============================================ =================
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:
18 months
Year ended ended
31 December 31 December
2017 2016
Number of Number of
options options
========================================================== ============= =============
Outstanding at start of period 2,257,544 447,916
========================================================== ============= =============
On acquisition of Partnership Assurance Group plc ("PAG") - 1,288,376
========================================================== ============= =============
Granted 1,493,790 2,115,578
========================================================== ============= =============
Exercised (791,618) (1,594,326)
========================================================== ============= =============
Outstanding at end of period 2,959,716 2,257,544
========================================================== ============= =============
Exercisable at end of period 796,252 -
========================================================== ============= =============
Weighted-average share price at exercise (GBP) 1.58 1.48
========================================================== ============= =============
Weighted-average remaining contractual life (years) 1.57 1.85
========================================================== ============= =============
Options arising on the acquisition of PAG relate to options made
to PAG employees in 2014 and 2015 which the Group replaced with
options over shares in JRP Group plc in the same ratio as the share
exchange which achieved the acquisition of PAG. All options vested
in full on completion of the acquisition and all options were
exercised in the period.
Options granted in the prior period include 4,894 additional
options in respect of a modification to options awarded in 2014 to
ensure option holders were not adversely affected by the Group's
placing and open offer to shareholders in October 2015. There is no
change to the fair value of the options as a result of this
modification.
The exercise price for options granted under the DSBP is
nil.
During the year to 31 December 2017, awards of DSBPs were made
on 17 March 2017 and 10 April 2017. The weighted-average fair value
and assumptions used to determine the fair value of options granted
during the period under the DSBP are as follows:
Fair value at grant date GBP1.41
========================= =============
Option pricing model used Black-Scholes
========================= =============
Share price at grant date GBP1.41
========================= =============
Exercise price Nil
========================= =============
Expected volatility Nil
========================= =============
Option life 3 years
========================= =============
Dividends Nil
========================= =============
Risk-free interest rate Nil
========================= =============
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 which 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 18 months ended
31 December 31 December
2017 2016
=============================== ===============================
Weighted-average Weighted-average
exercise exercise
Number price Number price
of Options (GBP) of options (GBP)
============================== ============ ================= ============ =================
Outstanding at start of
period 4,804,147 1.21 4,390,881 1.22
============================== ============ ================= ============ =================
On acquisition of Partnership
Assurance Group plc ("PAG") - - 1,321,179 1.21
============================== ============ ================= ============ =================
Granted 3,302,135 1.07 46,875 1.21
============================== ============ ================= ============ =================
Forfeited (423,430) 1.21 (692,407) 1.22
============================== ============ ================= ============ =================
Cancelled (621,001) 1.20 (104,190) 1.26
============================== ============ ================= ============ =================
Exercised (2,539,617) 1.19 (139,623) 1.15
============================== ============ ================= ============ =================
Expired (120,853) 1.20 (18,568) 1.22
============================== ============ ================= ============ =================
Outstanding at end of
period 4,401,381 1.12 4,804,147 1.21
============================== ============ ================= ============ =================
Exercisable at end of
period 234,759 1.14 150,717 1.23
============================== ============ ================= ============ =================
Weighted-average share
price at exercise 1.42 1.43
============================== ============ ================= ============ =================
Weighted-average remaining
contractual life (years) 2.39 1.42
============================== ============ ================= ============ =================
Options arising on the acquisition of PAG relate to options made
to PAG employees in 2014 and 2015, which the Group replaced with
options over shares in JRP Group plc in the same ratio as the share
exchange which achieved the acquisition of PAG. The exercise price
of the original options were also adjusted from GBP0.94 to GBP1.13
for the 2014 options and from GBP1.23 to GBP1.47 for the 2015
options.
Options granted in the prior period include 46,875 additional
options in respect of modifications to options awarded in 2014 and
2015 to ensure option holders were not adversely affected by the
Group's placing and open offer to shareholders in October 2015. The
exercise prices were also adjusted by the same ratio, from GBP1.21
to GBP1.20 for the 2014 options and from GBP1.28 to GBP1.27 for the
2015 options. There is no change to the fair value of the options
as a result of these modifications.
The range of exercise prices of options outstanding at the end
of the period are as follows:
2017 2016
Number of options outstanding Number of options outstanding
======== =============================== ===============================
GBP1.07 3,157,377 -
======== =============================== ===============================
GBP1.13 194,057 667,993
======== =============================== ===============================
GBP1.20 521,114 3,260,855
======== =============================== ===============================
GBP1.27 426,917 683,202
======== =============================== ===============================
GBP1.47 101,916 192,097
======== =============================== ===============================
Total 4,401,381 4,804,147
======== =============================== ===============================
During the year to 31 December 2017, awards of SAYEs were made
on 21 June 2017. 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 GBP0.46
======================================== =============
Option pricing model used Black-Scholes
======================================== =============
Share price at grant date GBP1.30
======================================== =============
Exercise price GBP1.07
======================================== =============
Expected volatility - 3 year scheme 50.73%
======================================== =============
Expected volatility - 5 year scheme 51.45%
======================================== =============
Option life 3-5 years
======================================== =============
Dividends Nil
======================================== =============
Risk-free interest rate - 3 year scheme 0.21%
======================================== =============
Risk-free interest rate - 5 year scheme 0.41%
======================================== =============
Saving forfeit discounts 5%
======================================== =============
Share Awards
Share incentive plan ("SIP")
The SIP is an "all-employee" share ownership plan. The Group
made an award of 831,070 free shares immediately after admission to
all eligible employees. The shares are held in trust on behalf of
the employees. The shares are forfeited if the employees cease
employment (except in "good leaver" circumstances) within the first
three years from the date of the award. The awards vested on 11
November 2016.
On the acquisition of PAG, shares held in trust in respect of
SIP awards were converted to JRP shares in the same ratio as the
share exchange which achieved the acquisition of PAG. The awards
vested on 12 June 2016.
Awards made in the period are in respect of additional shares to
existing scheme participants on payment of dividends by the Group.
The weighted-average fair value of awards made in the year was
GBP15,857 measured by reference to the quoted share price of the
Company at grant date.
Share-based payment expense
The share-based payment expense recognised in the Consolidated
statement of comprehensive income for employee services receivable
during the period is as follows:
Year ended 18 months ended
31 December 2017 GBPm 31 December 2016 GBPm
======================= ====================== ======================
Equity-settled schemes 10.3 14.9
======================= ====================== ======================
Total expense 10.3 14.9
======================= ====================== ======================
12. Earnings per share
The calculation of basic and diluted earnings per share is based
on dividing the profit or loss attributable to equity holders of
the Company by the weighted average number of ordinary shares
outstanding, and by the diluted weighted average number of ordinary
shares potentially outstanding at the end of the period, calculated
as follows:
Year ended 18 months ended
31 December 2017 31 December 2016
================================================ ================================================
Weighted average Weighted average
Earnings number of shares Earnings per Earnings number of shares Earnings per
GBPm million share pence GBPm million share pence
================== ========= ================= ================== ========= ================= ==================
Basic 155.1 930.0 16.68 147.5 731.6 20.16
================== ========= ================= ================== ========= ================= ==================
Effect of dilutive
potential ordinary
shares:
================== ========= ================= ================== ========= ================= ==================
Share options - 7.5 (0.14) - 5.3 (0.14)
================== ========= ================= ================== ========= ================= ==================
Diluted 155.1 937.5 16.54 147.5 736.9 20.02
================== ========= ================= ================== ========= ================= ==================
13. Dividends
Dividends paid in the year were as follows:
Year ended 18 months ended
31 December 2017 31 December 2016
GBPm GBPm
============================================================ ================= =================
Final dividend:
============================================================ ================= =================
* in respect of the 18 months ended 31 December 2016
(2.4 pence per share, paid on 26 May 2017) 22.3 -
============================================================ ================= =================
* in respect of the year ended 30 June 2015 (2.2 pence
per share, paid on 7 December 2015) - 12.4
============================================================ ================= =================
Interim dividend:
============================================================ ================= =================
* in respect of the year ended 31 December 2017 (1.17
pence per share, paid on 24 November 2017) 10.9 -
============================================================ ================= =================
* first interim dividend in respect of the 18 month
period ended 31 December 2016 (1.1 pence per share,
paid on 20 May 2016) - 10.2
============================================================ ================= =================
* second interim dividend in respect of the 18 month
period ended 31 December 2016 (1.1 pence per share,
paid on 28 October 2016) - 10.3
============================================================ ================= =================
Total dividends paid 33.2 32.9
============================================================ ================= =================
The Group's policy is to pay a progressive dividend subject to
sufficient distributable reserves, available funds, and available
capital to meet minimum solvency requirements. The Group has
sufficient distributable reserves, available funds and a resilient
capital position to be able to maintain its current dividend policy
for the foreseeable future.
Subsequent to 31 December 2017, the Directors proposed a final
dividend for 2017 of 2.55 pence per ordinary share (2016: 2.4
pence), amounting to GBP23.9m (2016: GBP22.4m) in total. Subject to
approval by shareholders at the AGM, the dividend will be paid on
25 May 2018 and will be accounted for as an appropriation of
retained earnings in the year ending 31 December 2018.
