TIDMJUST
RNS Number : 1209L
Just Group PLC
04 September 2019
NEWS RELEASE www.justgroupplc.co.uk
4 September 2019
This announcement contains inside information for the purposes of Article
7 of Regulation (EU) No 596/2014 ("MAR"). Upon publication of this
announcement, the inside information is now considered to be in the
public domain for the purposes of MAR.
JUST GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2019
INTENSIFIED FOCUS ON CAPITAL AND VALUE
Just Group plc (the "Group", "Just") announces its results for
the six months ended 30 June 2019. As stated at the AGM, the Board
remains focused on delivering capital self-sufficiency by 2022,
while in parallel developing other strategic and business options
to enhance shareholder value.
Key Points: Capital and balance sheet
-- Organic capital consumption(1,3) reduced significantly to GBP36m
(H118 - GBP82m), due to lower new business strain and improved
in-force surplus generation. We remain committed to achieving organic
capital generation by 2022, having made good initial progress and
with a number of initiatives underway.
-- New business strain was GBP47m, half the level in H118. We have
managed sales down by 30% and focused on a more capital efficient
business mix.
-- Solvency coverage ratio of 149% after notional recalculation for
TMTP(2) (31 December 2018: 136%). The positive effect of capital
actions has been partially offset by economic headwinds. Our pro
forma solvency ratio(3) was 152%, which represents the solvency
coverage ratio of 149% adjusted for a GBP118m increase to our solvency
surplus from Defined Benefit longevity reinsurance, partly offset
by a GBP70m increase in our Solvency Capital Ratio ("SCR") in preparation
for adjustments to the treatment of Lifetime Mortgages ("LTM")
within our internal model. Whilst the final outcome of CP7/19 remains
uncertain, we are planning on the basis that it increases our SCR
by a further GBP130m by end of 2021. Tangible Net Asset Value per
share was 162p, Embedded Value per share(3) was 210p.
Key Points: IFRS profits
-- IFRS profit before tax was GBP125m (H118: GBP46m), as
positive economic variances offset a fall in underlying operating
profit
-- Underlying operating profit(3) was 27% lower at GBP114m in
H119, due to lower new business profits
-- New business operating profit(3) was down 39% to GBP74m in
H119. Lower new business margins were in line with expectations on
lower volumes
David Richardson, Interim Group Chief Executive Officer,
said:
"Capital is the Group's number one priority, and I am personally
committed to delivering organic capital generation by 2022. Whilst
we have made significant progress in adapting our business model,
as is evident from today's results, the first half of 2019 has not
been easy for our business or for shareholders, as we have faced
economic and regulatory challenges. However, we have made real
operational progress and I take pride in the way the business is
responding. I particularly want to recognise the response of my
colleagues across the Group to the rapidly changing
environment.
Our new business strain has already halved. However reducing the
rate at which we consume capital is just the first step. We are
also working hard to release capital from the back book to mitigate
the potential impact of potential regulatory changes and economic
headwinds. The final outcome of CP7/19 remains uncertain but we are
planning on the basis of an increase in our SCR of approximately
GBP130m for existing business by the end of 2021. This is over and
above a GBP70m increase made since 30 June in preparation for
adjustments to the treatment of Lifetime Mortgages within our
internal model.
We can announce today that we have further reduced Defined
Benefit longevity risk through reinsurance, which has increased our
pro forma Solvency II surplus by GBP118m. This more than offsets
the GBP70m SCR adjustment for LTMs. We also have a number of
further management actions available to us and in active
preparation, which could be used to offset the eventual cost of the
outcome of CP7/19. This includes exploring the regulatory treatment
of a no-negative equity guarantee ("NNEG") risk transfer
transaction.
The actions we have already taken have restored shareholder
returns on new business to mid-teen levels and we will build on
this progress. We are exploring a Defined Benefit De-risking ("DB")
partnering approach which pairs our award-winning new business
franchise with third party balance sheet capacity. This development
would give us access to larger transactions, which we cannot
currently target, in a capital efficient way.
We have stated previously that we expected to recommence
dividend payments for the 2019 financial year at a rebased level of
around one third of the amount paid in 2017. Regulatory and
economic uncertainty mean the directors are not recommending the
payment of an interim dividend. We will revisit our dividend policy
with our full year results, informed by our capital position and
the outlook at that time.
We are adapting our business model with the aim of ensuring it
is economically attractive in a challenging regulatory environment.
However, we are developing other strategic and business options to
maximise shareholder value in parallel, with no options excluded.
This includes keeping under regular review the possible need for
further reductions in new business volumes. We demonstrated our
resilience and adaptability when we responded to Pensions Freedom,
and I am convinced we can do so again."
Notes
1. Organic capital consumption includes surplus from in-force,
new business strain, overrun and other expenses, interest &
dividends and other operating items. It excludes economic variances
and accelerated TMTP amortisation.
2. TMTP - transitional measures for technical provisions.
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 APMs used give a more representative view of the
underlying performance of the Group. APMs are identified in the
glossary at the end of this announcement. Underlying operating
profit and new business operating profit are reconciled to IFRS
profit before tax in the Business Review. The pro forma solvency
ratio is reconciled to the Solvency II capital position as at 30
June 2019 in the Capital management section of the Business
Review.
Enquiries
Investors / Analysts Media
James Pearce, Director of Group Stephen Lowe, Group Communications
Finance Director
Telephone: +44 (0) 7715 085 099 Telephone: +44 (0) 1737 827 301
james.pearce@wearejust.co.uk press.office@wearejust.co.uk
Alistair Smith, Investor Relations Temple Bar Advisory
Manager Alex Child-Villiers
Telephone: +44 (0) 1737 232 792 William Barker
alistair.smith@wearejust.co.uk Telephone: +44 (0) 20 7002 1080
Paul Kelly, Investor Relations
Manager
Telephone: +44 (0) 20 7444 8127
paul.kelly@wearejust.co.uk
A presentation for analysts will take place at 9.30am today at
Nomura, One Angel Lane, London, EC4R 3AB. A live webcast will also
be available on www.justgroupplc.co.uk at 9:30am.
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
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.
Interim Group Chief Executive Officer's Report
Introduction
I am pleased to present Just Group plc's half year report for
the six months ended 30 June 2019. The Group's key priority is
capital efficiency, with a commitment to achieving organic capital
generation by 2022. All of our business decisions are being made
with this commitment in mind.
Performance review
During this six month period the Group has implemented changes
to the business model designed to improve the capital efficiency of
our business, supporting our commitment to reaching organic capital
generation by 2022. This has included reductions to new business
volumes in order to reduce capital strain. Retirement Income sales
for the six months ended 30 June 2019 were 30% lower at GBP831.3m
(six months ended 30 June 2018: GBP1,179.4m). This has contributed
to a corresponding decrease in new business operating profit and
adjusted operating profit before tax, but a significant fall in new
business strain. New business operating profit for the six months
ended 30 June 2019 was GBP73.7m (six months ended 30 June 2018:
GBP120.6m), and adjusted operating profit before tax for the six
months ended 30 June 2019 was GBP75.5m (six months ended 30 June
2018: GBP124.4m). As signalled in our year end results, there has
been a reduction in new business margin from the 10.2% achieved in
2018 to 8.9% for this period, following the updates to property
assumptions at 31 December 2018. We also adjusted the investment
mix with a slightly lower Lifetime Mortgage ("LTM") backing ratio,
and a focus on older borrowers, in addition to targeting shorter
duration Guaranteed Income for Life ("GIfL") and Defined Benefit
De-risking ("DB") business.
IFRS profit before tax for the six months ended 30 June 2019 was
GBP125.3m compared to GBP45.7m for the six months ended 30 June
2018, mainly due to positive economic variances from falling
risk-free rates and narrowing of credit spreads compared to the
prior period.
We are reporting lower premiums compared to 2018 for each of our
Retirement Income products. DB sales were GBP512.3m for the six
months ended 30 June 2019 (six months ended 30 June 2018:
GBP718.1m), with Q2 2019 DB sales showing a strong recovery from
the GBP26m of sales in Q1 2019. Our DB pipeline is strong and has
multiple opportunities at various levels of completion. GIfL sales
were GBP287.9m for the six months ended 30 June 2019, maintaining
the Q1 run rate (six months ended 30 June 2018: GBP426.5m). Overall
we remain comfortable with our guidance that 2019 premiums will be
consistent with the run rate established in H2 2018.
We advanced GBP155.8m of Lifetime Mortgage loans in the period,
compared to GBP312.7m in the six months ended 30 June 2018. This
represents 18.7% of Retirement Income sales (six months ended 30
June 2018: 26.5% of Retirement Income sales), below our usual
25-30% run rate. Our overall LTM average loan-to-value ("LTV") is
34.1% and the average LTV for advances made during the period was
28.7%.
Other steps taken during the first half of the year to improve
capital efficiency include progressing the outsourcing of our UK
income drawdown service, the closure to new business of our
loss-making US Care unit, progress to ending operating losses at
HUB Group, our corporate solutions and distribution business, and a
reduction in our cost base, including simplifying our senior
management structure and rationalising our property footprint.
These actions together with further initiatives planned to generate
additional cost reductions, including procurement and business
process optimisation, are expected to generate recurring core
management expense savings of c.GBP16m during 2019. The total
expected cost for 2019 of these initiatives is GBP15m, of which
GBP5m has been incurred in the period to 30 June 2019.
Our innovative solutions and excellent customer service in the
DB market has been recognised when we were named Risk Management
Provider of the Year at the Pensions Age Awards and Pensions
Insurance Firm of the Year at the European Pensions Awards. In the
Retail market, we were delighted to have achieved 5 stars in the
Life & Pensions category of the Financial Adviser Service
Awards, for the 14(th) consecutive year and our flexible new "Just
for You" mortgage product scooped the award for "Best Innovation in
Retail Finance" at the Retail Asset Management Awards in March.
During the period we have added to our product offering through the
launch of the Just for You Lifetime Mortgage range, and the
innovative Secure Lifetime Income solution for investment
platforms.
Capital
As at 30 June 2019, the Group's Solvency II balance sheet
complies with the principles in SS3/17 and the parameters we have
met for these tests (13% volatility and 0% deferment rate). The
Group is working constructively with the Prudential Regulation
Authority ("PRA") to implement the changes required following the
publication of PS31/18 in December 2018, and the potential outcomes
of CP7/19.
In addition to the steps outlined above to improve capital
efficiency, in March 2019 the Group strengthened its balance sheet
through the issue of GBP375m of new capital before costs. This was
achieved through GBP300m of Restricted Tier 1 issuance and a GBP75m
equity placing. The Group continues to explore opportunities in the
debt capital markets, including possible refinancing options for
the GBP100m 9.5% Partnership Tier 2 notes which are callable
annually from March 2020.
The Group is considering the regulatory treatment for its no
negative equity guarantee ("NNEG") hedging transaction, designed to
reduce exposure to fluctuations in property growth rates in light
of CP7/19, to enable larger-scale risk transfer. This will likely
only be possible once the outcome of CP7/19 has been finalised.
The Group's Solvency Capital Requirement ("SCR") coverage ratio
at 30 June 2019 was 149%, after allowance for notional TMTP
recalculation (31 December 2018: 136% after allowance for notional
TMTP recalculation). The change during the period reflects the
benefit of the capital raised in March 2019, however this has been
partly offset by new business strain, a fall in house prices and
the effects of falling risk-free rates. The regulatory and economic
uncertainty during the period, and the increased likelihood of a
"no deal" Brexit, have also contributed to the downward movement in
the Group's share price.
Since the end of June we have taken further steps to improve our
capital ratio, including a transaction with RGA to increase the
existing longevity reinsurance programme in relation to our DB
liabilities. This additional reinsurance is effective from 1 July
2019. Since the end of June we have also made a GBP70m increase in
our SCR in preparation for adjustments to the treatment of LTMs
within our internal model. Our GBP200m revolving credit facility
remains undrawn and available to support our business, and our
Insurer Financial Strength rating of A+ was re-affirmed by Fitch in
July 2019.
It is unusual to comment on the potential impact of an ongoing
consultation process. However we are aware that the PRA's
consultation CP7/19 on the final form of SS3/17 for Lifetime
Mortgages is causing significant uncertainty for many investors. We
cannot remove this uncertainty but can share that based on our
internal estimates as to the potential outcomes, for our capital
planning we have assumed an increase in SCR of c.GBP130m on
existing business will arise from these changes. The full amount of
this increase would be effective at year-end 2021, giving us time
to adapt to the increased requirement. The estimated impact on SCR
would be in addition to the cost to our matching adjustment from
the phasing in of the Effective Value Test ("EVT") to 13/1 by 2021.
Like any ongoing consultation there is a risk that the outcome
could be higher or lower.
It is important to note that there continue to be a number of
capital management actions available to us which can offset
regulatory changes. We have shown a pro forma solvency ratio of
152%, which represents the solvency coverage ratio of 149% adjusted
for a GBP118m increase to our solvency surplus from DB longevity
reinsurance, partly offset by the GBP70m increase in our SCR in
preparation for adjustments to the treatment of LTMs within our
internal model.
We will continue to update the market on the potential impact of
SS3/17 as clarity emerges.
Colleagues
The members of the Board extend their thanks to Rodney Cook, who
led the Group though an extraordinary period of growth and change
following his appointment as CEO of Just Retirement in 2010. Rodney
stepped down from the Board in April 2019 and all of us at Just
Group wish him the very best for his retirement. We are delighted
to have announced the appointment of our new Group Chief Financial
Officer, Andy Parsons, who will join the Group in January 2020.
The Board was deeply saddened to learn in July of the death of
Michael Deakin, one of the Group's Non-Executive Directors. Michael
was a trusted and valued Board colleague and his contribution to
our business has been significant. He will be greatly missed.
AGM Result
At the Group's AGM, held on 13 June 2019, a number of
shareholders voted against resolutions 3 (To re-elect Chris
Gibson-Smith as a Director of the Company), 14 (To renew the
authority to allot shares) and 16 (To renew the authority to grant
additional power to dis-apply pre-emption rights), with the result
that such resolutions fell below the 80% threshold. In accordance
with the Investment Association guidelines, the Board is in the
process of consulting and engaging with shareholders to understand
and discuss the reasons why they voted against these resolutions.
An update will be provided within six months of the AGM, in
accordance with the 2018 UK Corporate Governance Code.
Dividends
We have stated previously that we expected to recommence
dividend payments for the 2019 financial year at a rebased level of
around one third of the amount paid in 2017. Regulatory and
economic uncertainty mean the directors are not recommending the
payment of an interim dividend. We will revisit our dividend policy
with our full year results, informed by our capital position and
the outlook at that time.
Outlook
We continue to operate good businesses and are well positioned
in attractive markets. We are proud of our excellent customer
service record, which is delivering a "Just" experience to those at
and in-retirement. However, we recognise the need to continue to
improve capital efficiency, and to respond to the evolving
regulatory environment. The Board remains focused on delivering
organic capital generation by 2022, while in parallel developing
other strategic and business options to enhance shareholder value,
with no options excluded.
David Richardson
Interim Group Chief Executive Officer
Business Review
The Business Review presents the results of the Group for the
period ended 30 June 2019, including IFRS and Solvency II
information.
Within the Business Review, the Group has presented a number of
alternative performance measures ("APMs"), which are used in
addition to IFRS statutory performance measures. The Board believes
that the use of APMs gives a more representative view of the
underlying performance of the Group. The APMs used by the Group
are: new business operating profit, in-force operating profit,
underlying operating profit, adjusted operating profit before tax,
Retirement Income sales, adjusted earnings per share, pro forma
Solvency II capital position, embedded value per share 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.
Key Performance Indicators
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 ("KPIs"). 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.
Six months ended Six months ended
30 June 2019 30 June 2018 Change
GBPm GBPm %
===================================== ================= ================= =========
Retirement Income sales 831.3 1,179.4 (30)
===================================== ================= ================= =========
New business operating profit 73.7 120.6 (39)
===================================== ================= ================= =========
In-force operating profit 40.5 35.3 15
===================================== ================= ================= =========
Adjusted operating profit before tax 75.5 124.4 (39)
===================================== ================= ================= =========
IFRS profit before tax 125.3 45.7 174
===================================== ================= ================= =========
31 December Change
30 June 2019 2018 %
GBPm GBPm
====================================== ============= ============ =======
IFRS net assets 2,133.2 1,663.8 28
====================================== ============= ============ =======
Solvency II capital coverage ratio(1) 149% 136% 10
====================================== ============= ============ =======
Economic capital coverage ratio(2) 230% 256% (10)
====================================== ============= ============ =======
1 This figure allows for a notional recalculation of TMTP as at
30 June 2019 and as at 31 December 2018. The Group's regulatory
solvency coverage ratio as at 30 June 2019 was 145% (regulatory
solvency coverage ratio as at 31 December 2018: 144%). The
estimated pro forma solvency coverage ratio as at 30 June 2019
including adjustment for the DB longevity reinsurance transaction
and expected impact of changes to the internal model, and including
a notional recalculation of TMTP, is 152%.
2 The Economic capital coverage ratio at 30 June 2019 has been
impacted by actions taken to manage the Solvency II exposure of the
balance sheet. The Economic capital coverage ratio is of decreasing
relevance to the management of the business and its continuation as
a KPI is under review.
