TIDMJUST
RNS Number : 2675E
Just Group PLC
10 March 2022
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NEWS RELEASE www.justgroupplc.co.uk
10 March 2022
JUST GROUP PLC
RESULTS FOR THE YEARED 31 DECEMBER 2021
PROFITABLE AND SUSTAINABLE GROWTH
Just Group plc (the "Group", "Just") announces its results for
the year ended 31 December 2021.
Profitable and sustainable growth
-- Retirement Income sales(1) up 25% to GBP2.7bn (2020: GBP2.1bn),
as Defined Benefit De-risking ("DB") sales increased by 28% and
retail sales were up 16%.
-- New business profits(1) up 13% to GBP225m (2020: GBP199m), driven
by higher volumes. New business margin at 8.4% (2020: 9.3%) reflects
a significant increase in the proportion of DB deferred business
within the sales mix.
-- Underlying operating profit(1) up 9% to GBP210m (2020: GBP193m).
-- Underlying organic capital generation(1) ("UOCG") up 183% to GBP51m
(2020: GBP18m), strongly beating the target to double the 2020
UOCG by 2022, achieved a year early, driven by outperformance in
new business capital strain, which at GBP40m, represents only 1.5%
of sales (2020: GBP48m and 2.2%). Expense overruns have been eliminated
in line with our target.
Rewarding shareholders
-- Dividend reinstated. Recommended final dividend of 1.0p per share.
Sustainable dividend expected to grow over time from 2021 pro forma
base level of 1.5p.
-- New guidance to target growth in underlying operating profits
over the medium term by an average of 15% per annum(1) . Strengthened
organic capital generation to sustain strong, profitable sales
growth and increase the long term value of the business .
Strong Solvency II balance sheet and IFRS
-- Improved capital coverage ratio of 164%(2) (31 December 2020: 156%).
Organic capital generation and credit portfolio management together
have contributed 6 percentage points to the ratio.
-- Reduced property sensitivity. Including final LTM portfolio sale
announced in February 2022, the sensitivity of the Solvency II balance
sheet to a 10% immediate fall in UK house prices is now within appetite
at 11 percentage points ("pp") ( 31 December 2020: 14pp).
-- Adjusted operating profit(1) was GBP238m, broadly unchanged from
2020 (GBP239m), as significantly higher new business profit was
offset by lower operating experience and assumption changes and
in-force operating profit.
-- IFRS loss before tax was GBP21m (2020: profit GBP237m) as economic
variances and the loss on the sale of the second LTM portfolio led
to economic losses of GBP226m (2020: gains of GBP9m).
-- Tangible net assets per share(1) 195p (31 December 2020: 199p).
David Richardson, Group Chief Executive Officer, said:
" This is an excellent set of results which demonstrate our
ability to generate profitable growth within a sustainable capital
model. New business premiums, underlying operating profits and
underlying capital generation have improved significantly on the
previous year. Furthermore, we have also attained a sustainable
level of underlying capital generation and coverage ratio to be in
a position to re-commence dividend payments.
Our confidence in the growth opportunities available to the
Group is reflected in our new target to grow underlying operating
profits over the medium term by an average of 15% per annum.
HM Treasury's Solvency II reform objectives are welcomed, as we
believe they will increase the opportunities available to Just to
invest the long term cashflows inherent in our business model in
support of the Government's levelling-up and green agendas. Lower
capital requirements and increased illiquid asset investment
improve customer pricing and further stimulate our end markets.
Just has a clear, compelling purpose: we help people achieve a
better later life. The solid foundations we've established will
enable our customers to reach that goal. We are committed to
growing, helping more customers and increasing shareholder value
."
Notes
1 Alternative performance measure ("APM") - In addition to statutory
IFRS performance measures, the Group has presented a number of
non-statutory alternative performance measures. The Board believes
that the APMs used give a more representative view of the underlying
performance of the Group. APMs are identified in the glossary
at the end of this announcement. Adjusted operating profit is
reconciled to IFRS profit before tax in the Financial Review.
2 This figure is an estimate and has been recalculated in line with
the Solvency II Directive timetable as at 31 December 2021 and
the TMTP has been recalculated excluding the contribution from
the LTMs that have been sold on 22 February 2022.
Enquiries
Investors / Analysts Media
Alistair Smith, Investor Relations Stephen Lowe, Group Communications
Telephone: +44 (0) 1737 232 792 Director
alistair.smith@wearejust.co.uk Telephone: +44 (0) 1737 827 301
press.office@wearejust.co.uk
Paul Kelly, Investor Relations
Telephone: +44 (0) 20 7444 8127 Temple Bar Advisory
paul.kelly@wearejust.co.uk Alex Child-Villiers
William Barker
Telephone: +44 (0) 20 7183 1190
For those analysts who have registered, a presentation will take
place today at Royal Bank of Canada, 100 Bishopsgate, London, EC2M
1GT, commencing at 09:30am. The presentation will also available
via a live webcast.