14. Intangible assets
PrognoSys(TM)
Present value and other
of in-force Distribution intellectual
Year ended 31 Goodwill business network Brand property Software Leases Total
December 2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ========= =============== ================ ====== =============== ========= ======= ========
Cost
================= ========= =============== ================ ====== =============== ========= ======= ========
Balance at 1
January 2017 33.9 200.0 26.6 5.6 7.4 23.7 2.0 299.2
================= ========= =============== ================ ====== =============== ========= ======= ========
Additions - - - - - 1.7 - 1.7
================= ========= =============== ================ ====== =============== ========= ======= ========
At 31 December
2017 33.9 200.0 26.6 5.6 7.4 25.4 2.0 300.9
================= ========= =============== ================ ====== =============== ========= ======= ========
Amortisation and
impairment
================= ========= =============== ================ ====== =============== ========= ======= ========
Balance at 1
January 2017 (0.8) (36.1) (19.1) (5.6) (1.2) (17.4) (2.0) (82.2)
================= ========= =============== ================ ====== =============== ========= ======= ========
Charge for the
year - (17.9) (3.3) - (0.2) (3.8) - (25.2)
================= ========= =============== ================ ====== =============== ========= ======= ========
At 31 December
2017 (0.8) (54.0) (22.4) (5.6) (1.4) (21.2) (2.0) (107.4)
================= ========= =============== ================ ====== =============== ========= ======= ========
Net book value at
31 December 2017 33.1 146.0 4.2 - 6.0 4.2 - 193.5
================= ========= =============== ================ ====== =============== ========= ======= ========
Net book value at
31 December 2016 33.1 163.9 7.5 - 6.2 6.3 - 217.0
================= ========= =============== ================ ====== =============== ========= ======= ========
PrognoSys(TM)
Present value and other
of in-force Distribution intellectual
18 months ended Goodwill business network Brand property Software Leases Total
31 December 2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ========= ================ ================ ====== ================ ========= ======= =======
Cost
================ ========= ================ ================ ====== ================ ========= ======= =======
Balance at 1
July 2015 33.6 57.3 16.6 1.6 5.4 14.8 - 129.3
================ ========= ================ ================ ====== ================ ========= ======= =======
Additions
arising on
acquisition of
Partnership
Assurance Group
plc 0.3 142.7 10.0 4.0 2.0 8.9 2.0 169.9
================ ========= ================ ================ ====== ================ ========= ======= =======
At 31 December
2016 33.9 200.0 26.6 5.6 7.4 23.7 2.0 299.2
================ ========= ================ ================ ====== ================ ========= ======= =======
Amortisation and
impairment
================ ========= ================ ================ ====== ================ ========= ======= =======
Balance at 1
July 2015 (0.8) (20.0) (16.6) (1.6) (0.5) (14.6) - (54.1)
================ ========= ================ ================ ====== ================ ========= ======= =======
Charge for the
period - (16.1) (2.5) (1.5) (0.7) (2.8) (0.7) (24.3)
================ ========= ================ ================ ====== ================ ========= ======= =======
Impairment - - - (2.5) - - (1.3) (3.8)
================ ========= ================ ================ ====== ================ ========= ======= =======
At 31 December
2016 (0.8) (36.1) (19.1) (5.6) (1.2) (17.4) (2.0) (82.2)
================ ========= ================ ================ ====== ================ ========= ======= =======
Net book value
at 31 December
2016 33.1 163.9 7.5 - 6.2 6.3 - 217.0
================ ========= ================ ================ ====== ================ ========= ======= =======
Net book value
at 30 June 2015 32.8 37.3 - - 4.9 0.2 - 75.2
================ ========= ================ ================ ====== ================ ========= ======= =======
Amortisation and impairment charge
The amortisation and impairment charge is recognised in other
operating expenses in profit or loss. The fair value attributed to
the Partnership brand has been impaired following the adoption of
the Just brand. The lease intangible asset has been impaired as a
result of the rationalisation of office space.
Impairment testing
Goodwill is tested for impairment in accordance with IAS 36,
Impairment of assets, at least annually.
The Group's goodwill of GBP33.1m at 31 December 2017 represents
GBP0.3m recognised on the 2016 acquisition of the Partnership
Assurance Group and GBP32.8m on the 2009 acquisition by Just
Retirement Group Holdings Limited of Just Retirement (Holdings)
Limited, the holding company of Just Retirement Limited
("JRL").
The existing goodwill has been allocated to the insurance
segment as the cash generating unit. The recoverable amounts of
goodwill have been determined from value-in-use. The key
assumptions of this calculation are noted below:
2017 2016
======================================================== ======== ========
Period on which management approved forecasts are based 5 years 5 years
======================================================== ======== ========
Discount rate (pre-tax) 10.0% 12.0%
======================================================== ======== ========
The value-in-use of the insurance operating segment is
considered by reference to latest business plans over the next five
years, which reflect management's best estimate of future profits
based on historical experience, expected growth rates and
assumptions around market share, customer numbers, expense
inflation and mortality rates. A stressed scenario that assumes no
growth in sales for the next five years and discount rate of 20% is
also considered. The outcome of the impairment assessment under
both scenarios is that the goodwill in respect of the insurance
operating segment is not impaired and that the value-in-use is
higher than the carrying value of goodwill.
Any reasonably possible changes in assumption will not cause the
carrying value of the goodwill to exceed the recoverable
amounts.
15. Property, plant and equipment
Furniture
Freehold land and buildings Computer equipment and fittings Total
Year ended 31 December 2017 GBPm GBPm GBPm GBPm
=========================================== ============================ =================== ============== ======
Cost
=========================================== ============================ =================== ============== ======
Balance at 1 January 2017 9.7 5.5 10.5 25.7
=========================================== ============================ =================== ============== ======
Acquired during the year 6.9 0.5 - 7.4
=========================================== ============================ =================== ============== ======
Disposed during the year - - (4.8) (4.8)
=========================================== ============================ =================== ============== ======
At 31 December 2017 16.6 6.0 5.7 28.3
=========================================== ============================ =================== ============== ======
Depreciation
=========================================== ============================ =================== ============== ======
Balance at 1 January 2017 (0.3) (4.6) (3.7) (8.6)
=========================================== ============================ =================== ============== ======
Charge of the year (0.4) (0.5) (0.9) (1.8)
=========================================== ============================ =================== ============== ======
Disposed during the year - - 1.7 1.7
=========================================== ============================ =================== ============== ======
At 31 December 2017 (0.7) (5.1) (2.9) (8.7)
=========================================== ============================ =================== ============== ======
Net book value at 31 December 2017 15.9 0.9 2.8 19.6
=========================================== ============================ =================== ============== ======
Net book value at 31 December 2016 9.4 0.9 6.8 17.1
=========================================== ============================ =================== ============== ======
Furniture
Freehold land and buildings Computer equipment and fittings Total
18 months ended 31 December 2016 GBPm GBPm GBPm GBPm
=========================================== ============================ =================== ============== ======
Cost
=========================================== ============================ =================== ============== ======
Balance at 1 July 2015 - 3.9 2.8 6.7
=========================================== ============================ =================== ============== ======
Acquired during the period 9.7 0.5 0.1 10.3
=========================================== ============================ =================== ============== ======
Additions arising on the acquisition of
Partnership Assurance Group plc - 1.1 7.6 8.7
=========================================== ============================ =================== ============== ======
At 31 December 2016 9.7 5.5 10.5 25.7
=========================================== ============================ =================== ============== ======
Depreciation
=========================================== ============================ =================== ============== ======
Balance at 1 July 2015 - (3.2) (2.8) (6.0)
=========================================== ============================ =================== ============== ======
Charge for the period (0.3) (1.4) (0.9) (2.6)
=========================================== ============================ =================== ============== ======
At 31 December 2016 (0.3) (4.6) (3.7) (8.6)
=========================================== ============================ =================== ============== ======
Net book value at 31 December 2016 9.4 0.9 6.8 17.1
=========================================== ============================ =================== ============== ======
Net book value at 30 June 2015 - 0.7 - 0.7
=========================================== ============================ =================== ============== ======
Included in Freehold land and buildings is land of value GBP3.6m
(2016: GBP3.6m).
16. Financial investments
This note explains the methodology for valuing the Group's
financial assets and liabilities measured at fair value, including
financial investments, and provides disclosures in accordance with
IFRS 13: Fair value measurement, including an analysis of such
assets and liabilities categorised in a fair value hierarchy based
on market observability of valuation inputs.
All of the Group's financial investments are measured at fair
value through the profit or loss, and are either designated as such
on initial recognition or, in the case of derivative financial
assets, classified as held for trading.
Fair value Cost
==================== ====================
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
============================================================ ========= ========= ========= =========
Units in liquidity funds 897.9 572.3 897.9 572.3
============================================================ ========= ========= ========= =========
Investment funds 46.3 - 45.6 -
============================================================ ========= ========= ========= =========
Debt securities and other fixed income securities 9,589.5 9,751.9 8,745.8 8,907.6
============================================================ ========= ========= ========= =========
Deposits with credit institutions 87.9 73.2 87.9 73.2
============================================================ ========= ========= ========= =========
Derivative financial assets 100.2 107.0 2.6 -
============================================================ ========= ========= ========= =========
Loans secured by residential mortgages 6,833.3 6,430.4 4,127.0 3,927.5
============================================================ ========= ========= ========= =========
Loans secured by commercial mortgages 215.4 163.8 211.7 159.0
============================================================ ========= ========= ========= =========
Other loans 444.3 192.5 408.0 160.9
============================================================ ========= ========= ========= =========
Amounts recoverable from reinsurers on investment contracts 72.3 28.5 67.6 29.1
============================================================ ========= ========= ========= =========
Total 18,287.1 17,319.6 14,594.1 13,829.6
============================================================ ========= ========= ========= =========
The majority of investments included in debt securities and
other fixed income securities are listed investments.
Units in liquidity funds comprise wholly of units in funds which
invest in cash and cash equivalents.
Deposits with credit institutions with a carrying value of
GBP87.1m (2016: GBP71.0m) have been pledged as collateral in
respect of the Group's derivative financial instruments. Amounts
pledged as collateral are deposited with the derivative
counterparty.
(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.
Where the Group uses broker/asset manager quotes and no
information as to observability of inputs is provided by the
broker/asset manager, the investments are classified as
follows:
-- Where the broker/asset manager price is validated by using
internal models with market-observable inputs and the values are
similar, the investment is classified as Level 2; and
-- In circumstances where internal models are not used to
validate broker/asset manager prices, or the observability of
inputs used by brokers/asset managers is unavailable, the
investment is classified as Level 3.
The majority of the Group's debt securities held at fair value
and financial derivatives are valued using independent pricing
services or third party broker quotes, and therefore classified as
Level 2.
Level 3
Inputs to Level 3 fair values are unobservable inputs for the
asset or liability. Unobservable inputs may have been 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.
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, asset-backed securities, investment
contract liabilities, and deposits received from reinsurers.
The valuation of loans secured by 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
no-negative equity guarantee. The fair value is calculated by
discounting the future cash flows at a swap rate plus a liquidity
premium.
Under the "no-negative equity" guarantee, the amount recoverable
by the Group on termination of mortgages is generally capped at the
net sale proceeds of the property. This guarantee does not apply
where the mortgage redemption is not accompanied by a sale of the
underlying property. This could occur when, for example, the
property is remortgaged with another provider. The time value of
this option and guarantee is allowed for in the asset valuation
using closed form calculations, based on a variant of the
Black-Scholes option pricing formula. The formula incorporates a
number of assumptions, including those for risk-free interest
rates, future property growth and future property price
volatility.
The Level 3 bonds are either private placement bonds or
asset-backed securities. Such securities are valued using
discounted cash flow analyses using prudent assumptions based on
the repayment of the underlying bond.
The Level 3 Other loans are infrastructure-related loans, and
are valued using discounted cash flow analysis using prudent
assumptions based on the repayment of the underlying loan.
Investment contract liabilities are calculated on a
policy-by-policy basis using a prospective valuation of future
retirement income benefits and expense cash flows, but with an
adjustment to amortise any day-one gain over the life of the
contract.
There are no non-recurring fair value measurements as at 31
December 2017 (2016: nil).