The Group's KPIs are discussed in more detail in the following
pages.
Adjusted operating profit (KPI)
Six months ended Six months ended
30 June 2019 30 June 2018 Change
GBPm GBPm %
============================================ ================= ================= =======
New business operating profit 73.7 120.6 (39)
============================================ ================= ================= =======
In-force operating profit 40.5 35.3 15
============================================ ================= ================= =======
Underlying operating profit 114.2 155.9 (27)
============================================ ================= ================= =======
Operating experience and assumption changes (1.9) 3.8 (150)
============================================ ================= ================= =======
Other Group companies' operating results (7.2) (6.9) 4
============================================ ================= ================= =======
Development expenditure (3.9) (4.9) (20)
============================================ ================= ================= =======
Reinsurance and finance costs (25.7) (23.5) 9
============================================ ================= ================= =======
Adjusted operating profit before tax(1) 75.5 124.4 (39)
============================================ ================= ================= =======
1 See reconciliation to IFRS profit before tax in the IFRS
results section of this Business Review.
Adjusted operating profit before tax (KPI)
The 39% decrease in adjusted operating profit before tax from
GBP124.4m for the six months ended 30 June 2018, to GBP75.5m for
the six months to 30 June 2019, is mainly driven by the planned
reduction in new business written during the period, part of our
continued focus on capital efficiency.
New business operating profit (KPI)
New business operating profit has decreased by 39%, from
GBP120.6m for the six months ended 30 June 2018 to GBP73.7m for the
six months ended 30 June 2019. This is a function of both sales and
margins. Retirement Income sales decreased by 30% compared to the
prior period, from GBP1,179.4m for the six months ended 30 June
2018, to GBP831.3m for the six months ended 30 June 2019, and the
overall margin achieved for the period was 8.9% (six months ended
30 June 2018: margin of 10.2%). The reduction in margin by c.2
percentage points from 11.2% in 2018 is in line with expectations
advised in our full year results, reflecting the changes to
property assumptions at 31 December 2018 and reductions to LTM
backing ratios, durations and loan-to-values.
In-force operating profit (KPI)
In-force operating profit represents the margin emerging from
the growing book of in-force business, together with the return
earned on the Group's surplus assets and has increased compared to
the comparative period. This has benefitted from the higher amount
and an improved investment return earned on surplus assets.
Underlying operating profit
The decrease in underlying operating profit is due to the
movements in new business operating profit and in-force operating
profit as explained above.
Operating experience and assumption changes
A full basis review was completed during 2018 and the Group
updated its IFRS mortality and mortgage voluntary redemptions
assumptions at 31 December 2018. Operating experience variances and
assumption changes for the six months ended 2019 gave a small
negative of GBP1.9m (six months ended 30 June 2018: positive
GBP3.8m). The variances mainly arose in relation to Retirement
Income and mortgage mortality, partly offset by a small positive
expense variance. The next annual review of the basis will be
completed for the 2019 year end.
Other Group companies' operating results
The operating result for other Group companies was a loss of
GBP7.2m for the six months to 30 June 2019 compared to a loss of
GBP6.9m for the six months to 30 June 2018. The effect of actions
taken to reduce our cost base will come through during the second
half of the year.
Development expenditure
Development expenditure mainly relates to product development
and new initiatives. These include the Just for You Lifetime
Mortgage range, which gives additional flexibility to take a cash
lump sum, or release cash as and when it is needed from a
pre-agreed facility, or to choose to service some or all of the
monthly interest, and the Secure Lifetime Income solution for
investment platforms, which enables advisers to offer a guaranteed
income for life product within a SIPP, making it easier to create a
blended drawdown / guaranteed income for life income solution, both
of which are now available to new customers.
Reinsurance and finance costs
The increase in reinsurance and finance costs for the period
relates to the coupon on the Restricted Tier 1 notes, paid in April
2019. On a statutory IFRS basis this is accounted for as a
distribution of capital, consistent with the classification of the
Restricted Tier 1 notes as equity, but is included as an interest
cost on an adjusted operating profit basis.
Retirement income sales (KPI)
Six months Six months
ended 30 ended 30
June 2019 June 2018 Change
GBPm GBPm %
===================================== =========== =========== =======
Defined Benefit De-risking Solutions
("DB") 512.3 718.1 (29)
===================================== =========== =========== =======
Guaranteed Income for Life Solutions
("GIfL") 287.9 426.5 (32)
===================================== =========== =========== =======
Care Plans ("CP") 31.1 34.8 (11)
===================================== =========== =========== =======
Retirement Income sales 831.3 1,179.4 (30)
===================================== =========== =========== =======
As part of the commitment to making our business more capital
efficient, including via the reduction of new business capital
strain, the Group has taken steps during the first half of 2019 to
reduce new business volumes, and this is reflected in the
Retirement Income sales shown in the table above. Retirement Income
sales for the six months ended 30 June 2019 were 30% lower at
GBP831.3m (six months ended 30 June 2018: GBP1,179.4m).
DB sales were GBP512.3m for the six months ended 30 June 2019
(six months ended 30 June 2018: GBP718.1m), a decrease of 29%. As
mentioned above, this reduction in volumes is in line with plan,
and our DB sales pipeline remains strong.
GIfL sales decreased by 32% to GBP287.9m for the six months
ended 30 June 2019, compared to GBP426.5m for the six months ended
30 June 2018. This is in line with planned GIfL new business
levels.
Care Plan sales for the six months ended 30 June 2019 were
GBP31.1m, down slightly from prior period sales of GBP34.8m. The
Group closed its US care unit, which had been loss-making, in April
2019.
Other new business sales
Drawdown sales were GBP26.4m for the six months ended 30 June
2019 (six months ended 30 June 2018: GBP23.9m). The Group is in the
process of outsourcing its income drawdown service, and has closed
its Flexible Pension Plan product to new business from July 2019.
Our Protection product was closed to new business during the last
quarter of 2017, therefore there are no sales for the six months to
30 June 2019. These closures reflect our commitment to capital
efficiency and improving shareholder returns.
Lifetime mortgage advances were GBP155.8m for the six months
ended 30 June 2019 (six months ended 30 June 2018: GBP312.7m), a
decrease of 50%. The reduction in volumes mirrors the reduction in
Retirement Income sales, but also reflects changes in consumer
demand and increased levels of competition in the LTM market. We
continue to focus on less capital-intensive LTMs, reducing expected
loan-to-value ratios through interest serviced mortgage products,
and targeting older borrowers.
We propose to exclude LTMs from new business sales in future,
since they represent an investment rather than revenue item.
Adjusted earnings per share
Adjusted EPS (based on adjusted operating profit after
attributed tax) shows a 43% decrease compared to the prior period,
reflecting the decrease in operating profit described above.
Consistent with adjusted operating profit before tax, the coupon
paid on the Restricted Tier 1 notes during the period is taken into
account within adjusted operating profit after attributed tax.
Six months ended 30 June Six months ended 30 June
2019 2018
=================================== ===================================
Weighted Weighted
average average
number Earnings number Earnings
Earnings of shares per share Earnings of shares per share
GBPm million pence GBPm million pence
========= ========= =========== =========== ========= =========== ===========
Adjusted 61.2 986.7 6.20 100.8 932.5 10.81
========= ========= =========== =========== ========= =========== ===========
Capital management
Just Group plc estimated Solvency II capital position (KPI)
The Group has approval to apply the matching adjustment ("MA"),
volatility adjustment ("VA") 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:
30 June 31 December
2019(1) 2018(1)
Unreviewed GBPm GBPm
============================= ========= ============
Own funds 2,561 2,172
============================== ========= ============
Solvency Capital Requirement (1,721) (1,595)
============================== ========= ============
Excess own funds 840 577
============================== ========= ============
Solvency coverage ratio 149% 136%
============================== ========= ============
1 These figures allow for a notional recalculation of TMTP.
In the first quarter of 2019, the Group strengthened its
regulatory balance sheet by issuing a total of GBP375m of new
capital before costs, via a GBP75m share placing and GBP300m of
Restricted Tier 1 ("RT1") notes. We have also taken steps to reduce
new business strain and the cost base. The movement in excess own
funds across the period is shown in the table below. The impact of
the new capital in the period has been partly offset by adverse
economic variances, primarily due to the fall in property values
over the period. In the short term, economic uncertainty in
relation to the impact of the UK's withdrawal from the European
Union may lead to further volatility in risk-free rates and
property values. Sensitivities to these and other key metrics are
shown below.
The Group is considering the regulatory treatment for its pilot
NNEG hedging instrument, in order to allow larger scale transfer of
the NNEG risk and mitigate the impact of changes in property growth
rates in both the regulatory and IFRS balance sheets. Once the
treatment of the pilot is established, significant further NNEG
hedging potential exists. This will likely only be possible to
complete once the outcome of CP7/19 has been finalised. The Group's
NNEG hedge is disclosed in Note 12, Derivative Financial
Instruments.
The June 2019 solvency coverage ratio includes six months'
amortisation of TMTP and includes the impact of a notional TMTP
recalculation as at 30 June 2019. The impact of this recalculation
is an increase in the Group solvency ratio of 4 percentage points
from 145% to 149%.
The profile of Solvency II surplus emerging from in-force
business is shown in the "Additional financial information" section
of this interim report.
Pro forma Solvency II capital position
In order to provide additional information on its capital
position, the Group has presented an alternative performance
measure, pro forma Solvency II information, to show the impact of
reinsurance and internal model changes. The Group has recently
signed an agreement with RGA to increase its existing DB longevity
reinsurance programme, effective from 1 July 2019. Since 30 June we
have also made a GBP70m increase in our SCR in preparation for
adjustments to the treatment of LTMs within our internal model.
The reconciliation of the estimated Solvency II capital position
at 30 June 2019 to the estimated pro forma Solvency II capital
position is as follows:
Own funds Solvency Excess Solvency
Capital own funds coverage
Requirement ratio
GBPm GBPm GBPm
Unreviewed %
========================== ========== ============= =========== ==========
As at 30 June 2019(1) 2,561 (1,721) 840 149%
========================== ========== ============= =========== ==========
Additional DB reinsurance 49 69 118
========================== ========== ============= =========== ==========
Internal model changes - (70) (70)
========================== ========== ============= =========== ==========
Pro forma(1) 2,610 (1,722) 888 152%
========================== ========== ============= =========== ==========
1 These figures allow for a notional recalculation of TMTP.
Movement in excess capital resources(1)
The table below analyses the movement in excess own funds, in
the six months to 30 June 2019.
Unreviewed GBPm GBPm
============================================= ===== =====
Excess own funds at 31 December 2018 577
============================================= ===== =====
Operating
============================================= ===== =====
In-force surplus net of TMTP amortisation(3) 72
============================================= ===== =====
New business strain (47)
============================================= ===== =====
Finance cost (25)
============================================= ===== =====
Expenses (22)
============================================= ===== =====
Other (14)
============================================= ===== =====
Total organic capital consumption(2) (36)
============================================= ===== =====
Non-operating
============================================= ===== =====
Accelerated TMTP amortisation(3) (21)
============================================= ===== =====
Economic movements and sensitivities (48)
============================================= ===== =====
RT1 and equity issuance, net of costs 368
============================================= ===== =====
Excess own funds at 30 June 2019 840
============================================= ===== =====
1 All figures are net of tax, and allow for a notional recalculation of TMTP as at 30 June 2019.
2 Organic capital consumption includes surplus from in-force,
new business strain, overrun and other expenses, interest &
dividends and other operating items. It excludes economic variances
and accelerated TMTP amortisation.
3 The in-force line excludes the accelerated amortisation of a
portion of TMTP (as noted in the Solvency Financial Condition
Report) which has been shown separately.
Estimated Group Solvency II sensitivities
At 30 June At 30 June
2019(1) 2019(1)
Unreviewed % GBPm
============================================================ =========== ===========
Solvency coverage ratio/excess own funds 149 840
============================================================ =========== ===========
-50 bps fall in interest rates (no TMTP recalculation) -24 (368)
============================================================ =========== ===========
-50 bps fall in interest rates (with TMTP recalculation)(2) -7 (56)
============================================================ =========== ===========
+100 bps credit spreads -2 (28)
============================================================ =========== ===========
+10% LTM early redemption 2 6
============================================================ =========== ===========
-10% property values (with TMTP recalculation) -20 (312)
============================================================ =========== ===========
-5% mortality(3) -14 (222)
============================================================ =========== ===========
1 This figure allows for a notional recalculation of TMTP.
2 Additional interest rate hedging since 30 June 2019 has
reduced the go forward interest rate sensitivity to GBP(21)m,
equivalent to a 5 percentage point reduction in solvency coverage
ratio
3 Mortality sensitivity post the impact of DB reinsurance is
GBP(199)m, equivalent to a 14 percentage point reduction in
solvency coverage ratio
Reconciliation of IFRS total equity to Solvency II own funds
31 December
30 June 2019(1) 2018(2)
Unreviewed GBPm GBPm
=================================================== ================ ============
Total equity on IFRS basis 2,133 1,664
=================================================== ================ ============
Goodwill (34) (34)
=================================================== ================ ============
Intangibles (127) (137)
=================================================== ================ ============
Solvency II risk margin (971) (851)
=================================================== ================ ============
Solvency II TMTP 1,840 1,738
=================================================== ================ ============
Other valuation differences and impact on deferred
tax (863) (793)
=================================================== ================ ============
Ineligible items (6) (6)
=================================================== ================ ============
Subordinated debt 589 590
=================================================== ================ ============
Group adjustments - 1
=================================================== ================ ============
Solvency II own funds 2,561 2,172
=================================================== ================ ============
Solvency II SCR (1,721) (1,595)
=================================================== ================ ============
Solvency II excess own funds 840 577
=================================================== ================ ============
1 These figures allow for a notional recalculation of TMTP as at 30 June 2019.
2 These figures allow for a notional recalculation of TMTP as at 31 December 2018.
Embedded value per share
Embedded value per share at 30 June 2019 was 210p per share (31
December 2018: 206p per share, 195p per share including pro forma
impact of the equity placing in March 2019).
IFRS results
The tables on the following pages present the Group's results on
a statutory IFRS basis.
Six months ended Six months ended
30 June 2019 30 June 2018
GBPm GBPm
======================================================== ================= =================
Adjusted operating profit before tax 75.5 124.4
======================================================== ================= =================
Non-recurring and project expenditure (6.3) (7.6)
======================================================== ================= =================
Implementation of cost saving initiatives (5.0) -
======================================================== ================= =================
Investment and economic profits/(losses) 68.1 (58.7)
======================================================== ================= =================
Adjustment to reflect IFRS accounting for RT1 as equity 2.8 -
======================================================== ================= =================
Amortisation and impairment costs (9.8) (12.4)
======================================================== ================= =================
IFRS profit before tax (KPI) 125.3 45.7
======================================================== ================= =================
Adjusted operating profit before tax
The underlying trends in the components of adjusted operating
profit before tax are explained above.
Non-recurring and project expenditure
Non-recurring and project expenditure was GBP6.3m for the period
ended 30 June 2019 (six months ended 30 June 2018: GBP7.6m) and
relates to a number of projects across the Group including costs
associated with the new capital raised in the first quarter of the
year and preparations for the new Insurance Contracts accounting
standard, IFRS 17.
Implementation of cost saving initiatives
These relate to our cost control project to optimise the
business model. The Group is making good progress, and has
completed a number of actions during the first half of the year,
including simplifying our senior management structure, business
process optimisation, rationalisation of our property footprint and
closure of our US Care and Flexible Pension Plan products. Full
year 2019 recurring core management expenses are expected to be 10%
lower than 2018, a total expected saving of over GBP16m. These
management expenses are currently primarily allocated to
acquisition expenses. The total cost expected to be incurred during
2019 to achieve the recurring savings is GBP15m.
Investment and economic profits/losses
Investment and economic profits were GBP68.1m (six months ended
30 June 2018: losses of GBP58.7m), mainly reflecting the impact of
a decrease in risk-free rates and narrowing of credit spreads,
offset by negative property growth experience during the period. By
contrast, the prior period experienced an increase in risk-free
rates and widening of credit spreads. There were no corporate bond
defaults within our portfolio during the period.
Amortisation
Amortisation mainly relates to the acquired in-force business
asset relating to Partnership Assurance Group plc of GBP142.7m,
which is being amortised over 10 years in line with the expected
run-off of the in-force business, with an amortisation charge of
GBP7.1m for the period (six months ended 30 June 2018: GBP7.1m).
Some of the intangible assets acquired on acquisition of
Partnership Assurance Group plc have become fully amortised during
the period.
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.