FINANCIAL CALAR DATE
Ex-dividend date for final dividend 21 April 2022
==============
Record date for final dividend 22 April 2022
==============
Annual General Meeting 10 May 2022
==============
Payment of final dividend 17 May 2022
==============
Interim results 9 August 2022
==============
A copy of this announcement, the presentation slides and
transcript will be available on the Group's website
justgroupplc.co.uk
JUST GROUP PLC
GROUP COMMUNICATIONS
Enterprise House
Bancroft Road
Reigate
Surrey RH2 7RP
The information contained within this announcement is deemed to
constitute inside information as stipulated under the retained EU
law version of the Market Abuse Regulation (EU No. 596/2014) (the
"UK MAR") which is part of UK law by virtue of the European Union
(Withdrawal) Act 2018. The information is disclosed in accordance
with the Company's obligations under Article 17 of the UK MAR. Upon
the publication of this announcement, this inside information is
now considered to be in the public domain.
Forward-looking statements disclaimer:
This announcement has been prepared for, and only for, the
members of Just Group plc (the "Company") as a body, and for no
other persons. The Company, its Directors, employees, agents and
advisers do not accept or assume responsibility to any other person
to whom this document is shown or into whose hands it may come and
any such responsibility or liability is expressly disclaimed.
By their nature, the statements concerning the risks and
uncertainties facing the Company and its subsidiaries (the "Group")
in this announcement involve uncertainty since future events and
circumstances can cause results and developments to differ
materially from those anticipated. This announcement contains, and
we may make other statements (verbal or otherwise) containing,
forward-looking statements in relation to the current plans, goals
and expectations of the Group relating to its or their future
financial condition, performance, results, strategy and/or
objectives. Statements containing the words: "believes", "intends",
"expects", "plans", "seeks", "targets", "continues" and
"anticipates" or other words of similar meaning are forward looking
(although their absence does not mean that a statement is not
forward looking). Forward looking statements involve risk and
uncertainty because they are based on information available at the
time they are made, based on assumptions and assessments made by
the Company in light of its experience and its perception of
historical trends, current conditions, future developments and
other factors which the Company believes are appropriate and relate
to future events and depend on circumstances which may be or are
beyond the Group's control. For example, certain insurance risk
disclosures are dependent on the Group's choices about assumptions
and models, which by their nature are estimates. As such, although
the Group believes its expectations are based on reasonable
assumptions, actual future gains and losses could differ materially
from those that we have estimated. Other factors which could cause
actual results to differ materially from those estimated by
forward-looking statements include, but are not limited to:
domestic and global political, economic and business conditions
(such as the impact from the COVID-19 outbreak or other infectious
diseases and the unfolding situation in Ukraine); asset prices;
market-related risks such as fluctuations in interest rates and
exchange rates, and the performance of financial markets generally;
the policies and actions of governmental and/or regulatory
authorities including, for example, new government initiatives
related to the provision of retirement benefits or the costs of
social care; the impact of inflation and deflation; market
competition; changes in assumptions in pricing and reserving for
insurance
business (particularly with regard to mortality and morbidity
trends, gender pricing and lapse rates); risks associated with
arrangements with third parties, including joint ventures and
distribution partners and the timing, impact and other
uncertainties associated with future acquisitions, disposals or
other corporate activity undertaken by the Group and/or within
relevant industries; inability of reinsurers to meet obligations or
unavailability of reinsurance coverage; default of counterparties;
information technology or data security breaches; the impact of
changes in capital, solvency or accounting standards; and tax and
other legislation and regulations in the jurisdictions in which the
Group operates (including changes in the regulatory capital
requirements which the Company and its subsidiaries are subject
to). As a result, the Group's actual future financial condition,
performance and results may differ materially from the plans, goals
and expectations set out in the forward-looking statements. The
forward-looking statements only speak as at the date of this
document and reflect knowledge and information available at the
date of preparation of this announcement. The Group undertakes no
obligation to update these forward-looking statements or any other
forward-looking statement it may make (whether as a result of new
information, future events or otherwise), except as may be required
by law. Persons receiving this announcement should not place undue
reliance on forward-looking statements. Past performance is not an
indicator of future results. The results of the Company and the
Group in this announcement may not be indicative of, and are not an
estimate, forecast or projection of, the Group's future results.
Nothing in this announcement should be construed as a profit
forecast.
Chief executive officer's statement
Purpose driven, focused on profitable sustainable growth
2021 has been a significant and positive year in our history. We
have built on the foundations we put in place over the previous two
years to transform the way that we do business. We are excited
about the growth potential for the Group.