(b) Analysis of assets and liabilities held at fair value
according to fair value hierarchy
2017 2016
======================================= =======================================
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Assets held at fair value
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Units in liquidity funds 894.3 3.6 - 897.9 572.3 - - 572.3
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Investment funds - 46.3 - 46.3 - - - -
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Debt securities and other fixed
income securities 553.5 8,295.5 740.5 9,589.5 645.2 8,927.7 179.0 9,751.9
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Deposits with credit institutions 87.0 0.9 - 87.9 71.0 2.2 - 73.2
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Derivative financial assets - 100.2 - 100.2 - 107.0 - 107.0
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Loans secured by residential
mortgages - - 6,833.3 6,833.3 - - 6,430.4 6,430.4
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Loans secured by commercial
mortgages - - 215.4 215.4 - - 163.8 163.8
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Other loans - 11.0 433.3 444.3 - 3.8 188.7 192.5
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Recoveries from reinsurers on
investment contracts - - 72.3 72.3 - - 28.5 28.5
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Total assets held at fair value 1,534.8 8,457.5 8,294.8 18,287.1 1,288.5 9,040.7 6,990.4 17,319.6
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Liabilities held at fair value
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Investment contract liabilities - - 220.7 220.7 - - 222.3 222.3
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Derivative financial liabilities - 236.3 - 236.3 - 189.3 - 189.3
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Obligations for repayment of cash
collateral received 16.3 - - 16.3 21.6 30.5 - 52.1
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Deposits received from reinsurers - - 2,654.1 2,654.1 - - 2,741.1 2,741.1
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Total liabilities held at fair value 16.3 236.3 2,874.8 3,127.4 21.6 219.8 2,963.4 3,204.8
==================================== ======== ======== ======== ========= ======== ======== ======== =========
(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. During the period there were no
transfers between Level 1 and Level 2. The transfer from Level 2 to
Level 3 followed a change in the availability of market prices for
specific bonds.
(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.
Debt Recoveries
securities Loans Loans from
and other secured secured reinsurers Deposits
Year fixed by by on Investment received
ended income residential commercial Other investment contract from
31 December securities mortgages mortgages loans contracts liabilities reinsurers
2017 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ =========== ============ =========== ======= =========== ============ ============
At start
of year 179.0 6,430.4 163.8 188.7 28.5 (222.3) (2,741.1)
============================ =========== ============ =========== ======= =========== ============ ============
Purchases/Advances/Deposits 27.0 510.0 60.5 240.2 49.4 (51.2) (31.1)
============================ =========== ============ =========== ======= =========== ============ ============
Transfers
from
Level
2 534.3 - - - - - -
============================ =========== ============ =========== ======= =========== ============ ============
Sales/Redemptions/Payments (11.5) (360.3) (7.8) - (8.9) 59.1 191.7
============================ =========== ============ =========== ======= =========== ============ ============
Realised
gains
and losses
recognised
in profit
or loss
within
net investment
income 0.1 167.5 (0.1) 0.4 - - -
============================ =========== ============ =========== ======= =========== ============ ============
Unrealised
gains
and losses
recognised
in profit
or loss
within
net investment
income 11.6 (164.6) (1.5) 4.0 3.3 - 19.7
============================ =========== ============ =========== ======= =========== ============ ============
Interest
accrued - 250.3 0.5 - - - (93.3)
============================ =========== ============ =========== ======= =========== ============ ============
Change
in fair
value
of liabilities
recognised
in profit
or loss - - - - - (6.3) -
============================ =========== ============ =========== ======= =========== ============ ============
At end
of year 740.5 6,833.3 215.4 433.3 72.3 (220.7) (2,654.1)
============================ =========== ============ =========== ======= =========== ============ ============
Debt Recoveries
securities Loans Loans from
and other secured secured reinsurers Deposits
18 months fixed by by on Investment received
ended income residential commercial Other investment contract from
31 December securities mortgages mortgages loans contracts liabilities reinsurers
2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ =========== ============ =========== ======= =========== ============ ============
At start
of period 18.8 3,471.8 - - - (228.3) -
============================ =========== ============ =========== ======= =========== ============ ============
On acquisition
of Partnership
Assurance
Group
plc 0.1 1,623.6 117.2 - - - (2,659.6)
============================ =========== ============ =========== ======= =========== ============ ============
Purchases/Advances/Deposits 135.0 744.9 44.6 157.1 29.1 (32.4) (54.5)
============================ =========== ============ =========== ======= =========== ============ ============
Transfers
from
Level
2 20.5 - - - - - -
============================ =========== ============ =========== ======= =========== ============ ============
Sales/Redemptions/Payments (6.8) (254.3) 0.1 - (1.9) 53.9 173.5
============================ =========== ============ =========== ======= =========== ============ ============
Realised
gains
and losses
recognised
in profit
or loss
within
net investment
income 12.4 5.3 - 31.6 - - -
============================ =========== ============ =========== ======= =========== ============ ============
Unrealised
gains
and losses
recognised
in profit
or loss
within
net investment
income (0.8) 567.2 1.5 - 1.3 - (128.8)
============================ =========== ============ =========== ======= =========== ============ ============
Interest
accrued (0.2) 271.9 0.4 - - - (71.7)
============================ =========== ============ =========== ======= =========== ============ ============
Change
in fair
value
of liabilities
recognised
in profit
or loss - - - - - (15.5) -
============================ =========== ============ =========== ======= =========== ============ ============
At end
of period 179.0 6,430.4 163.8 188.7 28.5 (222.3) (2,741.1)
============================ =========== ============ =========== ======= =========== ============ ============
Debt securities and other fixed income securities
Debt securities classified as Level 3 are either private
placement bonds or asset-backed securities.
Principal assumptions underlying the calculation of the debt
securities and other fixed income securities classified as Level
3.
Redemption and defaults
The redemption and default assumptions used in the valuation of
infrastructure private placement bonds are similar to the rest of
the Group's bond portfolio.
For asset-backed securities, the assumptions are that the
underlying loans supporting the securities are redeemed in the
future in a similar profile to the existing redemptions on an
average rate of 3% per annum, and that default levels on the
underlying basis remain at the current level of the Group's bond
portfolio.
Sensitivity analysis
Reasonable possible alternative assumptions for unobservable
inputs used in the valuation technique could give rise to
significant changes in the fair value of the assets. The
sensitivity of the valuation of bonds to the default assumption is
determined by reference to movement in credit spreads. The Group
has estimated the impact on fair value to changes to these inputs
as follows:
Debt securities
and other
fixed
income
securities
================
Credit
spreads
Net increase/(decrease) in fair value (GBPm) +100bps
============================================= ================
2017 (44.8)
============================================= ================
2016 (17.0)
============================================= ================
Loans secured by residential mortgages
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 following:
Maintenance expenses
Assumptions for future policy expense levels are based on the
Group's recent expense analyses. The assumed future expense levels
incorporate an annual inflation rate allowance of 4.2% for loans
written by JRL (2016: 4.3%) and PLACL (2016: 4.3%).
Mortality
Mortality assumptions have been derived with reference to CMI
2016 mortality tables for both base table rates and mortality
improvements (2016: ELT17 for base table rates, CMI 2015 for
mortality improvements). These 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.
Property prices
The value of a property at the date of valuation is calculated
by taking the latest valuation for that property and indexing this
value using the Office for National Statistics monthly index for
the property's location. The appropriateness of this valuation
basis is regularly tested on the event of redemption of
mortgages.
Future property price growth
In the absence of a reliable long-term forward curve for UK
residential property price inflation, the Group has made
assumptions about future residential property prices based upon
available market and industry data. These assumptions have been
derived with reference to the long-term expectation of the UK
retail price inflation, "RPI", (consistent with the Bank of England
inflation target) plus an allowance for the expectation of house
price growth above RPI (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 4.25%, with a volatility assumption of 12% p.a.
Voluntary redemptions
Assumptions for future voluntary redemption levels are based on
the Group's recent analyses and external benchmarking. The assumed
redemption rate varies by duration and product line between 0.7%
and 3.0% for loans written by JRL (2016: 0.7% and 2.3%) and between
0.9% and 2.8% for loans written by PLACL (2016: 1.8% and 4.5%).
Sensitivity analysis
Reasonable possible alternative assumptions for unobservable
inputs used in the valuation technique 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 valuation assumptions
================================================================================================
Net Immediate Future property
increase/(decrease) Maintenance Base mortality property price price growth Voluntary
in fair value (GBPm) expenses +10% -5% fall -10% -0.5% redemptions +10%
==================== ================== ================== ================= ================= ==================
2017 (7.2) 30.3 (72.4) (62.3) (24.1)
==================== ================== ================== ================= ================= ==================
2016 (5.9) 36.8 (79.8) (46.4) (30.7)
==================== ================== ================== ================= ================= ==================
The sensitivity factors are determined via financial models. 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 be interpolated or
extrapolated from these results.
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.
Other limitations in the above sensitivity analysis include the
use of hypothetical market movements to demonstrate potential risk
that only represents the Group's view of reasonably possible
near-term market changes that cannot be predicted with any
certainty.
Loans secured by commercial mortgages
Principal assumption underlying the calculation of loans secured
by commercial mortgages
The discount rate is the most significant assumption applied in
calculating the fair value of the loans secured by commercial
mortgages. The discount rate used is 0.9% (2016: 0.9%) plus a
spread % of between 1.3% (2016: 1.3%) and 2.8% (2016: 2.8%)
depending on the individual loan.
Sensitivity analysis
Reasonable possible alternative assumptions for unobservable
inputs used in the valuation technique 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 commercial
mortgages
valuation
assumptions
===============
Interest
Net increase/(decrease) in fair value (GBPm) rates +100bps
============================================= ===============
2017 (11.1)
============================================= ===============
2016 (9.5)
============================================= ===============
Other loans
Other loans classified as Level 3 are infrastructure loans.
Principal assumptions underlying the calculation of other loans
classified as Level 3
Redemption and defaults
The redemption and default assumptions used in the valuation of
infrastructure loans are similar to the Group's bond portfolio.
They have additional covenants which provide greater security but
these are not quantified in the valuation.
Sensitivity analysis
Reasonable possible alternative assumptions for unobservable
inputs used in the valuation technique could give rise to
significant changes in the fair value of the assets. The
sensitivity of the valuation of infrastructure loans to the default
assumption 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:
Other
loans
=========
Credit
spreads
Net increase/(decrease) in fair value (GBPm) +100bps
============================================= =========
2017 (37.1)
============================================= =========
2016 (19.5)
============================================= =========
Recoveries from reinsurers on investment contracts
Recoveries from reinsurers on investment contracts represent
fully reinsured funds invested under the Flexible Pension Plan. The
linked liabilities are included in Level 3 investment contract
liabilities.
Principal assumptions and sensitivity of fair value
Recoveries from reinsurers on investment contracts are valued
based on the price of the reinsured underlying funds determined by
the asset managers. The assets are classified as Level 3 because
the prices are not validated by internal models or the observable
inputs used by the asset managers are not available. Therefore,
there are no principal assumptions used in the valuation of these
Level 3 assets.
Investment contract liabilities
Principal assumptions underlying the calculation of investment
contract liabilities
Maintenance expenses
Assumptions for future policy expense levels are based on the
Group's recent expense analyses. The assumed future expense levels
incorporate an annual inflation rate allowance of 4.4% (2016:
4.5%).