Six months Six months
ended ended
30 June 30 June
2019 2018
GBPm GBPm
========================================== =========== ===========
Gross premiums written 832.8 1,181.2
========================================== =========== ===========
Reinsurance premiums ceded 2.5 (6.5)
========================================== =========== ===========
Reinsurance recapture 180.7 379.4
========================================== =========== ===========
Net premium revenue 1,016.0 1,554.1
========================================== =========== ===========
Net investment income 1,014.5 (104.5)
========================================== =========== ===========
Fee and commission income 6.1 3.2
========================================== =========== ===========
Total revenue 2,036.6 1,452.8
========================================== =========== ===========
Net claims paid (416.7) (353.9)
========================================== =========== ===========
Change in insurance liabilities (1,268.2) (790.7)
========================================== =========== ===========
Change in investment contract liabilities (7.9) (1.3)
========================================== =========== ===========
Acquisition costs (14.1) (27.3)
========================================== =========== ===========
Other operating expenses (110.5) (128.8)
========================================== =========== ===========
Finance costs (93.9) (105.1)
========================================== =========== ===========
Total claims and expenses (1,911.3) (1,407.1)
========================================== =========== ===========
Profit before tax 125.3 45.7
========================================== =========== ===========
Income tax (23.2) 2.4
========================================== =========== ===========
Profit after tax 102.1 48.1
========================================== =========== ===========
Gross premiums written
Gross premiums written for the six months ended 30 June 2019
fell by 29% to GBP832.8m (six months ended 30 June 2018:
GBP1,181.2m). The decrease reflects steps taken by the Group during
the first half of 2019 to reduce new business volumes as part of
the commitment to making our business more capital efficient,
including via the reduction of new business capital strain.
Net premium revenue
Net premium revenue fell by 35% from GBP1,554.1m for the six
months ended 30 June 2018, to GBP1,016.0m for the six months ended
30 June 2019, including the impact of the reinsurance recaptures
made during the period, and reinsurance premiums ceded.
Net investment income
Net investment income was GBP1,014.5m for the six months ended
30 June 2019 (six months ended 30 June 2018: expense of GBP104.5m).
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. Interest earned on the Group's fixed
income assets increased slightly, in line with the size of the
Group's assets. Decreases in risk-free rates and narrowing credit
spreads have given rise to large unrealised gains on the Group's
corporate bond and mortgage portfolios during the current period.
Overall the movement in fair value included within net investment
income for the six months ended 30 June 2019 was a gain of
GBP636.1m, compared to a loss of GBP345.8m for the six months ended
30 June 2018. The current period movement represents a reversal of
unrealised losses from previous periods. There were no corporate
bond defaults during the period.
Net claims paid
Net claims paid increased by GBP62.8m, from GBP353.9m for the
six months ended 30 June 2018 to GBP416.7m for the six months ended
30 June 2019, reflecting the growth of the in-force book.
Change in insurance liabilities
The change in insurance liabilities was GBP1,268.2m for the
current period, compared to GBP790.7m for the six months ended 30
June 2018. The change for the period reflects the growth in
insurance liabilities as well as the impact of reinsurance
recaptures and movements in risk-free rates as noted above.
Acquisition costs
Acquisition costs have decreased by GBP13.2m from GBP27.3m for
the six months ended 30 June 2018 to GBP14.1m for the six months
ended 30 June 2019 mainly reflecting the lower level of new
business written during the period.
Other operating expenses
Other operating expenses decreased by GBP18.3m from GBP128.8m
for the six months ended 30 June 2018 to GBP110.5m for the six
months ended 30 June 2019, mainly as a result of a Group-wide
initiative to optimise business processes and the reduction in
non-recurring and project expenditure.
Finance costs
Finance costs decreased by GBP11.2m from GBP105.1m for the six
months ended 30 June 2018 to GBP93.9m for the six months ended 30
June 2019. The main driver for the decrease is a reduction in
interest on reinsurance deposits, which has fallen in line with the
planned recaptures which have been made. In addition, the current
period includes a full six months' worth of interest on the Just
Group plc Tier 3 subordinated debt, issued in February 2018. Note
that the coupon paid on the Restricted Tier 1 notes is not included
within finance costs in the statutory IFRS income statement,
because these are recognised as a capital distribution directly
within equity.
Income tax
Income tax for the six months ended 30 June 2019 was a charge of
GBP23.2m (six months ended 30 June 2018: credit of GBP2.4m), with
an effective tax rate of 18.52% (six months ended 30 June 2018:
effective tax rate of (5.25)%). The tax credit and effective tax
rate for the prior period was driven by one-off adjustments
relating to tax paid in prior periods. Without these one-off
adjustments the effective tax rate for the prior period would have
been 22.3%.
Highlights from condensed consolidated statement of financial
position
The table below 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
30 June 2019 2018
GBPm GBPm
========================================= ============= ============
Assets
========================================= ============= ============
Financial investments 20,720.5 19,252.5
========================================= ============= ============
Reinsurance assets 4,080.0 4,239.2
========================================= ============= ============
Other assets 666.6 454.1
========================================= ============= ============
Total assets 25,467.1 23,945.8
========================================= ============= ============
Share capital and share premium 262.4 188.6
========================================= ============= ============
Tier 1 notes 293.8 -
========================================= ============= ============
Other reserves 885.5 885.5
========================================= ============= ============
Accumulated profit and other adjustments 691.5 589.7
========================================= ============= ============
Total equity 2,133.2 1,663.8
========================================= ============= ============
Liabilities
========================================= ============= ============
Insurance liabilities 18,384.0 17,273.8
========================================= ============= ============
Other financial liabilities 4,021.4 4,063.3
========================================= ============= ============
Insurance and other payables 78.5 78.3
========================================= ============= ============
Other liabilities 850.0 866.6
========================================= ============= ============
Total liabilities 23,333.9 22,282.0
========================================= ============= ============
Total equity and liabilities 25,467.1 23,945.8
========================================= ============= ============
Financial investments
During the six months, financial investments increased by
GBP1.4bn from GBP19.3bn at 31 December 2018 to GBP20.7bn at 30 June
2019. The increase is a result of investing the Group's new
business premiums into corporate bonds, gilts, loans secured by
mortgages, and other fixed income investments, and due to the
effect of decreases in risk-free rates during the period. The
credit quality of the corporate bond portfolio remained in line
with prior periods, with 57% of the Group's corporate bond and
gilts portfolio rated A or above (31 December 2018: 60%) and it is
well diversified across a range of industry sectors. The
loan-to-value ratio of the mortgage portfolio at 30 June 2019 was
34.1% (31 December 2018: 32.5%), and the percentage of lifetime
mortgages reduced from 37.4% to 36.9% of financial investments.
The following table provides a breakdown by credit rating of
financial investments.
31 December 31 December
30 June 2019 30 June 2019 2018 2018
GBPm % GBPm %
=================== ============= ============= ============ ============
AAA(1) 1,995.3 9.6 1,798.9 9.3
=================== ============= ============= ============ ============
AA(1) and gilts 1,711.5 8.3 1,799.8 9.3
=================== ============= ============= ============ ============
A 3,449.0 16.6 3,151.1 16.4
=================== ============= ============= ============ ============
BBB 4,713.5 22.7 4,072.0 21.1
=================== ============= ============= ============ ============
BB or below 129.4 0.6 208.2 1.1
=================== ============= ============= ============ ============
Unrated 1,098.1 5.3 1,031.0 5.4
=================== ============= ============= ============ ============
Lifetime mortgages 7,623.7 36.9 7,191.5 37.4
=================== ============= ============= ============ ============
Total 20,720.5 100.0 19,252.5 100.0
=================== ============= ============= ============ ============
1 Includes units held in liquidity funds.
The sector analysis of the Group's financial investments
portfolio at 30 June 2019 is shown below and continues to be well
diversified across a variety of industry sectors.
31 December 31 December
30 June 2019 30 June 2019 2018 2018
GBPm % GBPm %
=========================== ============= ============= ============ ============
Basic materials 340.6 1.6 272.4 1.4
=========================== ============= ============= ============ ============
Communications 1,144.9 5.5 963.8 5.0
=========================== ============= ============= ============ ============
Auto manufacturers 446.5 2.2 319.4 1.7
=========================== ============= ============= ============ ============
Consumer 1,087.1 5.2 878.3 4.6
=========================== ============= ============= ============ ============
Energy 361.8 1.7 313.1 1.6
=========================== ============= ============= ============ ============
Banks 1,949.0 9.5 1,855.7 9.6
=========================== ============= ============= ============ ============
Derivatives and collateral 313.3 1.5 230.6 1.1
=========================== ============= ============= ============ ============
Insurance 735.7 3.6 733.9 3.8
=========================== ============= ============= ============ ============
Financial - other 837.8 4.0 936.3 4.9
=========================== ============= ============= ============ ============
Government 1,128.3 5.4 1,253.3 6.5
=========================== ============= ============= ============ ============
Industrial 553.1 2.7 447.4 2.3
=========================== ============= ============= ============ ============
Utilities 1,662.9 8.0 1,512.1 7.9
=========================== ============= ============= ============ ============
Liquidity funds 1,015.6 4.9 882.5 4.6
=========================== ============= ============= ============ ============
Lifetime mortgages 7,623.7 36.9 7,191.5 37.4
=========================== ============= ============= ============ ============
Commercial mortgages 414.6 2.0 392.3 2.0
=========================== ============= ============= ============ ============
Infrastructure loans 895.9 4.3 858.9 4.5
=========================== ============= ============= ============ ============
Other 209.7 1.0 211.0 1.1
=========================== ============= ============= ============ ============
Total 20,720.5 100.0 19,252.5 100.0
=========================== ============= ============= ============ ============
Reinsurance assets
Reinsurance assets decreased from GBP4.2bn at 31 December 2018
to GBP4.1bn at 30 June 2019. The decrease mainly relates to planned
reinsurance recaptures during the period. The Group has increased
its 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 GBP17.3bn at 31 December
2018 to GBP18.4bn at 30 June 2019. The increase in liabilities
arose as a result of new insurance business written less claims
paid, and from the effect of falling long-term interest rates.
Other financial liabilities
Other financial liabilities decreased from GBP4.1bn at 31
December 2018 to GBP4.0bn at 30 June 2019. 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 mainly reflects
reinsurance recaptures in the period.
Insurance and other payables
Insurance and other payables marginally increased by GBP0.2m
from GBP78.3m at 31 December 2018 to GBP78.5m at 30 June 2019. This
change was mainly due to the timing of settlement of investment
transactions which have been settled after the period end.
Other liabilities
Other liability balances decreased by GBP16.6m from GBP866.6m at
31 December 2018 to GBP850.0m at 30 June 2019. A reduction in
accruals at the period end has been partly offset by the
recognition of a lease liability on first-time adoption of IFRS 16,
Leases.
IFRS net assets (KPI)
The Group's total equity at 30 June 2019 was GBP2,133.2m,
GBP469.4m higher than at 31 December 2018. The growth in net assets
mainly reflects the Restricted Tier 1 notes issued in March 2019,
which are recognised within equity, GBP293.8m, net of issue costs
and the IFRS profit after tax of GBP125.3m for the period. Total
equity attributable to ordinary shareholders increased by
GBP176.1m, from GBP1,664.4m at 31 December 2018 to GBP1,840.5m at
30 June 2019.
Dividends
We have stated previously that we expected to recommence
dividend payments for the 2019 financial year at a rebased level of
around one third of the amount paid in 2017. Regulatory and
economic uncertainty mean the directors are not recommending the
payment of an interim dividend. We will revisit our dividend policy
with our full year results, informed by our capital position and
the outlook at that time.
David Richardson
Interim Group Chief Executive Officer
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 continually developed to
reflect our risk environment and emerging 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 our risks 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 appropriately mitigated. The Risk function, led
by the Group Chief Risk Officer ("GCRO"), challenges the management
team on the effectiveness of its risk evaluation and mitigation.
The GCRO provides the Group Risk and Compliance Committee with his
independent assessment of the principal risks to the business.
Financial risk modelling is used to assess the amount of each
risk type against our capital risk appetite. This modelling is
principally aligned to our regulatory capital metrics. This
modelling allows the Board to understand both the risks included in
the Solvency Capital Requirement ("SCR") and those not included in
the SCR, such as liquidity and strategic risks, and how they
translate into regulatory capital needs. By applying stress and
scenario testing, we gain insights into how risks might impact the
Group in different circumstances.
Own Risk and Solvency Assessment
The Group's Own Risk and Solvency Assessment ("ORSA") 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 appraised of the Group's evolving risk
profile.
Principal Risks and Uncertainties
Description and impact Mitigation and management action
========================================= =======================================
Risks from our chosen market environment Risk outlook - Stable
Strategic objective* 1 2 5
Change in the period - No change
The Group operates in a market where Our approach to legislative change
changes in pensions legislation can is to participate actively and engage
have a considerable effect on our with policymakers.
strategy and could reduce our sales The Group offers a range of retirement
and profitability or require us to options, allowing it to remain agile
hold more capital. in this changing environment, and
Customers' need for a secure income has flexed its offerings in response
in retirement continues and the Group to market dynamics. We believe we
expects that demand for guaranteed are well placed to adapt to changing
income for life solutions will continue. customer demand, supported by our
The availability to insurers of Defined brand promise, innovation credentials
Benefit De-risking transactions is and financial strength.
expected to grow. The most influential factors in the
The equity release market has been successful delivery of the Group's
dominated by a limited number of plans are closely monitored to help
specialist providers but new entrants inform the business. The factors
- both providers and funders - have include market forecasts and market
emerged along with new product launches share, supported by insights into
and the intensity of competition customer and competitor behaviour.
has increased. The equity release Work continues to improve the customer
asset class provides good cash-flow appeal of the Group's equity release
matching for the Group's longer duration products, explore new product variants
DB de-risking and GIfL liabilities, and meet distributors' digital and
where suitable longer duration corporate service needs.
or government bonds or other appropriate
assets are scarce.
========================================= =======================================
Risks from our pricing assumptions
Strategic objective* 3 4
Change in the period - No change Risk outlook - Stable
Writing long-term DB de-risking, To manage the risk of our longevity
GIfL and equity release business assumptions being incorrect, the
requires a range of assumptions to Group has the benefit of extensive
be made based on market data and underwritten mortality data to provide
historical experience, including insights and enhanced understanding
customers' longevity, corporate bond of the longevity risks that the Group
yields, interest rates, property chooses to take.
values and expenses. These assumptions Longevity and other decrement experience
are applied to the calculation of is analysed to identify any outcomes
the reserves needed for future liabilities materially different from our assumptions
and solvency margins using recognised and is used for the regular review
actuarial approaches. of the reserving assumptions for
Experience may differ materially all products.
from the Group's assumptions on these Some longevity risk exposure is shared
risk factors, requiring them to be with reinsurance partners, who perform
recalibrated. This could affect the due diligence on the Group's approach
level of reserves needed, with an to risk selection. There is a related
impact on profitability and the Group's counterparty risk of a reinsurer
solvency position. 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 and exposure
to each region. We also monitor the
exposure to adverse house price movements
and the accuracy of our indexed valuations.
=========================================== ============================================
Risks from regulatory changes Risk outlook - Increasing
Strategic objective* 1 3 4 5 We monitor and assess regulatory developments
Change in the period - No change on an on-going basis. We actively
The financial services industry seek to participate in all regulatory
continues to see a high level of initiatives which may affect or provide
regulatory activity and intense future opportunities for the Group.
regulatory supervision. The regulatory Our aims are to implement any required
agenda for the coming year covers changes effectively, and to deliver
many areas directly relevant to better outcomes for our customers
the Group. and competitive advantage for the
On 3 April 2019, the Prudential business. We develop our strategy
Regulation Authority ("PRA") published by giving consideration to planned
CP7/19 following on from PS31/18, political and regulatory developments
which updated SS3/17 in respect and allow for contingencies should
of the valuation of no-negative outcomes differ from our expectations.
equity guarantees ("NNEG") in equity The Group also keeps under regular
release mortgages ("ERMs"). CP7/19 review the possible need to reduce
sets out a number of proposals specific new business volumes or close to new
to the Effective Value Test ("EVT"). business.
Just has some concerns around the A key focus for the Group is addressing
proposals and whilst we have taken the expectations of the updated SS3/17
into account some of the anticipated which will come into effect on
changes, the outcome remains uncertain 31 December 2019, whilst maintaining
until the results of the consultation the confidence of our stakeholders.
are published later this year. The This includes using our capital wisely.
PRA's proposals are due to take Any changes to the regulatory environment
effect from 31 December 2019, subject as a result of the UK's withdrawal
to a two year phase-in period. from the EU are being monitored.
The PRA has published further supervisory Just has an approved partial internal
statements in relation to Solvency model to calculate a Group Solvency
II relating to liquidity risk frameworks Capital Requirement, and intends to
and is expected to issue a Consultation progress an internal model major change
Paper on the Prudent Person Principle application for Partnership Life Assurance
relating to investment management. Company Limited to use the Group internal
It is too early to fully understand model.
if there will be any implications The outcome of the European Commission's
on Just's future investment strategy. review of Solvency II regulations
The regulatory focus on sustainable may have an impact on how Solvency
finance, particularly the impact II continues to be applied in the
that climate change could have on UK even in a post-Brexit world. We
the safety and soundness of firms are monitoring developments.
and the stability of the financial Just is considering the impact of
system, may accelerate the actions climate risks both in terms of the
of market participants with an impact impact on its investment portfolio
on the availability and attractiveness of a transition to a low-carbon economy
of certain securities. The PRA has as well as the impact of physical
issued a supervisory statement on risks to the properties securing its
preparing for the impacts of climate Lifetime Mortgage portfolio.
change. It is anticipated that the UK's withdrawal
The ultimate terms of the UK's exit from the EU will have limited direct
from the EU could have consequences impact on the Group as it and its
for the regulations and legislation customers and policyholders are predominantly
that apply to Just's operations UK-based.
particularly in respect to the onshoring
of Solvency II. We will continue
to monitor regulatory changes post-Brexit,
notably Solvency II, although significant
divergence is not expected.
=========================================== ===============================================
Risks from the economic environment
Strategic objective* 3 4 5
Change in the period - Increasing Risk outlook - Increasing
The premiums paid by the Group's Economic conditions are actively
customers are invested to enable monitored and alternative scenarios
future benefits to be paid when expected modelled to better understand the
with a high degree of certainty. potential impacts of significant
The economic environment and financial economic changes on the amount of
market conditions have a significant capital required to be held to cover
influence on the value of assets risks, and to inform management action
and liabilities and on the income plans. the Group's strategy is to
the Group receives. An adverse economic buy and hold high-quality, lower-risk
environment could increase the risk assets in its investment portfolio
of credit downgrades and defaults to ensure that it has sufficient
in our corporate bond portfolio. income to meet outgoings as they
The lack of clarity regarding the fall due. Portfolio credit risk is
UK's future trading arrangements managed by specialist fund managers
with the EU has introduced material executing a diversified investment
uncertainty for the UK's macro-economic strategy in investment grade assets
outlook in the medium and long-term. within counterparty limits.
The long-term implications of departure In a low interest rate environment,
from the EU for the UK economy and improved returns are sought by diversifying
indeed the wider economic impacts the types, geographies and industry
on the rest of Europe remain to be sectors of investment assets. Such
seen. The Group remains exposed to diversification creates an exposure
impacts that the UK's withdrawal to foreign exchange risk, which is
has on the UK economy as a whole, controlled using derivative instruments.
including residential house prices Swaps and swaptions are used to reduce
- the UK's withdrawal from the EU exposures to interest rate volatility.
could result in property values stagnating The credit exposure to the counterparties
or falling in some, or all, UK regions. with whom we transact these instruments
In an environment of low interest is mitigated by collateral arrangements.
rates, investors may be more willing The Group's exposure to inflation
to accept higher credit and liquidity risk through the Defined Benefit
risk to improve investment returns. De-risking business is managed with
These conditions would make it challenging inflation hedges.
to source sufficient assets to offer Liquidity risk is managed by ensuring
attractive DB de-risking and GIfL that assets of a suitable maturity
terms. Low credit spreads similarly and marketability are held to meet
affect the income that can be made liabilities as they fall due. Sufficient
available, although margins from liquid assets are maintained so the
our equity release portfolio help Group can readily access the cash
offset this risk. it needs should business cash inflows
Most defined benefit pension schemes unexpectedly reduce.
link member benefits to inflation There is little short-term volatility
through indexation. As the Group's in the Group's cash flows, which
Defined Benefit De-risking business can be reliably estimated in terms
volumes grow, its exposure to inflation of timing and amount. Regular cash
risk increases. flow forecasts predict liquidity
A fall in residential property values levels both short term and long term
could reduce the amounts received and stress tests help us understand
from equity release redemptions and any potential periods of strain.
may also affect the relative attractiveness The Group's liquidity requirements
of the equity release product to have been comfortably met over the
customers. The regulatory capital past year and forecasting confirms
needed to support the possible shortfall that this position can be expected
on the redemption of equity release to continue for both investments
mortgages also increases if property and business operations.
values drop. Conversely, significant
future rises in property values could
increase the incidence of early mortgage
redemptions, leading to an earlier
receipt of anticipated cash flows
with the consequential reinvestment
risk.
Market risks may affect the liquidity
position of the Group by, for example,
having to realise assets to meet
liabilities during stressed market
conditions or to service collateral
requirements due to the changes in
market value of financial derivatives.
A lack of market liquidity and availability
is also a risk to any intention that
the Group may have to raise capital.
============================================= =============================================
Risks arising from operational processes
and IT systems
Strategic objective* 1 2 3 4 5 Risk outlook - Stable
Change in the period - No change
The Group relies on its operational The Group maintains a suite of risk
processes and IT systems to conduct management tools to help identify,
its business, including the pricing measure, monitor, manage and report
and sale of its products, measuring its operational risks including those
and monitoring its underwriting liabilities, arising from operational processes
processing applications and delivering and IT systems. These include a risk
customer service and maintaining management system, risk and control
accurate records. These processes assessments, risk event management,
and systems may not operate as expected, loss reporting, scenario analysis
may not fulfil their intended purpose and risk reporting through the ORSA.
or may be damaged or interrupted The Group maintains plans and controls
by human error, unauthorised access, to minimise the risk of business
natural disaster or similarly disruptive disruption and information security
events. Any failure of the Group's related events. Detailed incident
IT and communications systems and/or and crisis management plans also
third party infrastructure on which exist to ensure effective responses.
it relies could lead to costs and These are supported by specialist
disruptions that could adversely third parties for our workplace recovery
affect its business as well as harm centre.
its reputation. Our approach to information security
Large organisations continue to be is under constant review as the cyber-threat
targets for cyber-crime, particularly landscape evolves. Due diligence
those organisations that hold customers' is performed on all partners to ensure
personal details. The Group is no that they work to the same high security
exception and a cyber-attack could standards as the Group. The Group
affect customer confidence, or lead continues to invest in its information
to financial losses. 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 and reputation
Strategic objective* 1 2 3 5
Change in the period - Increasing Risk outlook - Increasing
Our purpose is to help people achieve The Group actively seeks to differentiate
a better later life. Our Group's its business from competitors by
brands reflects the way we intend investing in brand-enhancing activities.
to conduct our business and treat Fairness to customers and high service
our customer and wider stakeholder standards are at the heart of the
groups. Just brand, and we encourage our
The Group's brands and reputation colleagues to take pride in the quality
could be damaged if the Group is of service they provide to our customers.
perceived to be acting, even unintentionally, Engaging our colleagues in the Just
below the standards we set for ourselves. brand and its associated values has
Damage to our brand or reputation been, and remains, a critical part
may adversely affect our underlying of our internal activity. The Group
profitability, through reducing sales maintains a system of internal control,
volumes, restricting access to distribution and associated policies and operational
channels and attracting increased procedures, which define 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
The Group's strategic objectives are explained in more detail on
pages 16 and 17 of the Just Group plc Annual Report and Accounts
2018
Statement of Directors' responsibilities
Each of the Directors of the Company confirms that to the best
of their knowledge:
-- the Condensed consolidated financial statements have been
prepared in accordance with IAS 34: Interim financial reporting as
adopted by the European Union;
-- the interim results statement includes a fair review of the
information required by Disclosure and Transparency Rule 4.2.7,
namely important events that have occurred during the period and
their impact on the Condensed consolidated financial statements, as
well as a description of the principal risks and uncertainties
faced by the Company and the undertakings included in the Condensed
consolidated financial statements taken as a whole for the
remaining six months of the financial period; and
-- the interim results statement includes a fair review of
material related party transactions and any material changes in the
related party transactions described in the last annual report as
required by Disclosure and Transparency Rule 4.2.8.
By order of the Board:
David Richardson
Interim Group Chief Executive Officer
3 September 2019
Independent review report to Just Group plc
Conclusion
We have been engaged by Just Group plc ("the Group") to review
the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2019 which
comprises the condensed consolidated statement of comprehensive
income, the condensed consolidated statement of changes in equity,
the condensed consolidated statement of financial position, the
condensed consolidated statement of cash flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2019 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Emphasis of matter - capital
We draw attention to note 13 to the condensed set of financial
statements, which notes that 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. Note 13 notes that
the Group is engaged with the PRA on regulatory developments in
relation to SS3/17, as updated by PS31/18 and CP7/19 and also on
certain matters specific to the Group. This includes a review of
the methodology used by the Group to determine the rating, amount
and spread on the LTM notes used to enable LTM assets to be
eligible for matching adjustment. Note 13 further notes that given
that the Group continues to experience a high level of regulatory
activity and intense regulatory supervision, there is also the risk
of PRA intervention, not limited to the aforementioned matters,
which could negatively impact on the Group's capital position. Note
13 notes that as a result of these matters a risk remains that the
Group could further reduce new business volumes or close to new
business. Note 13 further notes that the Group recognises the need
to continue to strengthen its capital position during 2019 and
beyond. Our conclusion is not modified in respect of this
matter.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
The impact of uncertainties due to the UK exiting the European
Union on our review
Uncertainties related to the effects of Brexit are relevant to
understanding our review of the condensed financial statements.
Brexit is one of the most significant economic events for the UK,
and at the date of this report its effects are subject to
unprecedented levels of uncertainty of outcomes, with the full
range of possible effects unknown. An interim review cannot be
expected to predict the unknowable factors or all possible future
implications for a company and this is particularly the case in
relation to Brexit.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Group a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Group in accordance with the
terms of our engagement to assist the Group in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the Group those matters we are
required to state to it in this report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Group for our review work,
for this report, or for the conclusions we have reached.
Daniel Cazeaux
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
United Kingdom
3 September 2019
Condensed consolidated statement of comprehensive income
for the period ended 30 June 2019
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
Note GBPm GBPm GBPm
================================================= ===== =========== =========== =============
Gross premiums written 832.8 1,181.2 2,176.9
================================================= ===== =========== =========== =============
Reinsurance premiums ceded 2.5 (6.5) (8.0)
================================================= ===== =========== =========== =============
Reinsurance recapture 180.7 379.4 543.3
================================================= ===== =========== =========== =============
Net premium revenue 1,016.0 1,554.1 2,712.2
================================================= ===== =========== =========== =============
Net investment income 1,014.5 (104.5) 142.6
================================================= ===== =========== =========== =============
Fee and commission income 6.1 3.2 8.2
================================================= ===== =========== =========== =============
Total revenue 2,036.6 1,452.8 2,863.0
================================================= ===== =========== =========== =============
Gross claims paid (613.7) (581.4) (1,185.3)
================================================= ===== =========== =========== =============
Reinsurers' share of claims paid 197.0 227.5 435.4
================================================= ===== =========== =========== =============
Net claims paid (416.7) (353.9) (749.9)
================================================= ===== =========== =========== =============
Change in insurance liabilities:
================================================= ===== =========== =========== =============
Gross amount (1,109.0) (143.7) (642.9)
================================================= ===== =========== =========== =============
Reinsurers' share 21.5 (267.6) (502.8)
================================================= ===== =========== =========== =============
Reinsurance recapture (180.7) (379.4) (543.3)
================================================= ===== =========== =========== =============
Net change in insurance liabilities (1,268.2) (790.7) (1,689.0)
================================================= ===== =========== =========== =============
Change in investment contract liabilities (7.9) (1.3) 0.4
================================================= ===== =========== =========== =============
Acquisition costs (14.1) (27.3) (52.4)
================================================= ===== =========== =========== =============
Other operating expenses (110.5) (128.8) (254.8)
================================================= ===== =========== =========== =============
Finance costs (93.9) (105.1) (202.8)
================================================= ===== =========== =========== =============
Total claims and expenses (1,911.3) (1,407.1) (2,948.5)
================================================= ===== =========== =========== =============
Profit/(loss) before tax 125.3 45.7 (85.5)
================================================= ===== =========== =========== =============
Income tax 3 (23.2) 2.4 21.2
================================================= ===== =========== =========== =============
Profit/(loss) for the period 102.1 48.1 (64.3)
================================================= ===== =========== =========== =============
Other comprehensive income:
================================================= ===== =========== =========== =============
Items that will not be reclassified subsequently
to profit or loss:
================================================= ===== =========== =========== =============
Revaluation of land and buildings - - 4.4
================================================= ===== =========== =========== =============
Items that may be reclassified subsequently
to profit or loss:
================================================= ===== =========== =========== =============
Exchange differences on translating foreign
operations 0.2 (0.3) (0.4)
================================================= ===== =========== =========== =============
Other comprehensive income for the period,
net of income tax 0.2 (0.3) 4.0
================================================= ===== =========== =========== =============
Total comprehensive income/(loss) for
the period 102.3 47.8 (60.3)
================================================= ===== =========== =========== =============
Profit attributable to:
================================================= ===== =========== =========== =============
Equity holders of Just Group plc 102.6 48.1 (63.7)
================================================= ===== =========== =========== =============
Non-controlling interest (0.5) - (0.6)
================================================= ===== =========== =========== =============
Profit/(loss) for the period 102.1 48.1 (64.3)
================================================= ===== =========== =========== =============
Total comprehensive income/(loss) attributable
to:
================================================= ===== =========== =========== =============
Equity holders of Just Group plc 102.8 47.8 (59.7)
================================================= ===== =========== =========== =============
Non-controlling interest (0.5) - (0.6)
================================================= ===== =========== =========== =============
Total comprehensive income/(loss) for
the period 102.3 47.8 (60.3)
================================================= ===== =========== =========== =============
Basic earnings per share (pence) 4 10.11 5.16 (6.83)
================================================= ===== =========== =========== =============
Diluted earnings per share (pence) 4 10.01 5.09 (6.83)
================================================= ===== =========== =========== =============
The notes are an integral part of these financial
statements.
Condensed consolidated statement of changes in equity
for the period ended 30 June 2019
1 Includes
Currency
translation
reserve Shares
held Total Tier Non-
Six months Share Share Reorganisation Merger Revaluation by Accumulated shareholders' 1 controlling
ended capital premium reserve reserve reserve trusts profit(1) equity notes interest Total
30 June 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
At 1 January
2019 94.1 94.5 348.4 532.7 4.4 (6.2) 596.5 1,664.4 - (0.6) 1,663.8
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Profit for the
period - - - - - - 102.6 102.6 - (0.5) 102.1
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Other
comprehensive
income for
the
period, net
of income tax - - - - - - 0.2 0.2 - - 0.2
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Total
comprehensive
income/(loss)
for the
period - - - - - - 102.8 102.8 - (0.5) 102.3
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Contributions
and
distributions
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Shares issued 9.4 64.4 - - - - - 73.8 - - 73.8
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Tier 1 notes
issued (net
of costs) - - - - - - - - 293.8 - 293.8
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Dividends - - - - - - (1.2) (1.2) - - (1.2)
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Interest paid
on Tier 1
notes - - - - - - (2.8) (2.8) - - (2.8)
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Share-based
payments - - - - - - 3.5 3.5 - - 3.5
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Total
contributions
and
distributions 9.4 64.4 - - - - (0.5) 73.3 293.8 - 367.1
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
At 30 June
2019 103.5 158.9 348.4 532.7 4.4 (6.2) 698.8 1,840.5 293.8 (1.1) 2,133.2
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Shares
Revaluation held Total Tier Non-
Share Share Reorganisation Merger reserve by Accumulated shareholders' 1 controlling
Year ended 31 capital premium reserve reserve GBPm trusts profit(1) equity notes interest Total
December 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
At 1 January
2018 93.8 94.2 348.4 532.7 - (5.0) 676.4 1,740.5 - - 1,740.5
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Loss for the
year - - - - - - (63.7) (63.7) - (0.6) (64.3)
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Other
comprehensive
income/(loss)
for the year,
net of income
tax - - - - 4.4 - (0.4) 4.0 - - 4.0
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Total
comprehensive
income/(loss)
for the year - - - - 4.4 - (64.1) (59.7) - (0.6) (60.3)
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Contributions
and
distributions
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Shares issued 0.3 0.3 - - - - - 0.6 - - 0.6
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Dividends - - - - - - (24.4) (24.4) - - (24.4)
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Share-based
payments - - - - - (1.2) 8.6 7.4 - - 7.4
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Total
contributions
and
distributions 0.3 0.3 - - - (1.2) (15.8) (16.4) - - (16.4)
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
At 31 December
2018 94.1 94.5 348.4 532.7 4.4 (6.2) 596.5 1,664.4 - (0.6) 1,663.8
============== ======== ======== =============== ======== ================= ========== =================== ============== ======= =============== ==========
Shares
held Total
Share Share Reorganisation Merger by Accumulated shareholders'
Six months ended 30 June capital premium reserve reserve trusts profit(1) equity
2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ========================= ================= ================= ============ ============== ======================== ======================
Balance at 1 January
2018 93.8 94.2 348.4 532.7 (5.0) 676.4 1,740.5
================================== ========================= ================= ================= ============ ============== ======================== ======================
Profit for the period - - - - - 48.1 48.1
================================== ========================= ================= ================= ============ ============== ======================== ======================
Other comprehensive loss
for the period - - - - - (0.3) (0.3)
================================== ========================= ================= ================= ============ ============== ======================== ======================
Total comprehensive income
for the period - - - - - 47.8 47.8
================================== ========================= ================= ================= ============ ============== ======================== ======================
Contributions and distributions
================================== ========================= ================= ================= ============ ============== ======================== ======================
Shares issued - 0.3 - - - - 0.3
================================== ========================= ================= ================= ============ ============== ======================== ======================
Dividends - - - - - (23.8) (23.8)
================================== ========================= ================= ================= ============ ============== ======================== ======================
Share-based payments - - - - (1.2) 4.7 3.5
================================== ========================= ================= ================= ============ ============== ======================== ======================
Total contributions and
distributions - 0.3 - - (1.2) (19.1) (20.0)
================================== ========================= ================= ================= ============ ============== ========================
Balance at 30 June 2018 93.8 94.5 348.4 532.7 (6.2) 705.1 1,768.3
=================================================== ======== ================= ========== =================== ============== ======================== ========== ==========
Condensed consolidated statement of financial position
as at 30 June 2019
30 June 31 December 30 June
2019 2018 2018
Note GBPm GBPm GBPm
====================================== ===== ========= ============ =========
Assets
====================================== ===== ========= ============ =========
Intangible assets 160.6 171.0 181.9
====================================== ===== ========= ============ =========
Property, plant and equipment 29.6 21.4 19.4
====================================== ===== ========= ============ =========
Financial investments 6 20,720.5 19,252.5 19,050.3
====================================== ===== ========= ============ =========
Investment in joint ventures and
associates 0.3 0.3 0.3
====================================== ===== ========= ============ =========
Reinsurance assets 9 4,080.0 4,239.2 4,638.3
====================================== ===== ========= ============ =========
Deferred tax assets 12.4 18.6 21.3
====================================== ===== ========= ============ =========
Current tax assets 3.7 42.1 8.4
====================================== ===== ========= ============ =========
Prepayments and accrued income 24.3 67.9 62.8
====================================== ===== ========= ============ =========
Insurance and other receivables 208.2 18.9 19.4
====================================== ===== ========= ============ =========
Cash and cash equivalents 227.5 113.9 120.2
====================================== ===== ========= ============ =========
Total assets 25,467.1 23,945.8 24,122.3
====================================== ===== ========= ============ =========
Equity
====================================== ===== ========= ============ =========
Share capital 7 103.5 94.1 93.8
====================================== ===== ========= ============ =========
Share premium 7 158.9 94.5 94.5
====================================== ===== ========= ============ =========
Reorganisation reserve 348.4 348.4 348.4
====================================== ===== ========= ============ =========
Merger reserve 7 532.7 532.7 532.7
====================================== ===== ========= ============ =========
Revaluation reserve 4.4 4.4 -
====================================== ===== ========= ============ =========
Shares held by trusts (6.2) (6.2) (6.2)
====================================== ===== ========= ============ =========
Accumulated profit 698.8 596.5 705.1
====================================== ===== ========= ============ =========
Total equity attributable to ordinary
shareholders of Just Group plc 1,840.5 1,664.4 1,768.3
====================================== ===== ========= ============ =========
Tier 1 notes 8 293.8 - -
====================================== ===== ========= ============ =========
Non-controlling interest (1.1) (0.6) -
====================================== ===== ========= ============ =========
Total equity 2,133.2 1,663.8 1,768.3
====================================== ===== ========= ============ =========
Liabilities
====================================== ===== ========= ============ =========
Insurance liabilities 9 18,384.0 17,273.8 16,774.8
====================================== ===== ========= ============ =========
Investment contract liabilities 199.7 197.8 208.2
====================================== ===== ========= ============ =========
Loans and borrowings 10 573.9 573.4 573.3
====================================== ===== ========= ============ =========
Lease liabilities 8.7 - -
====================================== ===== ========= ============ =========
Other financial liabilities 11 4,021.4 4,063.3 4,381.8
====================================== ===== ========= ============ =========
Deferred tax liabilities 29.3 32.2 34.4
====================================== ===== ========= ============ =========
Other provisions 1.1 0.7 0.8
====================================== ===== ========= ============ =========
Current tax liabilities 1.7 3.5 6.1
====================================== ===== ========= ============ =========
Accruals and deferred income 35.6 59.0 43.3
====================================== ===== ========= ============ =========
Insurance and other payables 78.5 78.3 331.3
====================================== ===== ========= ============ =========
Total liabilities 23,333.9 22,282.0 22,354.0
====================================== ===== ========= ============ =========
Total equity and liabilities 25,467.1 23,945.8 24,122.3
====================================== ===== ========= ============ =========
The notes are an integral part of these financial
statements.