Sensitivity analysis
The sensitivity of fair value to changes in maintenance expense
assumptions in respect of investment contract liabilities is not
material.
Deposits received from reinsurers
Principal assumptions underlying the calculation of deposits
received from reinsurers
Discount rate
The valuation model discounts the expected future cash flows
using a contractual discount rate derived from the assets
hypothecated to back the liabilities at a product level. The
discount rates used for Individual retirement and Individual care
annuities were 3.11% and 0.95% respectively (2016: 3.24% and 1.17%
respectively).
Credit spreads
The valuation of deposits received from reinsurers includes a
credit spread applied by the individual reinsurer. A credit spread
of 102bps (2016: 166bps) was applied in respect of the most
significant reinsurance contract.
Sensitivity analysis
Reasonable possible alternative assumptions for unobservable
inputs used in the valuation technique could give rise to
significant changes in the fair value of the liabilities (see note
25 (b)). The Group has estimated the impact on fair value to
changes to these inputs as follows:
Deposits received
from reinsurers
====================
Credit Interest
Net increase/(decrease) in fair value spreads rates
(GBPm) +100bps +100bps
====================================== ========= =========
2017 (88.5) (217.1)
====================================== ========= =========
2016 (106.5) (223.5)
====================================== ========= =========
17. Deferred tax
2017 2016
=========================== ===========================
Asset Liability Total Asset Liability Total
GBPm GBPm GBPm GBPm GBPm GBPm
=================== ====== ========== ======= ====== ========== =======
Transitional tax - (11.1) (11.1) - (12.6) (12.6)
=================== ====== ========== ======= ====== ========== =======
Intangible assets - (27.3) (27.3) - (33.8) (33.8)
=================== ====== ========== ======= ====== ========== =======
Other provisions 13.0 (0.8) 12.2 10.3 - 10.3
=================== ====== ========== ======= ====== ========== =======
Total deferred tax 13.0 (39.2) (26.2) 10.3 (46.4) (36.1)
=================== ====== ========== ======= ====== ========== =======
The transitional tax liability of GBP11.1m (2016: GBP12.6m)
represents the adjustment arising from the change in the tax rules
for life insurance companies which is amortised over ten years from
1 January 2013 and the transitional adjustments for tax purposes in
adopting IFRS which is amortised over 10 years from 1 January
2016.
Other provisions principally relate to temporary differences
between the IFRS financial statements and tax deductions for
statutory insurance liabilities.
The movement in the net deferred tax balance was as follows:
Year ended 18 months ended 31 December 2016
31 December 2017 GBPm
GBPm
=============================================================== ================== =================================
Net balance at start of period (36.1) (28.7)
=============================================================== ================== =================================
Arising on acquisition of Partnership Assurance Group plc - (24.1)
=============================================================== ================== =================================
Amounts credited to the Consolidated statement of comprehensive
income 9.9 16.7
=============================================================== ================== =================================
Net balance at end of period (26.2) (36.1)
=============================================================== ================== =================================
The Group has unrecognised deferred tax assets of GBP5.4m (2016:
GBP5.4m).
18. Prepayments and accrued income
Included in prepayments and accrued income are capitalised bank
borrowing costs of GBP1.8m (2016: GBPnil).
Prepayments and accrued income for the Group includes GBP0.2m
(2016: GBP0.1m) that is expected to be recovered more than one year
after the Consolidated statement of financial position date.
19. Insurance and other receivables
2017 2016
GBPm GBPm
============================================================= ====== ======
Receivables arising from insurance and reinsurance contracts 40.3 126.7
============================================================= ====== ======
Other receivables 4.2 10.6
============================================================= ====== ======
Total insurance and other receivables 44.5 137.3
============================================================= ====== ======
Of the above insurance and other receivables, GBPnil (2016:
GBP99.4m) is expected to be recovered more than one year after the
Consolidated statement of financial position date.
20. Cash and cash equivalents
2017 2016
GBPm GBPm
====================================================================== ======== ======
Cash available on demand 261.4 71.4
====================================================================== ======== ======
Units in liquidity funds 897.9 572.3
====================================================================== ======== ======
Cash and cash equivalents in the Consolidated statement of cash flows 1,159.3 643.7
====================================================================== ======== ======
21. Share capital
The allotted and issued ordinary share capital of Just Group plc
at 31 December 2017 is detailed below:
Number of GBP0.10 ordinary Share capital Share premium Merger reserve Total
shares GBPm GBPm GBPm GBPm
============================== ============================= ============== ============== =============== ======
At 1 January 2017 932,884,033 93.3 91.7 532.7 717.7
============================== ============================= ============== ============== =============== ======
In respect of employee share
schemes 5,424,307 0.5 2.5 - 3.0
============================== ============================= ============== ============== =============== ======
At 31 December 2017 938,308,340 93.8 94.2 532.7 720.7
============================== ============================= ============== ============== =============== ======
At 1 July 2015 500,864,706 50.1 1.2 - 51.3
============================== ============================= ============== ============== =============== ======
Shares issued under capital
placing and open offer 63,525,672 6.4 90.5 - 96.9
============================== ============================= ============== ============== =============== ======
Shares issued in exchange for
shares in PAG 368,376,421 36.8 - 532.7 569.5
============================== ============================= ============== ============== =============== ======
In respect of employee share
schemes 117,234 - - - -
============================== ============================= ============== ============== =============== ======
At 31 December 2016 932,884,033 93.3 91.7 532.7 717.7
============================== ============================= ============== ============== =============== ======
Consideration for the acquisition of 100% of the equity shares
of Partnership Assurance Group plc consisted of a new issue of
shares in the Company. 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. A merger reserve has
been recognised representing the difference between the nominal
value of the shares issued and the net assets of Partnership
Assurance Group plc acquired.
22 Insurance contracts and related reinsurance
Insurance liabilities
2017 2016
GBPm GBPm
============================ ========== ==========
Gross insurance liabilities 16,633.0 15,748.0
============================ ========== ==========
Reinsurance (5,285.3) (6,057.1)
============================ ========== ==========
Net insurance liabilities 11,347.7 9,690.9
============================ ========== ==========
(a) Terms and conditions of insurance contracts
The Group's long-term insurance contracts include annuities to
fund Retirement Income, Guaranteed Income for Life ("GIfL") and
Defined Benefit ("DB"), annuities to fund care fees (immediate
needs and deferred), long-term care insurance and whole of life and
term protection insurance.
The insurance liabilities are agreed by the Board using
recognised actuarial valuation methods proposed by the Group's
Actuarial Reporting Function. In particular, a prospective gross
premium valuation method has been adopted for major classes of
business.
Although the process for the establishment of insurance
liabilities follows specified rules and guidelines, the provisions
that result from the process remain uncertain. As a consequence of
this uncertainty, the eventual value of claims could vary from the
amounts provided to cover future claims. The Group seeks to provide
for appropriate levels of contract liabilities taking known facts
and experiences into account but nevertheless such provisions
remain uncertain.
The estimation process used in determining insurance liabilities
involves projecting future annuity payments and the cost of
maintaining the contracts. For non-annuity contracts, the liability
is determined as the sum of the discounted value of future benefit
payments and future administration expenses less the expected value
of premiums payable under the contract. The key sensitivities are
the assumed level of interest rates and the mortality
experience.
(b) Principal assumptions underlying the calculation of
insurance contracts
The principal assumptions underlying the calculation of
insurance contracts are as follows:
Mortality assumptions
Mortality assumptions have been set by reference to appropriate
standard mortality tables. These tables have been adjusted to
reflect the future mortality experience of the policyholders,
taking into account the medical and lifestyle evidence collected
during the underwriting process, premium size, gender and the
Group's assessment of how this experience will develop in the
future. The assessment takes into consideration relevant industry
and population studies, published research materials, input from
the Group's lead reinsurer and management's own industry
experience.
The standard tables which underpin the mortality assumptions are
summarised in the table below.
2017 2016
========================= ========================= ==========================
Individually underwritten PCMA/PCFA00, with PCMA/PCFA00 , with
Guaranteed Income CMI 2014 model CMI 2014 model
for Life Solutions mortality improvements mortality improvements
(JRL) for both Merica for Merica business
& PrognoSys(TM) and CMI 2012 model
underwritten business mortality improvements
for PrognoSys(TM)
business
========================= ========================= ==========================
Individually underwritten Modified E&W Population Modified E&W Population
Guaranteed Income mortality, with mortality, with
for Life Solutions CMI 2014 model CMI 2014 model
(PLACL) mortality improvements mortality improvements
========================= ========================= ==========================
Defined Benefit Modified E&W Population Reinsurer supplied
(JRL) mortality, with tables underpinned
CMI 2016 model by the Self-Administered
mortality improvements Pension Scheme
(standard underwritten ("SAPS") S1 tables,
business) Reinsurer with CMI 2009 model
supplied tables mortality improvements
underpinned by (for both standard
the Self-Administered underwritten and
Pension Scheme medically underwritten
("SAPS") S1 tables, business)
with CMI 2009 model
mortality improvements
(medically underwritten
business)
========================= ========================= ==========================
Defined Benefit Modified E&W Population Modified E&W Population
(PLACL) mortality, with mortality, with
CMI 2015 model CMI 2015 model
mortality improvements mortality improvements
========================= ========================= ==========================
Other annuity products Modified PCMA/PCFA Modified PCMA/PCFA
(PLACL) bespoke improvements bespoke improvements
========================= ========================= ==========================
Term and whole of TM/TF00 Select TM/TF00 Select
life products (PLACL)
========================= ========================= ==========================
Valuation discount rates
Valuation discount rate assumptions are set with regards to
yields on supporting assets. An explicit allowance for credit risk
is included by making an explicit deduction from the yields on debt
and other fixed income securities based on a prudent expectation of
default experience of each asset class.
2017 2016
Valuation discount rates - gross liabilities % %
======================================================================= ===== =====
Individually underwritten Guaranteed Income for Life Solutions (JRL) 3.23 3.18
======================================================================= ===== =====
Individually underwritten Guaranteed Income for Life Solutions (PLACL) 3.11 3.24
======================================================================= ===== =====
Defined Benefit (JRL) 3.23 3.18
======================================================================= ===== =====
Defined Benefit (PLACL) 3.11 3.24
======================================================================= ===== =====
Other annuity products (PLACL) 0.95 1.17
======================================================================= ===== =====
Term and whole of life products (PLACL) 1.39 1.63
======================================================================= ===== =====
Future expenses
Assumptions for future policy expense levels are determined from
the Group's recent expense analyses. The assumed future policy
expense levels incorporate an annual inflation rate allowance of
4.4% (2016: 4.5%) derived from the expected retail price index
implied by inflation swap rates and an additional allowance for
earnings inflation.
(c) Movements
The following movements have occurred in the insurance contract
balances for Retirement Income products during the period.