The financial statements were approved by the Board of Directors
on 3 September 2019 and were signed on its behalf by:
David Richardson
Director
Condensed consolidated statement of cash flows
for the period ended 30 June 2019
Six months ended Six months ended
30 June 2019 30 June 2018 Year ended 31 December 2018
GBPm GBPm GBPm
=============================================== ================= ================= ============================
Cash flows from operating activities
=============================================== ================= ================= ============================
Profit/(loss) before tax 125.3 45.7 (85.5)
================================================ ================= ================= ============================
Loss on revaluation of land and buildings - - 2.9
================================================ ================= ================= ============================
Depreciation of property and equipment 2.3 0.7 1.4
================================================ ================= ================= ============================
Amortisation of intangible assets 10.4 12.6 24.7
================================================ ================= ================= ============================
Share-based payments 3.5 3.5 7.4
================================================ ================= ================= ============================
Interest income (332.9) (323.4) (655.2)
================================================ ================= ================= ============================
Interest expense 93.9 105.1 202.8
================================================ ================= ================= ============================
Increase in financial investments (1,091.4) (578.7) (720.2)
================================================ ================= ================= ============================
Decrease in reinsurance assets 159.2 647.0 1,046.1
================================================ ================= ================= ============================
Decrease/(increase) in prepayments and accrued
income 43.6 (6.3) (11.4)
================================================ ================= ================= ============================
(Increase)/decrease in insurance and other
receivables (189.5) 24.9 25.1
================================================ ================= ================= ============================
Increase in insurance liabilities 1,110.2 141.8 640.8
================================================ ================= ================= ============================
Increase/(decrease) in investment contract
liabilities 1.9 (12.5) (22.9)
================================================ ================= ================= ============================
Decrease in deposits received from reinsurers (164.7) (589.3) (875.7)
================================================ ================= ================= ============================
(Decrease)/increase in accruals and deferred
income (18.5) (0.4) 10.4
================================================ ================= ================= ============================
Increase/(decrease) in insurance and other
payables 0.2 245.8 (7.2)
================================================ ================= ================= ============================
Increase/(decrease) in other creditors 25.3 (41.4) (91.2)
================================================ ================= ================= ============================
Interest received 186.8 180.3 375.9
================================================ ================= ================= ============================
Interest paid (72.3) (83.9) (159.2)
================================================ ================= ================= ============================
Taxation refunded/(paid) 18.0 (18.5) (36.5)
================================================ ================= ================= ============================
Net cash outflow from operating activities (88.7) (247.0) (327.5)
================================================ ================= ================= ============================
Cash flows from investing activities
=============================================== ================= ================= ============================
Additions to internally generated intangible
assets - (1.0) (2.2)
================================================ ================= ================= ============================
Acquisition of property and equipment (0.6) (0.5) (0.8)
================================================ ================= ================= ============================
Net cash outflow from investing activities (0.6) (1.5) (3.0)
================================================ ================= ================= ============================
Cash flows from financing activities
=============================================== ================= ================= ============================
Issue of ordinary share capital (net of costs) 73.8 0.3 0.6
================================================ ================= ================= ============================
Proceeds from issue of Tier 1 notes (net of - -
costs) 292.5
=============================================== ================= ================= ============================
Increase in borrowings (net of costs) - 229.0 228.5
================================================ ================= ================= ============================
Dividends paid (1.2) (23.8) (24.4)
================================================ ================= ================= ============================
Coupon paid on Tier 1 notes (2.8) - -
=============================================== ================= ================= ============================
Interest paid on borrowings (25.1) (21.3) (37.1)
================================================ ================= ================= ============================
Payment of lease liabilities (1.2) - -
=============================================== ================= ================= ============================
Net cash inflow from financing activities 336.0 184.2 167.6
================================================ ================= ================= ============================
Net increase/(decrease) in cash and cash
equivalents 246.7 (64.3) (162.9)
================================================ ================= ================= ============================
Cash and cash equivalents at start of period 996.4 1,159.3 1,159.3
================================================ ================= ================= ============================
Cash and cash equivalents at end of period 1,243.1 1,095.0 996.4
================================================ ================= ================= ============================
Cash available on demand 227.5 120.2 113.9
================================================ ================= ================= ============================
Units in liquidity funds 1,015.6 974.8 882.5
================================================ ================= ================= ============================
Cash and cash equivalents at end of period 1,243.1 1,095.0 996.4
================================================ ================= ================= ============================
The notes are an integral part of these financial
statements.
Notes to the Condensed consolidated financial statements
1. Basis of preparation
These Condensed interim financial statements comprise the
Condensed consolidated financial statements of Just Group plc ("the
Company") and its subsidiaries, together referred to as "the
Group", as at, and for the period ended, 30 June 2019.
These Condensed interim financial statements have been prepared
in accordance with the Disclosure and Transparency Rules of the
Financial Conduct Authority and with IAS 34: Interim Financial
Reporting, as adopted by the European Union.
These Condensed interim financial statements do not comprise
statutory accounts within the meaning of Section 434 of the
Companies Act 2006. The results for the year ended and position as
at 31 December 2018 have been taken from the Group's 2018 Annual
Report and Accounts, prepared in accordance with International
Financial Reporting Standards as adopted by the European Union,
which was approved by the Board of Directors on 14 March 2019 and
delivered to the Registrar of Companies. The report of the auditor
on those accounts was (i) unqualified, (ii) did not contain any
statement under section 498 (2) or (3) of the Companies Act 2006,
and (iii) by way of emphasis of matter, without qualifying their
report, drew attention to Note 34, Capital, of the Annual Report
and Accounts 2018. The results for the six month period ended 30
June 2018 have been taken from the Group's Interim Results for the
six months to 30 June 2018.
The Directors are required to undertake an assessment of the
Group and Company's ability to continue to adopt the going concern
basis of accounting, and to disclose any material uncertainties
identified.
The Directors have considered the key assumptions underlying the
preparation of accounts on a going concern basis, including the
results of sensitivity analysis and possible management actions,
the principal risks and uncertainties facing the business, the
company's latest business plan and consequences for projections of
cash flow, liquidity and regulatory solvency.
As part of their assessment of going concern at 30 June 2019,
the Directors have considered matters currently under consultation
and development by the PRA. These include the implementation of
SS3/17, as updated by PS31/18 "Solvency II: Equity Release
Mortgages", which is expected to become effective 31 December 2019,
with a phase-in requirement to meet a 13% volatility and 1%
deferment rate by 31 December 2021; and CP7/19 "Solvency II: Equity
Release Mortgages - Part 2" which sets out proposals in relation to
the process by which volatility and deferment rates will be
updated, and how the effective value test applies in stress. The
Board considers, including having considered the matters below,
that there is no material uncertainty in relation to going concern
at 30 June 2019.
The Directors have considered the following in their
assessment:
-- The projected liquidity position of the Group, current
financing arrangements and contingent liabilities.
-- A range of forecast scenarios with differing levels of new
business and associated additional capital requirements to write
anticipated levels of new business.
-- Eligible own funds being in excess of minimum capital
requirements in a combined stress scenario with a disruptive
Brexit, no capital strengthening and reduced new business
volumes.
-- The findings of the 2018 Group Own Risk and Solvency Assessment ("ORSA").
-- Risks from the open areas of PS31/18 and CP7/19.
-- Risks arising from the UK's withdrawal from the European Union.
-- Scenarios, including those in the ORSA, where the Company
ceases to write new business. In such a run-off scenario, this
included any changes required in the valuation of insurance
liabilities as a result of changes in assumptions. However, in the
run-off scenario the going concern basis would continue to be
applicable because the Group would be continuing to trade with its
existing business (for example, collect premiums and administer
policies) rather than ceasing to trade.
-- The Group plan, which was approved by the Board in the first
quarter of 2019, and in particular the forecast regulatory solvency
position calculated on a Solvency II basis, together with regular
updates to the Group's Capital Plan.
-- The benefit of the Restricted Tier 1 and Equity capital
raised by the Group in March 2019, being a total of GBP375m new
capital (before issue costs), which can be used to support the
Group's capital requirements.
-- The benefit of the reinsurance transaction entered into with
RGA on 29 August 2019, to reduce Just Retirement Limited's exposure
to longevity risk (and the associated capital requirements) for DB
business, and which is effective from 1 July 2019.
The Directors' assessment concluded that it remains appropriate
to value assets and liabilities on the assumption that there are
adequate resources to continue in business and meet obligations as
they fall due for the foreseeable future, being at least 12 months
from the date of signing this report, including in the event of the
run-off scenarios considered above. Accordingly, the going concern
basis has been adopted in the valuation of assets and
liabilities.
The following new accounting standards, interpretations and
amendments to existing accounting standards have been adopted by
the Group with effect from 1 January 2019:
-- IFRS 16, Leases (effective 1 January 2019).
The Group has adopted IFRS 16, Leases, from 1 January 2019. IFRS
16 introduced a single, on-balance sheet accounting model for
lessees. As a result, the Group has recognised right-of-use assets
representing its rights to use the underlying assets and lease
liabilities representing its obligation to make lease payments. The
Group has applied IFRS 16 using the modified retrospective
approach, under which the cumulative effect of initial application
is recognised in retained earnings at 1 January 2019. Accordingly,
the comparative information presented for 2018 has not been
restated. On transition to IFRS 16, the Group elected to apply IFRS
16 only to contracts that were previously identified as leases
under the previous accounting standard, IAS 17. The IFRS 16
definition of a lease will only be applied to contracts entered
into on or after 1 January 2019.
The Group recognises right-of-use assets and lease liabilities
for all leased assets except those of low value. Lease payments
associated with low value leases are recognised as an expense on a
straight-line basis over the lease term. The Group presents
right-of-use assets within property, plant and equipment, and
presents lease liabilities on the face of the statement of
financial position.
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured at cost, and subsequently at cost less any accumulated
depreciation and impairment losses. The lease liability is
initially measured at the present value of the lease payments that
are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be
readily determined, the Group's incremental borrowing rate. The
lease liability is subsequently increased by the interest cost on
the lease liability and decreased by lease payments made.
The Group has applied judgement to determine the lease term for
contracts which include renewal options or break clause options.
The determined lease term reflects those options where the Group
assesses the likelihood of those options being exercised to be
reasonably certain.
On transition to IFRS 16, for leases classified as operating
leases under IAS 17, lease liabilities were measured at the present
value of the remaining lease payments, discounted at the Group's
incremental borrowing rate as at
1 January 2019 of 2.5%. Right-of-use assets were measured at an
amount equal to the lease liability.
The impact on transition is as follows:
1 January 2019
GBPm
================================================================================================== ===============
Operating lease commitment at 31 December 2018 as disclosed in the Group's consolidated financial
statements (13.3)
================================================================================================== ===============
Break clauses reasonably certain to be exercised 3.6
================================================================================================== ===============
Discounted at the incremental borrowing rate at 1 January 2019 (0.2)
================================================================================================== ===============
Lease liabilities recognised on transition to IFRS 16 (9.9)
================================================================================================== ===============
Right-of-use asset presented in property, plant and equipment on transition to IFRS 16 9.9
================================================================================================== ===============
Retained earnings -
================================================================================================== ===============
During the period the Group has recognised GBP1.4m of
depreciation charges and GBP0.1m of interest costs from these
leases.
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:
-- IFRS 17, Insurance Contracts (effective 1 January 2021, not
yet endorsed by the EU, IASB recommended extension of
implementation date to 1 January 2022).
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.
The Group has not early-adopted any standard, interpretation or
amendment that has been issued but is not yet effective. There are
no other new accounting standards or amendments to existing
accounting standards relevant to the Group effective from 1 January
2019.
2. 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 average rate of 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, 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. 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
Six months ended 30 Six months ended 30
June 2019 June 2018
============================ ============================
Insurance Other Total Insurance Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================== ========== ======= ======= ========== ======= =======
New business operating
profit 73.7 - 73.7 120.6 - 120.6
================================== ========== ======= ======= ========== ======= =======
In-force operating profit 39.3 1.2 40.5 33.8 1.5 35.3
================================== ========== ======= ======= ========== ======= =======
Underlying operating profit 113.0 1.2 114.2 154.4 1.5 155.9
================================== ========== ======= ======= ========== ======= =======
Operating experience and
assumption changes (1.9) - (1.9) 3.8 - 3.8
================================== ========== ======= ======= ========== ======= =======
Other Group companies'
operating results - (7.2) (7.2) - (6.9) (6.9)
================================== ========== ======= ======= ========== ======= =======
Development expenditure (2.5) (1.4) (3.9) (3.2) (1.7) (4.9)
================================== ========== ======= ======= ========== ======= =======
Reinsurance and financing
costs (23.4) (2.3) (25.7) (22.0) (1.5) (23.5)
================================== ========== ======= ======= ========== ======= =======
Adjusted operating profit
before tax 85.2 (9.7) 75.5 133.0 (8.6) 124.4
================================== ========== ======= ======= ========== ======= =======
Non-recurring and project
expenditure (0.9) (5.4) (6.3) (2.6) (5.0) (7.6)
================================== ========== ======= ======= ========== ======= =======
Implementation of cost
saving initiatives (5.0) - (5.0) - - -
================================== ========== ======= ======= ========== ======= =======
Investment and economic
profits/(losses) 67.9 0.2 68.1 (57.6) (1.1) (58.7)
================================== ========== ======= ======= ========== ======= =======
Interest adjustment to
reflect IFRS accounting
for Tier 1 notes as equity - 2.8 2.8 - - -
================================== ========== ======= ======= ========== ======= =======
Profit/(loss) before amortisation
costs and tax 147.2 (12.1) 135.1 72.8 (14.7) 58.1
================================== ========== ======= ======= ========== ======= =======
Amortisation costs (9.8) (12.4)
================================== ========== ======= ======= ========== ======= =======
Profit before tax 125.3 45.7
================================== ========== ======= ======= ========== ======= =======
Year ended 31 December
2018
=============================
Insurance Other Total
GBPm GBPm GBPm
============================ === ========== ======= ========
New business operating
profit 243.7 - 243.7
==================================== ========== ======= ========
In-force operating profit 69.2 2.5 71.7
==================================== ========== ======= ========
Underlying operating profit 312.9 2.5 315.4
==================================== ========== ======= ========
Operating experience and
assumption changes (33.5) - (33.5)
==================================== ========== ======= ========
Other Group companies'
operating results - (14.6) (14.6)
==================================== ========== ======= ========
Development expenditure (6.4) (2.3) (8.7)
==================================== ========== ======= ========
Reinsurance and financing
costs (45.8) (2.5) (48.3)
==================================== ========== ======= ========
Adjusted operating profit
before tax 227.2 (16.9) 210.3
==================================== ========== ======= ========
Non-recurring and project
expenditure (4.3) (15.3) (19.6)
==================================== ========== ======= ========
Investment and economic
losses (251.0) (1.0) (252.0)
==================================== ========== ======= ========
Loss before amortisation
costs and tax (28.1) (33.2) (61.3)
==================================== ========== ======= ========
Amortisation costs (24.2)
==================================== ========== ======= ========
Loss before tax (85.5)
==================================== ========== ======= ========
Segmental revenue
All net premium revenue arises from the Group's insurance
segment. Net investment income of GBP1,013.3m arose from the
insurance segment and GBP1.2m arose from other segments (Six months
ended 30 June 2018: GBP(105.1)m and GBP0.6m respectively / year
ended 31 December 2018: GBP141.3m and GBP1.3m respectively). Fee
and commission income of GBP1.5m arose from the insurance segment
and GBP4.6m arose from other segments (Six months ended
30 June 2018: GBP0.4m and GBP2.8m respectively / Year ended 31
December 2018: GBP5.0m and GBP3.2m 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:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
GBPm GBPm GBPm
===================================== =========== =========== =============
Defined Benefit De-risking Solutions
("DB") 512.3 718.1 1,314.2
===================================== =========== =========== =============
Guaranteed Income for Life contracts
("GIfL") 287.9 426.5 786.5
===================================== =========== =========== =============
Care Plans ("CP") 31.1 34.8 72.8
===================================== =========== =========== =============
Protection 1.5 1.8 3.4
===================================== =========== =========== =============
Gross premiums written 832.8 1,181.2 2,176.9
===================================== =========== =========== =============
Drawdown and Lifetime Mortgage ("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:
Six months Year ended
Six months ended ended 31 December
30 June 2019 30 June 2018 2018
GBPm GBPm GBPm
=================== ================= ============== =============
Drawdown 26.4 23.9 51.0
=================== ================= ============== =============
LTM loans advanced 155.8 312.7 602.1
=================== ================= ============== =============
Reconciliation of gross premiums written to new business
sales
Six months Year ended
Six months ended ended 31 December
30 June 2019 30 June 2018 2018
GBPm GBPm GBPm
==================================================================== ================= ============== =============
Gross premiums written 832.8 1,181.2 2,176.9
==================================================================== ================= ============== =============
Regular premiums recognised on a single premium equivalent basis in
new business sales (1.5) (1.0) (2.6)
==================================================================== ================= ============== =============
Drawdown and LTM new business sales not included in gross premiums
written 182.2 336.6 653.1
==================================================================== ================= ============== =============
New business sales 1,013.5 1,516.8 2,827.4
==================================================================== ================= ============== =============
Reconciliation of gross premiums written to retirement income
sales
Six months Year ended
Six months ended ended 31 December
30 June 2019 30 June 2018 2018
GBPm GBPm GBPm
========================================================= ================= ============== =============
Gross premiums written 832.8 1,181.2 2,176.9
========================================================= ================= ============== =============
Protection sales not included in Retirement income sales (1.5) (1.8) (3.4)
========================================================= ================= ============== =============
Retirement income sales 831.3 1,179.4 2,173.5
========================================================= ================= ============== =============
3. Income tax
Six months Year ended
Six months ended ended 31 December
30 June 2019 30 June 2018 2018
GBPm GBPm GBPm
================================================== ================= ============== =============
Current taxation
================================================== ================= ============== =============
Current year 21.7 12.1 (9.8)
================================================== ================= ============== =============
Adjustments in respect of prior periods (1.8) (1.5) 2.1
================================================== ================= ============== =============
Total current tax 19.9 10.6 (7.7)
================================================== ================= ============== =============
Deferred taxation
================================================== ================= ============== =============
Origination and reversal of temporary differences 3.3 (13.1) (12.9)
================================================== ================= ============== =============
Adjustments in respect of prior periods - (0.1) (0.9)
================================================== ================= ============== =============
Rate change - 0.2 0.3
================================================== ================= ============== =============
Total deferred tax 3.3 (13.0) (13.5)
================================================== ================= ============== =============
Total income tax recognised in profit or loss 23.2 (2.4) (21.2)
================================================== ================= ============== =============
The current taxation adjustment in respect of prior periods of
GBP(1.8)m relates to the conclusion of the transfer pricing enquiry
with HMRC.
Reconciliation of total income tax to the applicable tax
rate:
Six months Year ended
Six months ended ended 31 December
30 June 2019 30 June 2018 2018
GBPm GBPm GBPm
================================================ ================= ============== =============
Profit/(loss) on ordinary activities before tax 125.3 45.7 (85.5)
================================================ ================= ============== =============
Income tax at 19% (2018: 19%) 23.8 8.7 (16.2)
================================================ ================= ============== =============
Effects of:
================================================ ================= ============== =============
Expenses not deductible for tax purposes 1.7 1.1 1.0
================================================ ================= ============== =============
Rate change (0.2) 0.2 0.1
================================================ ================= ============== =============
Higher rate for overseas income 0.3 - (0.3)
================================================ ================= ============== =============
Unrecognised deferred tax asset - 0.4 1.3
================================================ ================= ============== =============
Losses utilised/carried back - - (0.1)
================================================ ================= ============== =============
Adjustments in respect of prior periods (1.8) (1.6) 1.2
================================================ ================= ============== =============
Deferred tax not previously recognised - - (9.1)
================================================ ================= ============== =============
Other (0.6) (11.2) 0.9
================================================ ================= ============== =============
Total income tax recognised in profit or loss 23.2 (2.4) (21.2)
================================================ ================= ============== =============
Other is in respect of the tax relief on the Tier 1 interest of
GBP2.8m included in equity.
4. Earnings per share
The calculation of basic and diluted earnings per share is based
on dividing the profit or loss attributable to ordinary equity
holders of the Company by the weighted average number of ordinary
shares outstanding, and by the diluted weighted average number of
ordinary shares potentially outstanding at the end of the period,
calculated as follows:
Six months ended Six months ended
30 June 2019 30 June 2018
================================================ ================================================
Weighted average Weighted average
Earnings number of shares Earnings per Earnings number of shares Earnings per
GBPm million share pence GBPm million share pence
================== ========= ================= ================== ========= ================= ==================
Profit
attributable to
equity holders of
Just Group plc 102.6 48.1
================== ========= ================= ================== ========= ================= ==================
Coupon payments in
respect of Tier 1
notes (net of tax) (2.8) -
================== ========= ================= ================== ========= ================= ==================
Profit
attributable to
ordinary equity
holders of Just
Group plc (Basic) 99.8 986.7 10.11 48.1 932.5 5.16
================== ========= ================= ================== ========= ================= ==================
Effect of dilutive
potential share
options - 9.9 (0.10) - 11.9 (0.07)
================== ========= ================= ================== ========= ================= ==================
Diluted 99.8 996.6 10.01 48.1 944.4 5.09
================== ========= ================= ================== ========= ================= ==================
Year ended
31 December 2018
========================================================================
Earnings Weighted average number of shares
GBPm million Earnings per share pence
=================================== === ========= ================================== =========================
Loss attributable to equity holders of
Just Group plc (63.7)
========================================== ========= ================================== =========================
Coupon payments in respect of Tier
1 notes (net of tax) -
=================================== === ========= ================================== =========================
Loss attributable to ordinary equity
holders of Just Group plc (Basic) (63.7) 932.7 (6.83)
========================================== ========= ================================== =========================
Effect of dilutive potential share - - -
options
=================================== === ========= ================================== =========================
Diluted (63.7) 932.7 (6.83)
========================================== ========= ================================== =========================
5. Dividends and appropriations
Dividends and appropriations paid were as follows:
Six months
ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
GBPm GBPm GBPm
=========================================================== ============= ================ =================
Final dividend:
=========================================================== ============= ================ =================
* in respect of the year ended 31 December 2017 (2.55
pence per share, paid on 25 May 2018) - 23.8 23.8
=========================================================== ============= ================ =================
Dividends paid on the vesting of employee share schemes 1.2 - 0.6
=========================================================== ============= ================ =================
Total dividends paid 1.2 23.8 24.4
=========================================================== ============= ================ =================
Coupon payments in respect of Tier 1 notes(1) 2.8 - -
=========================================================== ============= ================ =================
Total distributions to equity holders in the period 4.0 23.8 24.4
=========================================================== ============= ================ =================
1 Coupon payments on Tier 1 notes issued in March 2019 are
treated as an appropriation of retained profits and, accordingly,
are accounted for when paid.
6. Financial assets and liabilities measured at fair value
This note explains the methodology for valuing the Group's
financial assets and liabilities measured at fair value, including
financial investments, and provides disclosures in accordance with
IFRS 13: Fair value measurement, including an analysis of such
assets and liabilities categorised in a fair value hierarchy based
on market observability of valuation inputs.
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
======================================= ==================================
30 30 30 30
June June June 31 December June
2019 31 December 2018 2018 2019 2018 2018
GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ========= ================= ========= ========= ============ =========
Units in liquidity funds 1,015.6 882.5 974.8 1,015.6 882.5 974.8
========================================= ========= ================= ========= ========= ============ =========
Investment funds 105.1 182.0 170.4 105.1 182.8 170.2
========================================= ========= ================= ========= ========= ============ =========
Debt securities and other fixed income
securities 10,271.3 9,518.3 9,858.7 9,516.6 8,858.5 9,278.9
========================================= ========= ================= ========= ========= ============ =========
Deposits with credit institutions 142.3 153.4 194.3 142.3 153.4 194.3
========================================= ========= ================= ========= ========= ============ =========
Derivative financial assets 181.3 81.2 64.5 - - -
========================================= ========= ================= ========= ========= ============ =========
Loans secured by residential mortgages 7,623.7 7,191.5 6,959.5 4,559.9 4,847.6 4,339.1
========================================= ========= ================= ========= ========= ============ =========
Loans secured by commercial mortgages 414.6 392.3 296.3 398.1 385.9 293.9
========================================= ========= ================= ========= ========= ============ =========
Other loans 840.6 749.1 444.8 762.3 711.8 414.5
========================================= ========= ================= ========= ========= ============ =========
Recoveries from reinsurers on investment
contracts 126.0 102.2 87.0 115.8 101.2 81.9
========================================= ========= ================= ========= ========= ============ =========
Total 20,720.5 19,252.5 19,050.3 16,615.7 16,123.7 15,747.6
========================================= ========= ================= ========= ========= ============ =========
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
GBP141.1m (31 December 2018: GBP152.6m / 30 June 2018: GBP187.4m)
have been pledged as collateral in respect of the Group's
derivative financial instruments. Amounts pledged as collateral are
deposited with the derivative counterparty.
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
commodity trade finance 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.
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.
There are no non-recurring fair value measurements as at 30 June
2019, 31 December 2018 or 30 June 2018.
Analysis of assets and liabilities held at fair value according
to fair value hierarchy
30 June 2019 31 December 2018
======================================= =======================================
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 1,010.3 5.3 - 1,015.6 877.7 4.8 - 882.5
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Investment funds - 23.3 81.8 105.1 - 112.2 69.8 182.0
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Debt securities and other fixed
income securities 724.4 8,907.7 639.2 10,271.3 918.0 7,984.3 616.0 9,518.3
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Deposits with credit institutions 141.0 1.3 - 142.3 152.6 0.8 - 153.4
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Derivative financial assets - 171.3 10.0 181.3 1.8 79.4 - 81.2
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Loans secured by residential
mortgages - - 7,623.7 7,623.7 - - 7,191.5 7,191.5
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Loans secured by commercial
mortgages - - 414.6 414.6 - - 392.3 392.3
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Other loans - 32.3 808.3 840.6 - 25.9 723.2 749.1
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Recoveries from reinsurers on
investment contracts - - 126.0 126.0 - - 102.2 102.2
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Total assets held at fair value 1,875.7 9,141.2 9,703.6 20,720.5 1,950.1 8,207.4 9,095.0 19,252.5
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Liabilities held at fair value
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Investment contract liabilities - - 199.8 199.8 - - 197.8 197.8
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Derivative financial liabilities - 243.8 - 243.8 - 178.3 - 178.3
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Obligations for repayment of cash
collateral received 72.9 - - 72.9 3.2 0.2 - 3.4
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Deposits received from reinsurers - - 2,471.4 2,471.4 - - 2,443.5 2,443.5
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Total liabilities held at fair value 72.9 243.8 2,671.2 2,987.9 3.2 178.5 2,641.3 2,823.0
==================================== ======== ======== ======== ========= ======== ======== ======== =========
30 June 2018
=======================================
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
====================================================== === ======== ======== ======== =========
Assets held at fair value
====================================================== === ======== ======== ======== =========
Units in liquidity funds 970.3 4.5 - 974.8
============================================================== ======== ======== ======== =========
Investment funds - 170.4 - 170.4
============================================================== ======== ======== ======== =========
Debt securities and other fixed income securities 703.7 8,389.4 765.6 9,858.7
============================================================== ======== ======== ======== =========
Deposits with credit institutions 187.4 6.9 - 194.3
============================================================== ======== ======== ======== =========
Derivative financial assets - 64.5 - 64.5
============================================================== ======== ======== ======== =========
Loans secured by residential mortgages - - 6,959.5 6,959.5
============================================================== ======== ======== ======== =========
Loans secured by commercial mortgages - - 296.3 296.3
============================================================== ======== ======== ======== =========
Other loans - 11.6 433.2 444.8
============================================================== ======== ======== ======== =========
Recoveries from reinsurers on investment contracts - - 87.0 87.0
============================================================== ======== ======== ======== =========
Total assets held at fair value 1,861.4 8,647.3 8,541.6 19,050.3
============================================================== ======== ======== ======== =========
Liabilities held at fair value
====================================================== === ======== ======== ======== =========
Investment contract liabilities - - 208.2 208.2
============================================================== ======== ======== ======== =========
Derivative financial liabilities - 198.1 - 198.1
============================================================== ======== ======== ======== =========
Obligations for repayment of cash collateral received 0.6 - - 0.6
============================================================== ======== ======== ======== =========
Deposits received from reinsurers - - 2,526.0 2,526.0
============================================================== ======== ======== ======== =========
Total liabilities held at fair value 0.6 198.1 2,734.2 2,932.9
============================================================== ======== ======== ======== =========
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 in the period is in respect of derivative financial assets
for which current market values after the initial trade are not
available. The transfer from Level 2 to Level 3 in the year ended
31 December 2018 followed a change in the availability of market
prices for specific bonds.