Gross Reinsurance Net
GBPm GBPm GBPm
================================================== ========== ============ =========
Carrying amount
================================================== ========== ============ =========
At 1 January 2017 15,748.0 (6,057.1) 9,690.9
================================================== ========== ============ =========
Increase in liability from premiums 1,526.5 (25.1) 1,501.4
================================================== ========== ============ =========
Release of liability due to recorded claims (1,133.6) 457.6 (676.0)
================================================== ========== ============ =========
Unwinding of discount 503.2 (180.2) 323.0
================================================== ========== ============ =========
Changes in economic assumptions 210.7 (43.6) 167.1
================================================== ========== ============ =========
Changes in non-economic assumptions (193.8) 79.2 (114.6)
================================================== ========== ============ =========
Other movements* (28.0) 483.9 455.9
================================================== ========== ============ =========
At 31 December 2017 16,633.0 (5,285.3) 11,347.7
================================================== ========== ============ =========
Gross Reinsurance Net
GBPm GBPm GBPm
================================================== ========== ============ =========
Carrying amount
================================================== ========== ============ =========
At 1 July 2015 7,440.3 (2,477.1) 4,963.2
================================================== ========== ============ =========
On acquisition of Partnership Assurance Group plc 5,619.8 (3,299.5) 2,320.3
================================================== ========== ============ =========
Increase in liability from premiums 2,395.9 (87.2) 2,308.7
================================================== ========== ============ =========
Release of liability due to recorded claims (1,023.8) 384.1 (639.7)
================================================== ========== ============ =========
Unwinding of discount 391.1 (113.5) 277.6
================================================== ========== ============ =========
Changes in economic assumptions 917.7 (259.5) 658.2
================================================== ========== ============ =========
Changes in non-economic assumptions 11.9 (5.3) 6.6
================================================== ========== ============ =========
Other movements(1) (4.9) (199.1) (204.0)
================================================== ========== ============ =========
At 31 December 2016 15,748.0 (6,057.1) 9,690.9
================================================== ========== ============ =========
1 Includes the impact of reinsurance recapture
Effect of changes in assumptions and estimates during the
period
Economic assumption changes
The principal economic assumption change impacting the movement
in insurance liabilities during the period relates to discount
rates for both JRL and PLACL.
Discount rates
The movement in the valuation interest rate captures the impact
of underlying changes in risk-free curves and spreads on backing
assets. Both existing in-force assets and new assets purchased
during the period contribute to the movement in the discount rate.
Differences between the discount rates recognised on new business
written during the period and the prevailing discount rates on the
entire portfolio of business also contribute to the movement in
insurance liabilities.
Non-economic assumption changes
The principal non-economic assumption changes impacting the
movement in insurance liabilities during the period relate to
maintenance expenses for both JRL and PLACL, and DB mortality for
JRL.
Expense assumption
Cost synergies arising within the Group following the merger
have been recognised through an overall reduction in maintenance
expense assumptions. This has resulted in a decrease in the
carrying value of insurance liabilities.
The JRL GIfL maintenance expense assumption used at 31 December
2017 was GBP30.68 per plan (2016: GBP46.68), whilst the JRL DB
maintenance assumption used at 31 December 2017 was GBP113.53 per
scheme member (2016: GBP56.61). The PLACL GIfL maintenance expense
assumption used at 31 December 2017 was GBP23.69 per plan (2016:
GBP32.30), whilst the PLACL DB maintenance assumption used at 31
December 2017 was GBP128.02 per scheme member (2016: GBP32.85).
Relative to the 2016 assumptions, there has been a re-allocation of
expenses between GIfL and DB reflecting improvements made to the
method of apportionment of expenses to specific products in the
Group's expense allocation process.
Mortality assumptions
The JRL DB mortality basis for standard underwritten business at
31 December 2017 has been set with reference to modified E&W
Population mortality tables, calibrated from Club Vita experience,
with CMI 2016 model mortality improvements (2016: Reinsurer
supplied tables, with CMI 2009 model mortality improvements). This
has resulted in a decrease in the carrying value of insurance
liabilities.
(d) Estimated timing of net cash outflows from insurance
contract liabilities
The following shows the insurance contract balances analysed by
duration. The total balances are split by duration of Retirement
Income payments in proportion to the policy cash flows estimated to
arise during that period.
Expected cash flows (undiscounted)
================================================================================== ====================
Within Carrying value
1 year 1-5 years 5-10 years Over 10 years Total (discounted)
GBPm GBPm GBPm GBPm GBPm GBPm
============ =================== =============== ================ ============== ========== ====================
2017
============ =================== =============== ================ ============== ========== ====================
Gross 1,158.9 4,395.2 4,948.2 13,934.2 24,436.5 16,633.0
============ =================== =============== ================ ============== ========== ====================
Reinsurance (413.3) (1,542.1) (1,652.6) (3,798.7) (7,406.7) (5,285.3)
============ =================== =============== ================ ============== ========== ====================
Net 745.6 2,853.1 3,295.6 10,135.5 17,029.8 11,347.7
Expected cash flows (undiscounted)
================================================================================== ====================
Over 10 years Total Carrying value
Within 1 year GBPm 1-5 years GBPm 5-10 years GBPm GBPm GBPm (discounted) GBPm
============ =================== =============== ================ ============== ========== ====================
2016
============ =================== =============== ================ ============== ========== ====================
Gross 1,096.5 4,182.7 4,675.3 13,226.0 23,180.5 15,748.0
============ =================== =============== ================ ============== ========== ====================
Reinsurance (454.1) (1,713.6) (1,867.8) (4,583.6) (8,619.1) (6,057.1)
============ =================== =============== ================ ============== ========== ====================
Net 642.4 2,469.1 2,807.5 8,642.4 14,561.4 9,690.9
============ =================== =============== ================ ============== ========== ====================
(e) Sensitivity analysis
The Group has estimated the impact on profit for the year in
relation to insurance contracts and related reinsurance from
changes in key assumptions relating to financial assets and
liabilities.
Sensitivity Description of sensitivity factor applied
factor
=============== ==================================================
Interest rate The impact of a change in the market interest
and investment rates by +/- 1% (e.g. if a current interest
return 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 The impact of a decrease in base table
rates mortality rates by 5% applied to both Retirement
Income liabilities and mortgage assets
=============== ==================================================
Immediate The impact of an immediate decrease in
property price the value of properties by 10%. The test
fall allows for the impact on the Retirement
Income liabilities arising from any change
in yield on the loans secured by residential
mortgages and loans secured by commercial
mortgages used to back the liabilities
=============== ==================================================
Future property The impact of a reduction in future property
price growth price growth by 0.5%
=============== ==================================================
Voluntary The impact of an increase in voluntary
redemptions redemption rates on loans secured by residential
and commercial mortgages by 10%. The test
allows for the impact on the annuity liabilities
arising from any change in yield on the
loans secured by residential mortgages
and loans secured by commercial mortgages
used to back the liabilities
=============== ==================================================
Impact on profit before tax (GBPm)
Future
Net Immediate property
increase/(decrease) Maintenance Base property price Voluntary
in profit before tax Interest Interest expenses mortality price fall growth redemptions
(GBPm) rates +1% rates -1% +10% -5% -10% -0.5% +10%
==================== ============ ============ ============ ============ ============ ============ ============
2017 (123.3) 127.1 (52.1) (125.9) (122.7) (124.8) (98.7)
==================== ============ ============ ============ ============ ============ ============ ============
2016 (177.5) 225.1 (49.2) (131.3) (106.3) (104.8) (67.9)
==================== ============ ============ ============ ============ ============ ============ ============
The sensitivity factors are applied via financial models. 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 be interpolated or
extrapolated from these results.
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 impacts indicated
above for insurance contracts also reflect movements in financial
derivatives, which are impacted by movements in interest rates.
Related reinsurance assets are not impacted by financial
derivatives.
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, and the assumption that there is a parallel shift in
interest rates at all durations.
23. Investment contract liabilities
2017 2016
GBPm GBPm
============================================================ ======= =======
Balance at start of period 222.3 228.3
============================================================ ======= =======
Deposits received from policyholders 51.2 32.4
============================================================ ======= =======
Payments made to policyholders (59.1) (53.9)
============================================================ ======= =======
Change in contract liabilities recognised in profit or loss 6.3 15.5
============================================================ ======= =======
Balance at end of period 220.7 222.3
============================================================ ======= =======
Recoveries from reinsurers on investment contracts were GBP72.3m
(2016: GBP28.5m) as shown in note 16.
(a) Terms and conditions of investment contracts
The Group writes Flexible Pension Plan products for the at-
retirement market. Policyholder premiums are invested in selected
unit-linked funds, with the policyholder able to drawdown on funds,
the return on which will be based on actual investment returns.
The Group has written Capped Drawdown products for the
at-retirement market. These products are no longer available to new
customers. 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 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.
(b) Principal assumptions underlying the calculation of
investment contracts
Valuation discount rates
Valuation discount rate assumptions for investment contracts are
set with regards to yields on supporting assets. An explicit
allowance for credit risk is included by making an explicit
deduction from the yields on debt and other fixed income securities
based on historical default experience of each asset class.
2017 2016
Valuation discount rates % %
========================= ===== =====
Investment contracts 3.23 3.18
========================= ===== =====
24. Loans and borrowings
Carrying value Fair Value
=================================================================================== ================= ==============
2017 2016 2017 2016
GBPm GBPm GBPm GBPm
=================================================================================== ======== ======= ====== ======
GBP100m 9.5% 10 year subordinated debt 2025 non-callable 5 years (Tier 2) issued by
Partnership
Life Assurance Company Limited 95.3 94.6 105.4 105.5
=================================================================================== ======== ======= ====== ======
GBP250m 9.0% 10 year subordinated debt 2026 (Tier 2) issued by Just Group plc 248.6 248.5 278.2 248.5
=================================================================================== ======== ======= ====== ======
Total loans and borrowings 343.9 343.1 383.6 354.0
=================================================================================== ======== ======= ====== ======
25. Other financial liabilities
The Group has other financial liabilities which are measured at
either amortised cost, fair value through profit or loss, or in
accordance with relevant underlying contracts ("insurance rules"),
summarised as follows.
2017 2016
Note GBPm GBPm
======================================================== ====== ======== ========
Fair value through profit or loss
======================================================== ====== ======== ========
Derivative financial liabilities (a) 236.3 189.3
======================================================== ====== ======== ========
Obligations for repayment of cash collateral received (a) 16.3 52.2
======================================================== ====== ======== ========
Deposits received from reinsurers (b) 2,654.1 2,741.1
======================================================== ====== ======== ========
Liabilities measured using insurance rules under IFRS 4
======================================================== ====== ======== ========
Deposits received from reinsurers (b) 1,901.4 2,490.3
======================================================== ====== ======== ========
Reinsurance finance (c) 49.3 65.9
======================================================== ====== ======== ========
Reinsurance funds withheld (d) 188.0 202.0
======================================================== ====== ======== ========
Total other liabilities 5,045.4 5,740.8
================================================================ ======== ========
The amount of deposits received from reinsurers and reinsurance
funds withheld that is expected to be settled more than one year
after the Consolidated statement of financial position date is
GBP4,363.3m (2016: GBP5,021.1m).