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
securities Recoveries
and Loans Loans from
other secured secured reinsurers Deposits
fixed Derivative by by on Investment received
Six months Investment income financial residential commercial Other investment contract from
ended 30 funds securities assets mortgages mortgages loans contracts liabilities reinsurers
June 2019 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============= =========== =========== =========== ============ =========== ====== =========== ============ ===========
At start
of period 69.8 616.0 - 7,191.5 392.3 723.2 102.2 (197.8) (2,443.5)
============= =========== =========== =========== ============ =========== ====== =========== ============ ===========
Purchases/
Advances/
Deposits 13.3 14.6 - 155.8 15.0 49.6 51.0 (26.4) (0.8)
============= =========== =========== =========== ============ =========== ====== =========== ============ ===========
Transfers
from level
2 - - 3.3 - - - - - -
============= =========== =========== =========== ============ =========== ====== =========== ============ ===========
Sales/
Redemptions/
Payments (0.6) (4.3) - (150.7) (2.8) (6.0) (34.3) 32.3 111.6
============= =========== =========== =========== ============ =========== ====== =========== ============ ===========
Realised
gains and
losses
recognised
in profit
or loss
within net
investment
income - 0.3 - 41.6 - - - - -
============= =========== =========== =========== ============ =========== ====== =========== ============ ===========
Unrealised
gains and
losses
recognised
in profit
or loss
within net
investment
income - 15.9 - 244.6 10.0 41.5 7.1 - (94.9)
============= =========== =========== =========== ============ =========== ====== =========== ============ ===========
Interest
accrued (0.7) (3.3) - 140.9 0.1 - - - (43.8)
============= =========== =========== =========== ============ =========== ====== =========== ============ ===========
Change in
fair value
of
liabilities
recognised
in profit
or loss - - 6.7 - - - - (7.9) -
============= =========== =========== =========== ============ =========== ====== =========== ============ ===========
At end of
period 81.8 639.2 10.0 7,623.7 414.6 808.3 126.0 (199.8) (2,471.4)
============= =========== =========== =========== ============ =========== ====== =========== ============ ===========
Debt
securities Recoveries
and Loans Loans from
other secured secured reinsurers Deposits
fixed by by on Investment received
Investment income residential commercial Other investment contract from
Year ended 31 funds securities mortgages mortgages loans contracts liabilities reinsurers
December 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ============ =========== ============ =========== ====== =========== ============ ===========
At start of year - 740.5 6,833.3 215.4 433.3 72.3 (220.7) (2,654.1)
============================= =========== =========== ============ =========== ====== =========== ============ ===========
Purchases/Advances/Deposits 79.0 78.1 602.1 177.8 295.5 54.6 (51.0) (20.2)
============================= =========== =========== ============ =========== ====== =========== ============ ===========
Transfers from -
Level 2 - (158.3) - - - - -
============================= =========== =========== ============ =========== ====== =========== ============ ===========
Sales/Redemptions/Payments (9.7) (26.6) (297.2) (18.0) (4.7) (24.5) 73.5 227.7
============================= =========== =========== ============ =========== ====== =========== ============ ===========
Realised gains
and losses recognised
in profit or loss
within net investment
income - (2.4) 78.7 - - - - -
============================= =========== =========== ============ =========== ====== =========== ============ ===========
Unrealised gains
and losses recognised
in profit or loss
within net investment
income(1) - (9.7) (291.4) 27.1 (0.9) (0.2) - 92.0
============================= =========== =========== ============ =========== ====== =========== ============ ===========
Interest accrued 0.5 (5.6) 266.0 (10.0) - - - (88.9)
============================= =========== =========== ============ =========== ====== =========== ============ ===========
Change in fair
value of liabilities
recognised in profit
or loss - - - - - - 0.4 -
============================= =========== =========== ============ =========== ====== =========== ============ ===========
At end of year 69.8 616.0 7,191.5 392.3 723.2 102.2 (197.8) (2,443.5)
============================= =========== =========== ============ =========== ====== =========== ============ ===========
1 Includes the impact of changes in assumptions in respect of
the valuation of loans secured by residential mortgages of GBP112m,
which includes GBP61m in relation to property growth assumptions
and GBP51m in relation to property volatility assumptions.
Debt Recoveries
securities Loans Loans from
and other secured secured reinsurers Deposits
fixed by by on Investment received
income residential commercial Other investment contract from
Six months ended securities mortgages mortgages loans contracts liabilities reinsurers
30 June 2018 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ =========== ============ ============ ======= =========== ============ ===========
At start of period 740.5 6,833.3 215.4 433.3 72.3 (220.7) (2,654.1)
============================ =========== ============ ============ ======= =========== ============ ===========
Purchases/Advances/Deposits 49.5 312.7 83.9 6.0 28.2 (23.9) (14.4)
============================ =========== ============ ============ ======= =========== ============ ===========
Sales/Redemptions/Payments (7.6) (135.7) (1.7) - (16.9) 37.7 216.2
============================ =========== ============ ============ ======= =========== ============ ===========
Realised gains
and losses recognised
in profit or loss
within net investment
income 0.6 34.4 - - - - -
============================ =========== ============ ============ ======= =========== ============ ===========
Unrealised gains
and losses recognised
in profit or loss
within net investment
income (11.7) (217.2) (1.5) (6.1) 3.4 - 19.7
============================ =========== ============ ============ ======= =========== ============ ===========
Interest accrued (5.7) 132.0 0.2 - - - (93.4)
============================ =========== ============ ============ ======= =========== ============ ===========
Change in fair
value of liabilities
recognised in
profit or loss - - - - - (1.3) -
============================ =========== ============ ============ ======= =========== ============ ===========
At end of period 765.6 6,959.5 296.3 433.2 87.0 (208.2) (2,526.0)
============================ =========== ============ ============ ======= =========== ============ ===========
For Level 1 and Level 2 assets and liabilities measured at fair
value, unrealised gains during the period were gains of GBP45.8m
and GBP356.5m respectively (year ended 31 December 2018: losses of
GBP66.3m and GBP181.0m respectively).
Investment funds
Investment funds classified as Level 3 are structured entities
that operate under contractual arrangements which allow a group of
investors to invest in a pool of corporate loans without any one
investor having overall control of the entity.
Principal assumptions underlying the calculation of investment
funds classified as Level 3
Discount rate
Discount rates are the most significant assumption applied in
calculating the fair value of investment funds. The discount rates
used range from 6.9% to 12.1% depending on the individual loan
within the investment fund.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model could give rise to significant
changes in the fair value of the assets. The Group has estimated
the impact on fair value to changes to these inputs as follows:
Investment
funds
============
Discount
rate
Net increase/(decrease) in fair value (GBPm) +1%
============================================== ============
30 June 2019 (3.7)
============================================== ==========
31 December 2018 (3.1)
============================================== ==========
30 June 2018 n/a
============================================== ==========
Debt securities and other fixed income securities
Debt securities classified as Level 3 are private placement
bonds and 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 model 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
============================================= ================
30 June 2019 (32.5)
============================================= ================
31 December 2018 (28.9)
============================================= ================
30 June 2018 (42.0)
============================================= ================
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 4.1% (31 December
2018: 4.1% / 30 June 2018: 4.1%).
Mortality
Mortality assumptions have been derived with reference to
England & Wales population mortality using the CMI 2017 data
set and model mortality tables for both base table rates and
mortality improvements (2018: CMI 2017 mortality tables for both
base table rates and mortality improvements). These base mortality
and improvement tables have been adjusted to reflect the expected
future mortality experience of mortgage contract holders, taking
into account the medical and lifestyle evidence collected during
the sales process and the Group's assessment of how this experience
will develop in the future. This assessment takes into
consideration relevant industry and population studies, published
research materials and management's own experience.
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 an
assumption about future residential property price inflation based
upon available market and industry data. These assumptions have
been derived with reference to the long-term expectation of the UK
retail price inflation, "RPI", 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 3.8% (31 December 2018: 3.8% /
30 June 2018: 4.25%), with a volatility assumption of 13% per annum
(31 December 2018: 13% / 30 June 2018: 12%). The change in these
assumptions since 2017 included consideration of future long and
short term forecasts, the Group's historical experience,
benchmarking data, and future uncertainties including the possible
impact of Brexit on the UK property market. There have been no
further changes in these assumptions since 2018.
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 3.8% for loans written by JRL (31 December 2018: between 0.7%
and 3.8% / 30 June 2018: between 0.7% and 3.0%) and between 0.9%
and 3.2% for loans written by PLACL (31 December 2018: between 0.9%
and 3.2% / 30 June 2018: between 0.9% and 2.8%).
Sensitivity analysis
Reasonable possible alternative assumptions for unobservable
inputs used in the valuation model could give rise to significant
changes in the fair value of the assets. The Group has estimated
the impact on fair value to changes to these inputs as follows:
Loans secured by residential mortgages valuation assumptions
================================================================================================
Future
Immediate Future property
Net property property price Voluntary
increase/(decrease) Maintenance Base mortality price fall price growth volatility redemptions
in fair value (GBPm) expenses +10% -5% -10% -0.5% +1% +10%
==================== =============== =============== ============== ============== ============== ==============
30 June 2019 (7.4) 27.3 (112.1) (89.5) (59.0) (18.2)
==================== =============== =============== ============== ============== ============== ==============
31 December 2018 (7.1) 22.4 (97.1) (79.4) (53.2) (15.1)
==================== =============== =============== ============== ============== ============== ==============
30 June 2018 (7.2) 25.4 (72.1) (65.2) (45.3) (18.8)
==================== =============== =============== ============== ============== ============== ==============
These 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
Redemption and defaults
The redemption and default assumptions used in the valuation of
loans secured by commercial mortgages are similar to the Group's
bond portfolio.
Sensitivity analysis
Reasonable possible alternative assumptions for unobservable
inputs used in the valuation model could give rise to significant
changes in the fair value of the assets. Interest rates are the
most significant assumption applied in calculating the fair value
of the loans secured by commercial mortgages. The Group has
estimated the impact on fair value to changes to these inputs as
follows.
Loans secured
by commercial
mortgages
valuation
assumptions
===============
Interest rates
Net increase/(decrease) in fair value (GBPm) +100bps
============================================= ===============
30 June 2019 (20.1)
============================================= ===============
31 December 2018 (19.8)
============================================= ===============
30 June 2018 (15.0)
============================================= ===============
Other loans
Other loans classified as Level 3 are infrastructure loans and
commodity trade finance 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
level 3 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 model could give rise to significant
changes in the fair value of the assets. The sensitivity of the
valuation of level 3 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
============================================= ============
30 June 2019 (73.2)
============================================= ============
31 December 2018 (73.4)
============================================= ============
30 June 2018 (41.1)
============================================= ============
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 4.6% (31 December
2018: 4.6% / 30 June 2018: 4.4%).
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 3.00% and 0.91% respectively (31 December 2018:
3.47% and 1.32% respectively / 30 June 2018: 3.40% and 0.95%
respectively).
Credit spreads
The valuation of deposits received from reinsurers includes a
credit spread applied by the individual reinsurer. A credit spread
of 125bps (31 December 2018: 142bps / 30 June 2018: 113bps) was
applied in respect of the most significant reinsurance
contract.
Sensitivity analysis
Reasonable possible alternative assumptions for unobservable
inputs used in the valuation model could give rise to significant
changes in the fair value of the liabilities. The Group has
estimated the impact on fair value to changes to these inputs as
follows:
Deposits received
from reinsurers
==========================
Credit
spreads Interest
Net increase/(decrease) in fair value (GBPm) +100bps rates +100bps
============================================= ========= ===============
30 June 2019 (79.4) (204.3)
============================================= ========= ===============
31 December 2018 (75.8) (196.4)
============================================= ========= ===============
30 June 2018 (85.0) (199.7)
============================================= ========= ===============
7. Share capital
The allotted and issued ordinary share capital of Just Group plc
at 30 June 2019 is detailed below:
Number of GBP0.10 ordinary Share capital Share premium Merger reserve Total
shares GBPm GBPm GBPm GBPm
============================== ============================= ============== ============== =============== ======
At 1 January 2019 941,068,882 94.1 94.5 532.7 721.3
============================== ============================= ============== ============== =============== ======
Shares issued 94,012,782 9.4 64.4 - 73.8
============================== ============================= ============== ============== =============== ======
In respect of employee share
schemes - - - - -
============================== ============================= ============== ============== =============== ======
At 30 June 2019 1,035,081,664 103.5 158.9 532.7 795.1
============================== ============================= ============== ============== =============== ======
At 1 January 2018 938,308,340 93.8 94.2 532.7 720.7
===================================== ============ ===== ===== ====== ======
In respect of employee share schemes 2,760,542 0.3 0.3 - 0.6
===================================== ============ ===== ===== ====== ======
At 31 December 2018 941,068,882 94.1 94.5 532.7 721.3
===================================== ============ ===== ===== ====== ======
At 1 January 2018 938,308,340 93.8 94.2 532.7 720.7
===================================== ============ ===== ===== ====== ======
In respect of employee share schemes 252,560 - 0.3 - 0.3
===================================== ============ ===== ===== ====== ======
At 30 June 2018 938,560,900 93.8 94.5 532.7 721.0
===================================== ============ ===== ===== ====== ======
A merger reserve has been recognised in 2016 on the acquisition
of 100% of the equity shares of Partnership Assurance Group plc,
representing the difference between the nominal value of the new
shares issued in the Company as consideration, and the net assets
of Partnership Assurance Group plc acquired.
8. Tier 1 notes
Six months Year ended
ended Six months ended 31 December
30 June 2019 30 June 2018 2018
GBPm GBPm GBPm
======================== ============== ================= =============
At start of period - - -
======================== ============== ================= =============
Issued in the period 300.0 - -
======================== ============== ================= =============
Issue costs, net of tax (6.2) - -
======================== ============== ================= =============
At end of period 293.8 - -
======================== ============== ================= =============
On 25 March 2019, the Group completed the issue of GBP300m fixed
rate perpetual restricted Tier 1 contingent convertible notes,
incurring issue costs of GBP6.2m, net of tax.
The notes bear interest on the principal amount up to the 26
April 2024 (the first call date) at the rate of 9.375% per annum,
and thereafter at a fixed rate of interest reset on the first call
date and on each fifth anniversary thereafter. Interest is payable
on the notes semi-annually in arrears on 26 April and 26 October
each year commencing on 26 April 2019. During the period, interest
of GBP2.8m was paid to note holders.
The Tier 1 notes are treated as a separate category within
equity and the coupon payments are recognised outside of the profit
after tax result and directly in shareholders' equity.
The Group has the option to cancel the coupon payment which
becomes mandatory upon non-compliance with the solvency capital
requirement or minimum capital requirement or where the Group has
insufficient distributable items.
9. Insurance contracts and related reinsurance
The following movements have occurred in the insurance contract
balances for Retirement Income products during the period.
Six months ended 30 June 2019 Year ended 31 December 2018
================================== ===================================
Gross Reinsurance Net Gross Reinsurance Net
GBPm GBPm GBPm GBPm GBPm GBPm
============================================ ========= ============ ========= ========== ============ =========
At start of period 17,273.8 (4,239.2) 13,034.6 16,633.0 (5,285.3) 11,347.7
============================================ ========= ============ ========= ========== ============ =========
Increase in liability from premiums 687.1 7.3 694.4 1,735.4 2.2 1,737.6
============================================ ========= ============ ========= ========== ============ =========
Release of liability due to recorded claims (626.9) 188.3 (438.6) (1,213.2) 419.8 (793.4)
============================================ ========= ============ ========= ========== ============ =========
Unwinding of discount 295.9 (70.0) 225.9 547.4 (154.9) 392.5
============================================ ========= ============ ========= ========== ============ =========
Changes in economic assumptions 746.1 (140.2) 605.9 (286.6) 136.4 (150.2)
============================================ ========= ============ ========= ========== ============ =========
Changes in non-economic assumptions (0.2) (0.1) (0.3) (128.8) 98.1 (30.7)
============================================ ========= ============ ========= ========== ============ =========
Other movements(1) 8.2 173.9 182.1 (13.4) 544.5 531.1
============================================ ========= ============ ========= ========== ============ =========
At end of period 18,384.0 (4,080.0) 14,304.0 17,273.8 (4,239.2) 13,034.6
============================================ ========= ============ ========= ========== ============ =========
Six months ended 30 June 2018
================================ =========
Gross Reinsurance Net
GBPm GBPm GBPm
============================================ ============= ================= =========
At start of period 16,633.0 (5,285.3) 11,347.7
============================================ ============= ================= =========
Increase in liability from premiums 951.4 (2.3) 949.1
============================================ ============= ================= =========
Release of liability due to recorded claims (613.7) 229.4 (384.3)
============================================ ============= ================= =========
Unwinding of discount 264.7 (78.0) 186.7
============================================ ============= ================= =========
Changes in economic assumptions (459.7) 124.0 (335.7)
============================================ ============= ================= =========
Changes in non-economic assumptions - - -
============================================ ============= ================= =========
Other movements(1) (0.9) 373.9 373.0
============================================ ============= ================= =========
At end of period 16,774.8 (4,638.3) 12,136.5
============================================ ============= ================= =========
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 the Group's insurance subsidiaries Just Retirement
Limited ("JRL") and Partnership Life Assurance Company Limited
("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 (excluding Lifetime Mortgages). Both existing in-force
assets and new assets purchased during the year contribute to the
movement in the discount rate. Differences between the discount
rates recognised on new business written during the year and the
prevailing discount rates on the entire portfolio of business also
contribute to the movement in insurance liabilities.
30 June 2019
Valuation discount rates - gross liabilities % 31 December 2018 %
======================================================================= ============= ===================
Individually underwritten Guaranteed Income for Life Solutions (JRL) 3.12 3.51
======================================================================= ============= ===================
Individually underwritten Guaranteed Income for Life Solutions (PLACL) 3.00 3.47
======================================================================= ============= ===================
Defined Benefit (JRL) 3.12 3.51
======================================================================= ============= ===================
Defined Benefit (PLACL) 3.00 3.47
======================================================================= ============= ===================
Other annuity products (PLACL) 0.91 1.32
======================================================================= ============= ===================
Term and whole of life products (PLACL) 1.00 1.54
======================================================================= ============= ===================
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
4.6% (2018: 4.6%).
Non-economic assumption changes
There have been no non-economic assumption changes during the
period.
10. Loans and borrowings
Carrying value Fair Value
============================ =========================================== ===========================================
30 30 30 30
June 2019 31 December 2018 June 2018 June 2019 31 December 2018 June 2018
GBPm GBPm 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 96.2 95.9 95.6 101.3 113.5 105.9
============================ =========== ================= =========== =========== ================= ===========
GBP250m 9.0% 10 year
subordinated debt 2026
(Tier 2) issued by Just
Group plc 248.9 248.8 248.7 251.7 289.9 287.8
============================ =========== ================= =========== =========== ================= ===========
GBP230m 3.5% 7 year
subordinated debt 2025
(Tier 3) issued by Just
Group plc 228.8 228.7 229.0 238.5 214.7 227.7
============================ =========== ================= =========== =========== ================= ===========
Total loans and borrowings 573.9 573.4 573.3 591.5 618.1 621.4
============================ =========== ================= =========== =========== ================= ===========
The GBP100m 9.5% Partnership Life Assurance Company Limited Tier
2 notes are callable annually from March 2020.
11. 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.
30 June 2019 30 June 2018
Note GBPm 31 December 2018 GBPm GBPm
======================================================== ====== ============= ====================== =============
Fair value through profit or loss
======================================================== ====== ============= ====================== =============
Derivative financial liabilities (a) 243.8 178.3 198.1
======================================================== ====== ============= ====================== =============
Obligations for repayment of cash collateral received (a) 72.9 3.4 0.6
======================================================== ====== ============= ====================== =============
Deposits received from reinsurers (b) 2,471.4 2,443.5 2,526.0
======================================================== ====== ============= ====================== =============
Liabilities measured using insurance rules under IFRS 4
======================================================== ====== ============= ====================== =============
Deposits received from reinsurers (b) 1,043.7 1,236.3 1,440.2
======================================================== ====== ============= ====================== =============
Reinsurance finance (c) 22.3 30.6 38.9
======================================================== ====== ============= ====================== =============
Reinsurance funds withheld (d) 167.3 171.2 178.0
======================================================== ====== ============= ====================== =============
Total other liabilities 4,021.4 4,063.3 4,381.8
================================================================ ============= ====================== =============
(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 either the old Solvency I or IFRS
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.
12. Derivative financial instruments
The Group uses various derivative financial instruments to
manage its exposure to interest rates, counterparty credit risk,
inflation and foreign exchange risk.
30 June 2019 31 December 2018
================================================= =================================================
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 0.7 176.2 1,648.9 1.3 131.8 1,186.5
================ =============== =============== =============== =============== =============== ===============
Interest rate
swaps 144.1 25.8 3,607.9 36.2 9.5 2,131.8
================ =============== =============== =============== =============== =============== ===============
Inflation swaps 26.1 35.0 1,797.3 38.0 27.6 1,879.3
================ =============== =============== =============== =============== =============== ===============
Forward swap 0.4 6.8 2,049.8 0.6 9.4 927.6
================ =============== =============== =============== =============== =============== ===============
Put option on
property index
(NNEG hedge) 10.0 - 80.0 3.3 - 80.0
================ =============== =============== =============== =============== =============== ===============
Interest rate
futures - - - 1.8 - 186.0
================ =============== =============== =============== =============== =============== ===============
Total 181.3 243.8 9,183.9 81.2 178.3 6,391.2
================ =============== =============== =============== =============== =============== ===============
30 June 2018
=================================================
Asset Fair Liability fair Notional
value value Amount
Derivatives GBPm GBPm GBPm
================ =============== =============== =============== =============== =============== ===============
Foreign currency
swaps 6.4 85.4 1,031.5
================ =============== =============== =============== =============== =============== ===============
Interest rate
swaps 38.0 53.2 1,527.5
================ =============== =============== =============== =============== =============== ===============
Inflation swaps 15.8 57.7 1,836.6
================ =============== =============== =============== =============== =============== ===============
Forward swap 0.5 1.8 486.6
================ =============== =============== =============== =============== =============== ===============
Interest rate
futures 3.8 - 186.0
================ =============== =============== =============== =============== =============== ===============
Total 64.5 198.1 5,068.2
================ =============== =============== =============== =============== =============== ===============
The Group's derivative financial instruments are not designated
as hedging instruments and changes in their fair value are included
in profit or loss.
All over-the-counter derivative transactions are conducted under
standardised International Swaps and Derivatives Association Inc.
("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 30 June 2019, the Company had pledged collateral of
GBP141.1m (31 December 2018: GBP152.6m / 30 June 2018: GBP246.7m)
of which GBPnil were gilts and European Investment Bank bonds (31
December 2018: GBPnil / 30 June 2018: GBPnil) and had received cash
collateral of GBP72.9m (31 December 2018: GBP3.4m / 30 June 2018:
GBP0.6m). In addition to the cash collateral received recognised
within other financial liabilities, certain collateral arrangements
within the Group's subsidiary, PLACL, give rise to collateral of
GBP13.3m (31 December 2018: GBP10.4m / 30 June 2018: GBP9.2m) which
is not included in the Consolidated statement of financial position
of the Group because it is deposited into a ringfenced collateral
account that the Group has no control over and does not accrue any
of the economic benefit.
Amounts recognised in profit or loss in respect of derivative
financial instruments are as follows:
Six months ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
GBPm GBPm GBPm
======================================================== ================= ================= ==================
Movement in fair value of derivative instruments 26.4 (80.5) (49.0)
======================================================== ================= ================= ==================
Realised profits/(losses) on interest rate swaps closed 19.0 (1.7) (16.3)
======================================================== ================= ================= ==================
Total amounts recognised in profit or loss 45.4 (82.2) (65.3)
======================================================== ================= ================= ==================
13. Capital
The net assets of the Group at 30 June 2019 on an IFRS basis
were GBP2,133.2m (2018: GBP1,663.8m). The Group manages capital on
a regulatory basis. 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. The capital requirement for the
ex-Partnership business is assessed using the standard formula.
Following the merger of Just Retirement and Partnership, the
capital requirement for Just Group plc is calculated using a
partial internal model.
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.
In managing its capital the Group undertakes stress and scenario
testing to consider the Group's capacity to respond to a series of
relevant financial, insurance, or operational shocks or changes to
financial regulations should future circumstances or events differ
from current assumptions. The review also considers mitigating
actions available to the Group should a severe stress scenario
occur, such as raising capital, varying the volumes of new business
written and a scenario where the Group does not write new
business.
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.
In assessing the Group's capital position, matters currently
under consultation and development by the PRA have been taken into
account. These include the implementation of SS3/17, as updated by
PS31/18 "Solvency II: Equity Release Mortgages", which is expected
to become effective 31 December 2019, with a phase-in requirement
to meet a 13% volatility and 1% deferment rate by 31 December 2021;
and CP7/19 "Solvency II: Equity Release Mortgages - Part 2" which
sets out proposals in relation to the process by which volatility
and deferment rates will be updated and how the effective value
test applies in stress.
The Group is engaged with the PRA on these regulatory
developments and also on certain matters specific to the Group,
including a review of the methodology used to determine the rating,
amount and spread on the LTM notes used to enable LTM assets to be
eligible for matching adjustment.
Based on internal estimates as to the potential outcomes of
CP7/19, our capital plan assumes an increase in SCR of c.GBP130m
(not reviewed by KPMG) on existing business resulting from this.
The full amount of this increase would be effective at year-end
2021. The increase in SCR arising from CP7/19 is in addition to the
expected cost to our matching adjustment from PS31/18 of meeting a
13% volatility and 1% deferment rate by 31 December 2021. Like any
ongoing consultation there is a risk that the outcome could be
higher or lower.
It is important to note that there continue to be a number of
capital management actions available to us which can offset
regulatory changes. For example, the DB longevity reinsurance
transaction recently entered into would have increased Solvency II
surplus by GBP118m (not reviewed by KPMG) at 1 July 2019, although
this is partly offset by the GBP70m (not reviewed by KPMG) increase
in our SCR made since 30 June in preparation for adjustments to the
treatment of LTMs within our internal model.
Given that the Group continues to experience a high level of
regulatory activity and intense regulatory supervision, there is
also the risk of PRA intervention, not limited to the matters
described in the paragraphs above, which could negatively impact on
the Group's capital position.
As a result of the matters described above, a risk remains that
the Group could further reduce new business volumes or close to new
business, a decision that the board keeps under regular review.
The Group has completed a number of management actions which
have strengthened its capital position:
-- In March 2019 the Group raised a total of GBP375m new capital
(before issue costs), through a GBP300m Restricted Tier 1 notes
issuance and through a GBP75m equity placing, which can be used to
support the Group's capital requirements.
-- On 29 August 2019 the Group entered into a reinsurance
transaction with RGA to reduce Just Retirement Limited's exposure
to longevity risk (and the associated capital requirements) for DB
business, which is effective from 1 July 2019.
-- The Group has significantly reduced new business strain
through planned reduction in new business volumes, re-pricing and
cost reductions.
On the basis that the Group continues to write new business, the
Group also recognises the need to continue to strengthen its
capital position during 2019 and beyond, with further management
actions (potential and planned) to reach capital self-sufficiency
by 2022:
-- The Board continues to review the optimal capital mix,
subject to market liquidity and availability, including
consideration of the use of unutilised Tier 2 capacity and possible
refinancing options for the GBP100m 9.5% Partnership Tier 2 notes
which are callable annually from March 2020.
-- Further expense reductions are planned with an expected 10%
reduction in the cost base compared to 2018.
-- The Group is in discussions with the PRA to establish
satisfactory regulatory treatment for the pilot NNEG hedge which
will reduce exposure of the regulatory balance sheet to property
price movements.
-- Reduction to new business strain is planned through DB
partner business which is much less capital intensive.
-- New business strain could be further reduced by continuing to
reduce the levels, and mix, of new business written. The Board
continuously monitors the impact of new business on the firm's
actual and future expected capital position.
Further information on the matters considered by the Directors
at 30 June 2019 in relation to capital and going concern is
included in note 1.1, Basis of preparation.
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;
-- to 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 period.
Group capital position (not reviewed by KPMG)
The Group's estimated capital surplus position at 30 June 2019,
which is not covered by the KPMG independent review opinion on
pages 26 and 27, was as follows:
31 December
30 June 2019(1) 2018(2)
GBPm GBPm
============================= ================ ============
Capital resources
============================= ================ ============
Own funds 2,501 2,284
============================= ================ ============
Solvency Capital Requirement (1,728) (1,589)
============================= ================ ============
Excess own funds 773 695
============================= ================ ============
Solvency coverage ratio 145% 144%
============================= ================ ============
1 Estimated regulatory position. These figures do not allow for
any notional recalculation of TMTP as at 30 June 2019. The
estimated solvency coverage ratio including a notional
recalculation of TMTP as at 30 June 2019 is 149%.
2 As reported in the Group's Solvency and Financial Condition Report as at 31 December 2018.
14. 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:
Six months
ended Six months ended Year ended
30 June 2019 30 June 2018 31 December 2018
GBPm GBPm GBPm
=================================== ============== ================= ==================
Short-term employee benefits 1.7 2.3 4.4
=================================== ============== ================= ==================
Share-based payments 0.5 1.3 2.7
=================================== ============== ================= ==================
Total key management compensation 2.2 3.6 7.1
=================================== ============== ================= ==================
Loans owed by Directors 0.4 0.4 0.4
=================================== ============== ================= ==================
The loan advances to Directors accrue interest fixed at 4% per
annum and are repayable in whole or in part at any time.
15. Post balance sheet events
On 29 August 2019 the Group entered into a transaction with RGA
to reduce Just Retirement Limited's exposure to longevity risk (and
the associated capital requirements) for Defined Benefit De-risking
Solutions ("DB") business, by increasing the proportion reinsured
to 100% for all in-force DB schemes written between 1 January 2016
and 30 June 2019, and to 90% for most new DB business written from
1 July 2019 (including into the future). The increased cover is
effective from 1 July 2019. The one-off reduction in IFRS profit
after tax reported at 31 December 2019 is expected to be c.GBP8m,
and thereafter the impact to IFRS profit after tax is expected to
be less than GBP1m per annum.
Additional financial information
The following additional financial information is not covered by
the KPMG LLP independent review opinion on pages 26 and 27.
Solvency II surplus generation
The table below shows the expected future emergence over the
next 35 years, of Solvency II surplus in excess of 100% of SCR.
The amounts are shown undiscounted and exclude the free surplus
at 30 June 2019 of GBP840m.
The regulatory changes shown are the costs of fully complying
with the PS31/18 phase-in requirement to meet a 13% volatility and
1% deferment rate in the Effective Value Test by 31 December
2021.
Core surplus generation Regulatory changes TMTP amortisation Surplus generation
Year GBPm GBPm GBPm GBPm
=========== ======================== ========================= ========================= =========================
HY 2019 141 - (90) 51
=========== ======================== ========================= ========================= =========================
2020 267 (74) (150) 43
=========== ======================== ========================= ========================= =========================
2021 276 (76) (122) 78
=========== ======================== ========================= ========================= =========================
2022 279 - (130) 149
=========== ======================== ========================= ========================= =========================
2023 271 - (130) 140
=========== ======================== ========================= ========================= =========================
2024 265 - (130) 135
=========== ======================== ========================= ========================= =========================
2025 259 - (130) 129
=========== ======================== ========================= ========================= =========================
2026 251 - (130) 121
=========== ======================== ========================= ========================= =========================
2027 237 - (130) 107
=========== ======================== ========================= ========================= =========================
2028 234 - (130) 104
=========== ======================== ========================= ========================= =========================
2029 231 - (130) 101
=========== ======================== ========================= ========================= =========================
2030 225 - (130) 94
=========== ======================== ========================= ========================= =========================
2031 224 - (130) 93
=========== ======================== ========================= ========================= =========================
2032 209 - - 209
=========== ======================== ========================= ========================= =========================
2033 203 - - 203
=========== ======================== ========================= ========================= =========================
2034 199 - - 199
=========== ======================== ========================= ========================= =========================
2035 190 - - 190
=========== ======================== ========================= ========================= =========================
2036 187 - - 187
=========== ======================== ========================= ========================= =========================
2037 175 - - 175
=========== ======================== ========================= ========================= =========================
2038 167 - - 167
=========== ======================== ========================= ========================= =========================
2039 - 2043 701 - - 701
=========== ======================== ========================= ========================= =========================
2044 - 2048 486 - - 486
=========== ======================== ========================= ========================= =========================
2049 - 2053 335 - - 335
=========== ======================== ========================= ========================= =========================
The analysis excludes the effects of the new DB longevity
reinsurance and any potential effects of fully implementing CP7/19
(see Note 13, Capital).
Glossary
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% for 2018), and dividing this result by the weighted
average number of shares in issue by the Group for the period.
Adjusted operating profit before tax - 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 Business 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 and Accounts. The Board believes that the
APMs used give a more representative view of the underlying
performance of the Group. APMs are identified in this glossary
together with a reference to where the APM has been reconciled to
its nearest statutory equivalent. APMs which are also KPIs are
indicated as such.
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.
Development expenditure - development expenditure captures costs
relating to the development of new products and new initiatives,
and is included within adjusted operating profit.
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 risk-based capital measure and
expresses the Board's view of the available capital as a percentage
of the required capital.
Employee benefits consultant ("EBC") - an adviser offering
specialist knowledge to employers on the legal, regulatory and
practical issues of rewarding staff including non-wage compensation
such as pensions, health and life insurance and profit sharing.
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.
Embedded value - an APM, this represents the sum of
shareholders' net assets and the value of in-force business, and is
a 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.
Finance costs - finance costs represent interest payable on
reinsurance deposits and financing, the interest on the Group's
Tier 2 Debt, 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 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 Business 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 considered to give an understanding of the
Group's underlying performance drivers. The Group's KPIs are
Retirement income sales, New business operating profit, In-force
operating profit, Adjusted operating profit, IFRS profit before
tax, IFRS net assets, Solvency II capital coverage ratio and
Economic capital coverage ratio.
Lifetime mortgage ("LTM") - an equity release product that
allows homeowners to take out a loan secured on the value of their
home, typically with the loan plus interest repaid when the home is
no longer needed.
LTM notes - structured assets issued by a wholly owned SPE, Just
Re1 Ltd. Just Re1 Ltd holds two pools of lifetime mortgages, each
of which provides the collateral for issuance of senior and
mezzanine notes to Just Retirement Ltd, eligible for inclusion in
its matching portfolio.
Medical underwriting - the process of evaluating an individual's
current health, medical history and lifestyle factors such as
smoking when pricing an insurance contract.
Net 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.
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 Business
Review.
New business sales - an APM and an 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 2 to the consolidated
financial statements.
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 our HUB group of companies, which provides
regulated advice and intermediary services, and professional
services to corporates, and corporate costs incurred by Group
holding companies and the overseas start-ups.
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.
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.
Retirement Income sales (in reference to Just Group sales or
products) - an APM and one of the Group's KPIs and collective term
for GIfL, DB and Care Plan. Retirement Income sales are reconciled
to IFRS Gross premiums in note 2 to the consolidated financial
statements.
Retirement sales (in reference to Just Group sales or products)
- collective term for Retirement Income sales and Drawdown.
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 Business Review.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR CKNDQNBKBDCK
(END) Dow Jones Newswires
September 04, 2019 02:01 ET (06:01 GMT)
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