(a) Derivative financial liabilities and obligations for
repayment of cash collateral received
The derivative financial liabilities are classified at fair
value through profit or loss. All financial liabilities at fair
value through profit or loss are designated as such on initial
recognition or, in the case of derivative financial liabilities,
are classified as held for trading.
(b) Deposits received from reinsurers
Deposits received from reinsurers are measured in accordance
with the reinsurance contract and taking into account an
appropriate discount rate for the timing of expected cash flows of
the liabilities.
(c) Reinsurance finance
The reinsurance finance has been established in recognition of
the loan obligation to the reinsurers under the Group's reinsurance
financing arrangements, the repayment of which are contingent upon
the emergence of surplus under the old Solvency I valuation
rules.
(d) Reinsurance funds withheld
Reinsurance funds withheld are measured and valued in accordance
with the reinsurance contract, which takes into account an
appropriate discount rate for the timing of expected cash
flows.
26. 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, including interest rate swaps,
interest rate swaptions, inflation swaps, credit default swaps, and
foreign currency asset swaps.
2017 2016
================================================= =================================================
Asset fair Liability fair Notional Asset Fair Liability fair Notional
value value amount value value Amount
Derivatives GBPm GBPm GBPm GBPm GBPm GBPm
================ =============== =============== =============== =============== =============== ===============
Foreign currency
swaps 7.7 71.1 866.2 0.8 113.5 764.8
================ =============== =============== =============== =============== =============== ===============
Interest rate
swaps 63.7 48.8 1,527.5 67.8 55.4 1,182.8
================ =============== =============== =============== =============== =============== ===============
Interest rate
swaptions - - - - - 1,140.0
================ =============== =============== =============== =============== =============== ===============
Inflation swaps 25.6 31.1 1,689.1 33.1 18.8 1,220.0
================ =============== =============== =============== =============== =============== ===============
Forward swap 1.8 1.0 385.8 3.8 1.6 343.8
================ =============== =============== =============== =============== =============== ===============
Credit default
swaps - 0.5 43.4 - - -
================ =============== =============== =============== =============== =============== ===============
Interest rate
futures 1.4 83.8 186.0 1.5 - 43.4
================ =============== =============== =============== =============== =============== ===============
Total 100.2 236.3 4,698.0 107.0 189.3 4,694.8
================ =============== =============== =============== =============== =============== ===============
The Group's derivative financial instruments are not designated
as hedging instruments and changes in their fair value are included
in profit or loss. Derivatives are used to manage the Group's
European embedded value and regulatory capital, which is affected
by a surplus of long dated fixed interest securities when
liabilities are measured on a realistic basis.
All over-the-counter derivative transactions are conducted under
standardised International Swaps and Derivatives Association Inc.
("ISDA") 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 2017, the Company had pledged collateral of
GBP119.3m (2016: GBP176.6m) of which GBP5.8m were gilts and
European Investment Bank bonds (2016: GBP105.6m) and had received
cash collateral of GBP16.3m (2016: GBP52.2m).
Amounts recognised in profit or loss in respect of derivative
financial instruments are as follows:
Year ended
31 December 2017 18 months ended 31 December 2016
GBPm GBPm
================================================= ================== =================================
Movement in fair value of derivative instruments 30.1 3.3
================================================= ================== =================================
Realised losses on interest rate swaps closed (1.4) (68.5)
================================================= ================== =================================
Total amounts recognised in profit or loss 28.7 (65.2)
================================================= ================== =================================
27. Reinsurance
The Group uses reinsurance as an integral part of its risk and
capital management activities. New business was reinsured via
longevity swap arrangements as follows:
-- DB is 55% reinsured for underwritten schemes, and 75% for
non-underwritten schemes (55% prior to 1 January 2016)
-- GIfL is 75% reinsured (45% prior to 1 January 2016)
-- Care is 42.5% reinsured (90% prior to 1 April 2016)
-- Protection is 65% reinsured
In-force business is reinsured under longevity swap and quota
share treaties. The quota share treaties have deposit back or
premium withheld arrangements to remove the majority of the
reinsurer credit risk.
The quota share treaties entered into by the Group's subsidiary,
JRL, include financing arrangements (see note 25c), the repayment
of which is contingent upon the emergence of surplus under the old
Solvency I valuation rules. The Group retains a capital benefit
under Solvency II from the financing arrangements as these form
part of the transitional calculations.
These treaties also allow JRL to recapture business once the
financing has been repaid. During the period the Group recaptured
business in respect of certain underwriting years that resulted in
a decrease of ceded liabilities of GBP467.5m and a reduction of
equal amount in the deposit received.
In addition to the deposits received from reinsurers recognised
within other financial liabilities (see note 25b), certain
reinsurance arrangements within the Group's subsidiary, PLACL, 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 managed by the Group (as the Group controls the
investment of the asset), 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 ringfenced 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.
2017 2016
GBPm GBPm
================================================================================ ====== ======
Deposits managed by the Group 221.3 235.6
================================================================================ ====== ======
Deposits held in trust 295.4 296.9
================================================================================ ====== ======
Total deposits not included in the Consolidated statement of financial position 516.7 532.5
================================================================================ ====== ======
28. Other provisions
Year ended 31 December 2017 18 months ended 31 December 2016
GBPm GBPm
===================================================== ============================ =================================
Balance at start of period 8.5 1.5
===================================================== ============================ =================================
Amounts charged to Consolidated statement of
comprehensive income - 11.9
===================================================== ============================ =================================
Amounts utilised (6.4) (3.7)
===================================================== ============================ =================================
Amounts released - (1.2)
===================================================== ============================ =================================
Balance at end of period 2.1 8.5
===================================================== ============================ =================================
Of the amount charged to Consolidated statement of comprehensive
income in 2016, GBP5.3m was in respect of the cost of staff
redundancies.
The amount of provisions that is expected to be settled more
than 12 months after the Consolidated statement of financial
position date is GBP0.5m (2016: GBP2.3m).
29. Current tax
Current tax assets/liabilities receivable/payable in more than
one year are GBPnil (2016: GBPnil).
30. Accruals and deferred income
Accruals and deferred income payable in more than one year are
GBP1.1m (2016: GBP1.5m).
31. Insurance and other payables
2017 2016
GBPm GBPm
========================================================== ====== ======
Payables arising from insurance and reinsurance contracts 34.0 28.1
========================================================== ====== ======
Other payables 51.5 85.0
========================================================== ====== ======
Total insurance and other payables 85.5 113.1
========================================================== ====== ======
Insurance and other payables due in more than one year are
GBPnil (2016: GBPnil).
32. Commitments
Operating leases
The Group leases a number of properties under operating leases.
The future minimum lease payments payable over the remaining terms
of non-cancellable operating leases are as follows:
2017 2016
GBPm GBPm
==================================== ====== ======
Less than one year 2.1 4.4
==================================== ====== ======
Between one and five years 6.4 12.7
==================================== ====== ======
More than five years 3.4 5.6
==================================== ====== ======
Total future minimum lease payments 11.9 22.7
==================================== ====== ======
Capital commitments
The Group had no capital commitments as at 31 December 2017
(2016: GBPnil).
33. Contingent liabilities
The Group had no contingent liabilities as at 31 December 2017
(2016: GBPnil).
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 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, and in addition its reinsurance treaties may
be terminated, not renewed, or renewed on terms less favourable
than those under existing treaties.
Insurance risk arises through exposure to longevity, mortality
and morbidity and exposure to factors such as withdrawal levels and
management and administration expenses.
Individually underwritten GIfL are priced using assumptions
about future longevity that are based on historic experience
information, lifestyle and medical factors relevant to individual
customers, and judgements about the future development of longevity
improvements. In the event of an increase in longevity, the
actuarial reserve required to make future payments to customers may
increase.
Loans secured by mortgages are used to match some of the
liabilities arising from the sale of GIfL and DB business. In the
event that early repayments 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
morbidity risk exposure as the contract ends when the customer
moves into long-term care.
Underpinning the management of insurance risk are:
-- The development and use of medical information including
PrognoSys(TM) for both pricing and reserving to provide detailed
insight into longevity risk;
-- Adherence to approved underwriting requirements;
-- Controls around the development of suitable products and their pricing;
-- Review and approval of assumptions used by the Board;
-- Regular monitoring and analysis of actual experience;
-- Use of reinsurance to minimise volatility of capital requirement and profit; and
-- Monitoring of expense levels.
Concentrations of insurance risk
Concentration of insurance risk comes from improving longevity.
Improved longevity arises from enhanced medical treatment and
improved life circumstances. Concentration risk is managed by
writing business across a wide range of different medical and
lifestyle conditions to avoid excessive exposure.
(b) Market risk
Market risk is the risk of loss or of adverse change in the
financial situation resulting, directly or indirectly, 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.
Significant market risk is implicit in the insurance business
and arises from exposure to interest rate risk, property risk,
inflation risk and currency risk. The Group is not exposed to any
equity risk or material currency risk.
Market risk represents both upside and downside impacts but the
Group's policy to manage market risk is to limit downside risk.
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. Changes in the value of the Group's
investment portfolio will also affect the Group's financial
position.
In mitigation, Retirement Income product monies are invested to
match the asset and liability cash flows as closely as practicable.
In practice it is not possible to eliminate market risk fully as
there are inherent uncertainties surrounding many of the
assumptions underlying the projected asset and liability cash
flows.
For each of the material components of market risk, described in
more detail below, the market risk policy sets out the 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 through its impact on
the value of, or income from, specific assets, liabilities or both.
It seeks to limit its exposure through appropriate asset and
liability matching and hedging strategies.
The Group's 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 and
swaptions.
The following table indicates the earlier of contractual
repricing or maturity dates for the Group's significant financial
assets.
Less than one One to five Five to ten
year years years Over ten years No fixed term Total
GBPm GBPm GBPm GBPm GBPm GBPm
================= ================= ================= ================= =============== ============== =========
2017
================= ================= ================= ================= =============== ============== =========
Units in
liquidity funds 897.9 - - - - 897.9
================= ================= ================= ================= =============== ============== =========
Investment funds 46.3 - - - - 46.3
================= ================= ================= ================= =============== ============== =========
Debt securities
and other fixed
income
securities 994.1 2,570.0 2,408.6 3,616.8 - 9,589.5
================= ================= ================= ================= =============== ============== =========
Deposits with
credit
institutions 87.9 - - - - 87.9
================= ================= ================= ================= =============== ============== =========
Derivative
financial assets 3.3 13.7 8.6 74.6 - 100.2
================= ================= ================= ================= =============== ============== =========
Loans secured by
residential
mortgages - - - - 6,833.3 6,833.3
================= ================= ================= ================= =============== ============== =========
Loans secured by
commercial
mortgages - 103.4 89.8 22.2 - 215.4
================= ================= ================= ================= =============== ============== =========
Other loans 0.8 3.1 3.0 437.4 - 444.3
================= ================= ================= ================= =============== ============== =========
Amounts
recoverable from
reinsurers on
investment
contracts 72.3 - - - - 72.3
================= ================= ================= ================= =============== ============== =========
Total 2,102.6 2,690.2 2,510.0 4,151.0 6,833.3 18,287.1
================= ================= ================= ================= =============== ============== =========
Less than one One to five Five to ten
year years years Over ten years No fixed term Total
GBPm GBPm GBPm GBPm GBPm GBPm
================= ================= ================= ================= =============== ============== =========
2016
================= ================= ================= ================= =============== ============== =========
Units in
liquidity funds 572.3 - - - - 572.3
================= ================= ================= ================= =============== ============== =========
Debt securities
and other fixed
income
securities 949.1 2,492.7 2,651.2 3,658.9 - 9,751.9
================= ================= ================= ================= =============== ============== =========
Deposits with
credit
institutions 73.2 - - - - 73.2
================= ================= ================= ================= =============== ============== =========
Derivative
financial assets 4.4 11.7 12.9 78.0 - 107.0
================= ================= ================= ================= =============== ============== =========
Loans secured by
residential
mortgages - - - - 6,430.4 6,430.4
================= ================= ================= ================= =============== ============== =========
Loans secured by
commercial
mortgages - 64.0 99.8 - - 163.8
================= ================= ================= ================= =============== ============== =========
Other loans 3.8 - - 188.7 - 192.5
================= ================= ================= ================= =============== ============== =========
Amounts
recoverable from
reinsurers on
investment
contracts 28.5 - - - - 28.5
================= ================= ================= ================= =============== ============== =========
Total 1,631.3 2,568.4 2,763.9 3,925.6 6,430.4 17,319.6
================= ================= ================= ================= =============== ============== =========
A sensitivity analysis of the impact of interest rate movements
on profit before tax is included in note 22(e).
(ii) Property risk
The Group's exposure to property risk arises from indirect
exposure to the UK residential property market through the
provision of lifetime mortgages. A substantial decline or sustained
underperformance in UK residential property prices, against which
the Group's lifetime mortgages are secured, could result in
proceeds on sale being exceeded by the mortgage debt at the date of
redemption. Demand may also reduce for lifetime mortgage products
through reducing consumers' propensity to borrow and by reducing
the amount they are able to borrow due to reductions in property
values and the impact on loan-to-value limits.
The risk is mitigated by ensuring that the advance represents a
low proportion of the property's value at outset and independent
third party valuations are undertaken 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.
A sensitivity analysis of the impact of property price movements
on profit before tax is included in note 22(e).
(iii) Inflation risk
Inflation risk is the risk of fluctuations in the value of, or
income from, specific assets or liabilities or both in combination,
arising from relative or absolute changes in inflation or in the
volatility of inflation.
Exposure to inflation occurs in relation to the Group's own
management expenses and its matching of index-linked Retirement
Income products. Its impact is managed through the application of
disciplined cost control over its management expenses and through
matching its index-linked assets and index-linked liabilities for
the inflation risk associated with its index-linked Retirement
Income products.
(iv) Currency risk
Currency risk arises from fluctuations in the value of, or
income from, assets denominated in foreign currencies, from
relative or absolute changes in foreign exchange rates or in the
volatility of exchange rates.
Exposure to currency risk could arise from the Group's
investment in non-sterling denominated assets. From time to time,
the Group acquires fixed income securities denominated in US
dollars or 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 eliminate 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 where the main risks are
default and market risk. 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. Market risk is the risk of bond prices
falling as a result of concerns over the counterparty, or over the
market or economy in which the issuing company operates. This leads
to wider spreads (the difference between redemption yields and a
risk-free return), the impact of which is mitigated through the use
of a "hold to maturity" strategy. Concentration of credit risk
exposures is managed by placing limits on exposures to individual
counterparties and limits on exposures to credit rating levels.
-- The Group also manages credit risk on its corporate bond
portfolio through the appointment of specialist fund managers, who
execute a diversified investment strategy, investing in
investment-grade assets and imposing individual counterparty
limits. Current economic and market conditions are closely
monitored, as are spreads on the bond portfolio in comparison with
benchmark data.
-- 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 26).
-- Reinsurance - reinsurance is used to manage longevity risk
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.
-- Cash balances - credit risk on cash assets is managed by
imposing restrictions over the credit ratings of third parties with
whom cash is deposited.
-- Credit risk - credit risks for loans secured by mortgages has
been considered within "property risk" above.
The following table provides information regarding the credit
risk exposure for financial assets of the Group, which are neither
past due nor impaired at 31 December:
UK gilts AAA AA A BBB BB or below Unrated Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ========= ======== ======== ======== ======== ============ ======== =========
2017
================================ ========= ======== ======== ======== ======== ============ ======== =========
Units in liquidity funds - 894.3 3.6 - - - - 897.9
================================ ========= ======== ======== ======== ======== ============ ======== =========
Investment funds - - 7.2 - - - 39.1 46.3
================================ ========= ======== ======== ======== ======== ============ ======== =========
Debt securities and other fixed
income securities 552.9 792.6 886.2 3,298.3 3,488.2 151.0 420.3 9,589.5
================================ ========= ======== ======== ======== ======== ============ ======== =========
Deposits with credit
institutions - - - 29.8 57.2 - 0.9 87.9
================================ ========= ======== ======== ======== ======== ============ ======== =========
Derivative financial assets - - 0.8 18.8 80.6 - - 100.2
================================ ========= ======== ======== ======== ======== ============ ======== =========
Other loans - 64.2 - 50.3 318.8 - 11.0 444.3
================================ ========= ======== ======== ======== ======== ============ ======== =========
Loans secured by mortgages - - - - - - 7,048.7 7,048.7
================================ ========= ======== ======== ======== ======== ============ ======== =========
Reinsurance - - 294.7 347.8 5.2 - 0.4 648.1
================================ ========= ======== ======== ======== ======== ============ ======== =========
Insurance and other receivables - - - - - - 44.5 44.5
================================ ========= ======== ======== ======== ======== ============ ======== =========
Total 552.9 1,751.1 1,192.5 3,745.0 3,950.0 151.0 7,564.9 18,907.4
================================ ========= ======== ======== ======== ======== ============ ======== =========
UK gilts AAA AA A BBB BB or below Unrated Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================ ========= ======== ======== ======== ======== ============ ======== =========
2016
================================ ========= ======== ======== ======== ======== ============ ======== =========
Units in liquidity funds - 569.3 3.0 - - - - 572.3
================================ ========= ======== ======== ======== ======== ============ ======== =========
Debt securities and other fixed
income securities 645.7 790.6 919.0 3,432.4 3,431.9 150.7 381.6 9,751.9
================================ ========= ======== ======== ======== ======== ============ ======== =========
Deposits with credit
institutions - - 2.2 13.1 57.9 - - 73.2
================================ ========= ======== ======== ======== ======== ============ ======== =========
Derivative financial assets - - 1.0 25.5 80.5 - - 107.0
================================ ========= ======== ======== ======== ======== ============ ======== =========
Other loans - - 3.8 - 188.7 - - 192.5
================================ ========= ======== ======== ======== ======== ============ ======== =========
Loans secured by mortgages - - - - - - 6,594.2 6,594.2
================================ ========= ======== ======== ======== ======== ============ ======== =========
Reinsurance - - 309.4 342.8 - - - 652.2
================================ ========= ======== ======== ======== ======== ============ ======== =========
Insurance and other receivables - - - - - - 137.3 137.3
================================ ========= ======== ======== ======== ======== ============ ======== =========
Total 645.7 1,359.9 1,238.4 3,813.8 3,759.0 150.7 7,113.1 18,080.6
================================ ========= ======== ======== ======== ======== ============ ======== =========
The carrying amount of those assets subject to credit risk
represents the maximum credit risk exposure.
(d) Liquidity risk
The investment of Retirement Income cash in corporate bonds,
gilts and lifetime mortgages, and commitments to pay policyholders
and other obligations, requires liquidity risks to be taken.
Liquidity risk is the risk of loss because the Group, although
solvent, either does not have sufficient financial resources
available to it in order to meet its obligations as they fall due,
or can secure them only at excessive cost.
Exposure to liquidity risk arises from:
-- Deterioration in the external environment caused by economic
shocks, regulatory changes or reputational damage;
-- Realising 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;
-- Ensuring financial support can be provided across the Group; and
-- Maintaining and servicing collateral requirements arising
from the changes in market value of financial derivatives used by
the Group.
Liquidity risk is managed by ensuring that assets of a suitable
maturity and marketability are held to meet liabilities as they
fall due. The Group's short-term liquidity requirements are
predominantly funded by advance Retirement Income premium payments,
investment coupon receipts, and bond principal repayments out of
which contractual payments need to be made. There are significant
barriers for policyholders to withdraw funds that have already been
paid to the Group in the form of premiums. Cash outflows associated
with Retirement Income liabilities can be reasonably estimated and
liquidity can be arranged to meet this expected outflow through
asset-liability matching and new business premiums.
The cash flow characteristics of the lifetime mortgages are
reversed when compared with Retirement Income products, with cash
flows effectively representing an advance payment, which is
eventually funded by repayment of principal plus accrued interest.
Policyholders are able to redeem mortgages, albeit at a cost. The
mortgage assets are considered illiquid, as they are not readily
saleable due to the uncertainty about their value and the lack of a
market in which to trade them.
Cash flow forecasts over the short, medium and long terms are
regularly prepared to predict and monitor liquidity levels in line
with limits set on the minimum amount of liquid assets
required.
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:
Within one year or
payable on demand One to five years No fixed term
GBPm GBPm More than five years GBPm GBPm
========================== ========================== ================== ========================== ==============
2017
========================== ========================== ================== ========================== ==============
Subordinated debt 32.0 160.0 478.0 -
========================== ========================== ================== ========================== ==============
Derivative financial
liabilities 107.9 114.7 999.7 -
========================== ========================== ================== ========================== ==============
Obligations for repayment
of cash collateral
received 16.3 - - -
========================== ========================== ================== ========================== ==============
Deposits received from
reinsurers 365.4 1,354.6 4,508.8 -
========================== ========================== ================== ========================== ==============
Reinsurance finance - - - 49.3
========================== ========================== ================== ========================== ==============
Reinsurance funds withheld 16.9 62.5 163.7 -
========================== ========================== ================== ========================== ==============
Within one Year or
payable on demand One to five years More than five years No fixed term
GBPm GBPm GBPm GBPm
========================== ========================== ================== ========================== ==============
2016
========================== ========================== ================== ========================== ==============
Subordinated debt - 259.9 362.5 -
========================== ========================== ================== ========================== ==============
Derivative financial
liabilities 34.6 35.5 149.6 -
========================== ========================== ================== ========================== ==============
Obligations for repayment
of cash collateral
received 52.1 - - -
========================== ========================== ================== ========================== ==============
Deposits received from
reinsurers 400.3 1,506.8 5,342.7 -
========================== ========================== ================== ========================== ==============
Reinsurance finance - - - 65.9
========================== ========================== ================== ========================== ==============
Reinsurance funds withheld 17.5 64.8 179.1 -
========================== ========================== ================== ========================== ==============
35. Capital
Since 1 January 2016, the Group has been required to measure and
monitor its capital resources on a new regulatory basis and to
comply with the requirements established by the Solvency II
Framework Directive, as adopted by the Prudential Regulation
Authority (PRA) in the UK. The Group and its regulated subsidiaries
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 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.
In December 2015, Just Retirement Group plc and JRL received
approval to calculate their Solvency II capital requirements using
a full internal model which continued to be used for those parts of
the Group at December 2016. The capital requirement for the
ex-Partnership business is assessed using the standard formula.
The surplus of Own Funds over the SCR is called "Excess Own
Funds" and this effectively acts as working capital for the Group.
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.
The Group's capital position can be adversely affected by a
number of factors, in particular factors that erode the Group's
capital resources and/or which impact the quantum of risk to which
the Group is exposed. In addition, any event which erodes current
profitability and is expected to reduce future profitability and/or
make profitability more volatile could impact the Group's capital
position, which in turn could have a negative effect on the Group's
results of operations.
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 requirements;
-- To safeguard the Group's ability to continue as a going
concern so that it can continue to provide returns for shareholders
and benefits for other stakeholders; and
-- To provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk.
Group entities that are under supervisory regulation and are
required to maintain a minimum level of regulatory capital
include:
-- Just Retirement Limited and Partnership Life Assurance
Company Limited - 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.
Group capital position
The Group's estimated capital surplus position at 31 December
2017, which is unaudited, and is stated after including 12 months'
amortisation of transitional relief was as follows:
Solvency Capital Requirement Minimum Group Solvency Capital Requirement
================================ =============================================
2016 2016
2017 (unaudited) GBPm GBPm 2017 (unaudited) GBPm GBPm
==================== ====================== ======== ================================ ===========
Eligible Own Funds 2,269.0 2,100.1 1,952.4 1,806.6
==================== ====================== ======== ================================ ===========
Capital Requirement 1,606.4 1,393.8 399.0 347.7
==================== ====================== ======== ================================ ===========
Excess Own Funds 662.6 706.3 1,553.4 1,458.9
==================== ====================== ======== ================================ ===========
Coverage ratio 141% 151% 489% 520%
==================== ====================== ======== ================================ ===========
36. Related parties
The Group has related party relationships with its key
management personnel and associated undertakings. All transactions
with related parties are carried out on an arm's length basis.
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
31 December 2017 18 months ended 31 December 2016
GBPm GBPm
=============================================== ================== =================================
Short-term employee benefits 4.8 6.3
=============================================== ================== =================================
Share-based payments 2.3 3.5
=============================================== ================== =================================
Total key management compensation 7.1 9.8
=============================================== ================== =================================
Loans owed by Directors 0.3 0.3
=============================================== ================== =================================
Loans advanced to associate and fees on loans - 0.2
=============================================== ================== =================================
The loan advances to Directors accrue interest fixed at 4% per
annum and are repayable in whole or in part at any time.
37. Ultimate Parent Company and ultimate controlling party
The Company is the ultimate Parent Company of the Group and has
no controlling interest.
38. Post balance sheet events
Subject to approval by shareholders at the AGM, the final
dividend for 2017 of 2.55 pence per ordinary share, amounting to
GBP23.9m, will be paid on 25 May 2018 and accounted for as an
appropriation of retained earnings in the year ending 31 December
2018.
On 7 February 2018, Just Group plc issued a GBP230m BBB rated
Solvency II Tier 3 qualifying instrument at par with a maturity
date of February 2025 and a coupon of 3.5%.
There are no other post balance sheet events that have taken
place between 31 December 2017 and the date of this report.
Glossary and definitions
Acquisition costs - acquisition costs comprise the direct costs
(such as commissions) of obtaining new business.
Adjusted earnings per share - an APM, this measures earnings per
share based on adjusted operating profit after attributed tax,
rather than IFRS profit before tax. This measure is calculated by
taking the adjusted operating profit APM, reduced for the effective
tax rate (19.25% for 2017), and dividing this result by the
weighted average number of shares in issue by the Group for the
period.
Adjusted operating profit - an APM and one of the Group's KPIs,
this is the sum of the new business operating profit and in-force
operating profit together with the impact of one-off assumption
changes, experience variances, results of the other Group companies
and financing costs. Adjusted operating profit is reconciled to
IFRS profit before tax in the Financial Review.
Alternative performance measure ("APM") - In addition to
statutory IFRS performance measures, the Group has presented a
number of non-statutory alternative performance measures (APMs)
within the Annual Report & 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.
Amortisation and impairment of intangible assets - amortisation
costs relate to the amortisation of the Group's intangible assets,
including the amortisation of intangible assets recognised in
relation to the acquisition of Partnership Assurance Group plc by
Just Retirement Group plc.
Auto-enrolment - new legal duties being phased in that require
employers to automatically enrol workers into a workplace
pension.
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 - 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.
Change in insurance liabilities - change in insurance
liabilities represents the difference between the year-on-year
change in the carrying value of the Group's insurance liabilities
and the year-on-year change in the carrying value of the Group's
reinsurance assets including the effect of the impact of
reinsurance recaptures.
Combined Group/Just Group - following completion of the merger
with Partnership Assurance Group plc, Just Group plc and each of
its consolidated subsidiaries and subsidiary undertakings
comprising the Just Retirement Group and the Partnership Assurance
Group.
Defined benefit 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.
Drawdown - (in reference to Just Group sales or products)
collective term for Flexible Pension Plan and capped drawdown.
Economic capital coverage ratio - an APM and one of the Group's
KPIs, economic capital is a key risk-based capital measure and
expresses the Board's view of the available capital as a percentage
of the required capital.
Employee benefit consultant ("EBC") - an adviser offering
specialist knowledge to employers on the legal, regulatory and
practical issues of rewarding staff including non-wage compensation
such as pensions, health and life insurance and profit sharing.
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.
European embedded value ("EEV") - an APM and one of the Group's
KPIs. EEV represents the sum of shareholders' net assets and the
value of in-force business, and is a key measure in assessing the
future profit streams of the Group's long-term business. It also
recognises the additional value of profits in the business that has
been written but not yet recognised under IFRS accounting. European
embedded value is reconciled to IFRS net equity in the Financial
Review.
Finance costs - finance costs represent interest payable on
reinsurance deposits and financing, the interest on the Group's
Tier 2 Notes, and, in the prior year, bank finance costs.
Flexi-access drawdown - the option introduced in April 2015 for
DC pension savers who have taken tax-free cash to take a taxable
income directly from their remaining pension with no limit on
withdrawals.
Gross premiums written - Gross premiums written are the 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.
Guaranteed Guidance - see Pensions Wise.
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 net assets - one of the Group's KPIs, representing the
assets attributable to equity holders.
IFRS profit before tax - one of the Group's KPIs, representing
the profit before tax attributable to equity holders.
In-force operating profit - an APM and one of the Group's KPIs,
capturing the expected margin to emerge from the in-force book of
business and free surplus, and results from the gradual release of
prudent reserving margins over the lifetime of the policies.
In-force operating profit is reconciled to IFRS profit before tax
in the Financial Review.
Investment and economic profits - investment and economic
profits 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 which are considered to give an
understanding of the Group's underlying performance drivers. The
Group's KPIs are New business sales, New business operating profit,
In-force operating profit, Adjusted operating profit, IFRS profit
before tax, IFRS net assets, European embedded value, Solvency II
capital coverage ratio and Economic capital coverage ratio.
Lifetime mortgages - 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 home is no
longer needed.
Medical underwriting - the process of evaluating an individual's
current health, medical history and lifestyle factors such as
smoking when pricing an insurance contract.
New business operating 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 prudent
reserves and for acquisition expenses. New business operating
profit is reconciled to IFRS profit before tax in the Financial
Review.
New business sales - an APM and one of the Group's KPIs and a
key indicator of the Group's growth and realisation of its
strategic objectives. New business sales include DB, GIfL, Care,
FPP and protection premiums written combined with LTM advances in
the year. New business sales are reconciled to IFRS Gross premiums
in note 7 to the consolidated financial statements.
Net claims paid - 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 - 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.
Net premium revenue - net premium revenue represents the sum of
gross premiums written and reinsurance recapture, less reinsurance
premium ceded.
Non-recurring and project expenditure - non-recurring and
project expenditure includes any one-off regulatory, project and
development costs. This line item does not include acquisition
integration, or acquisition transaction costs, which are shown as
separate line items.
Operating experience and assumption changes - captures the
impact of the actual operating experience differing from that
assumed at the start of the period, plus the impact of changes to
future operating assumptions applied during the period. It also
includes the impact of any expense reserve movements, and other
sundry operating items.
Other Group companies' operating results - the results of Group
companies including HUB, 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.
Other operating expenses - other operating expenses represent
the Group's operational overheads, including personnel expenses,
investment expenses and charges, depreciation of equipment,
reinsurance fees, operating leases, amortisation of intangibles,
and other expenses incurred in running the Group's operations.
Pension Freedoms/Pension Freedom and Choice/Pension Reforms -
the UK Government's pension reforms, implemented in April 2015.
Pensions Wise - the free and impartial service introduced in
April 2015 to provide "Guaranteed Guidance" to defined contribution
pension savers considering taking money from their pensions.
PrognoSys(TM) - 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.
Retirement Income sales (in reference to Just Group sales or
products) - collective term for GIfL, DB and Care Plan.
Retirement sales (in reference to Just Group sales or products)
- collective term for Retirement Income sales and Drawdown.
Regulated financial advice - personalised financial advice for
retail customers by qualified advisers who are regulated by the
Financial Conduct Authority.
Reinsurance and finance costs - the interest on subordinated
debt, bank loans and reinsurance financing, together with
reinsurance fees incurred.
Simplified advice - regulated financial advice offering a
limited service on a limited or specialist area of financial need,
such as retirement, to retail customers taking into account
information relevant to that need.
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.
Trustees - individuals with the legal powers to hold, control
and administer the property of a trust such as a pension scheme for
the purposes specified in the trust deed. Pension scheme trustees
are obliged to act in the best interests of the scheme's
members.
Underlying operating profit - an APM and the sum of the new
business operating profit and in-force operating profit. As this
measure excludes the impact of one-off assumption changes and
investment variances, the Board considers it to be a key indicator
of the progress of the business and a useful measure for investors
and analysts when assessing the Group's financial performance.
Underlying operating profit is reconciled to IFRS profit before tax
in the Financial Review.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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