The growth that we have achieved in 2021 is a testament to the
success of our transformation. We are investing the increased
levels of organic capital generated into writing more new business
that delivers profitable and sustainable growth at attractive
levels of return to shareholders.
This year we have achieved record new business sales and new
business profits and more than doubled our underlying organic
capital generation a year ahead of our 2022 target. The results
build on our strong track record of delivering on our commitments.
In 2020, we achieved capital self-sufficiency more than a year
earlier than originally planned. In 2021, we have reduced our
Solvency II balance sheet sensitivity to property to a comfortable
level and eliminated our cost overruns.
Retirement sales growth
I am pleased to report that during 2021 we have increased
Retirement Income sales by 25% to GBP2.7bn.
DB sales were up 28% to GBP1.9bn including two transactions in
the over GBP250m segment. The market is becoming more focused on
Buy-out transactions and so our enhanced capability to meet the
needs of deferred members has been an important part of this
growth; almost 40% of our transactions were DB deferred. Our start
to 2022 has been encouraging and we have a GBP4bn pipeline of
potential DB transactions.
In our retail market, sales of GBP739m were up 16% on 2020 and
were 8% higher than the pre-pandemic sales of 2019.
Growth and innovation
We participate in retirement markets that offer long-term
structural growth and the capital which we invest in that growth is
achieving high levels of return. We are investing in all of these
markets, developing our propositions and also innovating to build
improved retirement products and services.
Our purpose and sustainability
Just has a strong purpose: we help people achieve a better later
life. We help our customers achieve security, certainty and peace
of mind.
We achieve our goals responsibly and are committed to a
sustainable strategy that protects our communities and the planet
we live in. The most material impact we can make to reduce carbon
emissions will be achieved through the decisions we take with our
investment portfolio, which currently exceeds GBP24bn. We are
diversifying these investments, investing in more sustainable
assets and reducing the carbon intensity of our entire asset
portfolio. We plan to become signatories of The Science Based
Targets Initiative ("SBTi") and we are committed to ensure that our
investment portfolio will have halved its emissions by 2030 and
will be carbon net zero by 2050. You can read more in our new
sustainability content available at justgroupplc.co.uk.
Our commitment to invest in sustainable assets is underscored by
our bond issuance programme. After becoming the first UK insurer to
issue a Green Bond in 2020, we continued to be a market innovator
by issuing a Sustainability RT1 Bond, the first of its kind in the
UK and European insurance sector.
Additionally we are aiming for our operations to be carbon net
zero in terms of emissions by 2025. I am very proud that over the
last two years we have reduced our operational carbon intensity per
employee by 85% and that we have achieved by far the lowest
intensity amongst life insurance companies operating in the FTSE
350(1) . However, there is still considerably more work to do over
the next few years to reach our goal of carbon net zero.
Customers
We have ambitious targets to continuously improve the customer
experience we deliver and are investing to enhance our digital
capabilities. For our business partners this will make Just easier
to do business with and provide our customers with more options to
engage with us.
Colleagues
During 2021 we successfully transitioned colleagues from
homeworking in light of COVID-19, to embracing hybrid ways of
working. The skills and commitments of our colleagues across the
Group have achieved external recognition from our business
partners. We were delighted to be named Company of the Year at the
Financial Adviser Service Awards for 2021 in recognition of the
outstanding service we have consistently delivered over the past
decade. In addition we achieved five star awards in both the
Pensions and Protection, and Mortgages categories.
We have a key priority to build a diverse workforce and
strengthen our inclusive culture. I am proud that we have increased
gender diversity across senior roles by a further three percentage
points in 2021. As a signatory to the Women in Finance Charter we
have pledged that 33% of our senior leaders will be female by 2023
and during 2021 we have committed to increasing the percentage of
senior leaders from a Black, Asian or Minority Ethnic background to
15%, in line with the percentage in the broader UK population.
Financial performance
Over the last two years we have moved successfully to a
profitable and sustainable growth model, as demonstrated by the
excellent 25% sales growth which has helped us to grow new business
profits by 13%. Adjusted IFRS operating profit is slightly reduced
due to a lower assumption change compared to 2020.
Our interest rate hedging programme has successfully protected
our solvency capital position, but the rise in interest rates
during the year has resulted in an economic loss, which means we
have a small overall IFRS loss before tax of GBP(21)m for 2021.
The strength and resilience of our overall capital position and
our ability to improve our underlying capital generation remain
extremely important metrics for us. In 2020 we delivered GBP18m
underlying organic capital generation ("UOCG") and set a target to
"at least double" this amount by 2022. We have achieved that one
year early in 2021 with GBP51m UOCG, helped by a new business
strain of 1.5%. This is a level of capital generation that gives us
more choice over capital allocation decisions, including the
ability to pay a sustainable dividend. We are pleased to report a
Solvency II capital coverage ratio at end 2021 of 164%, up from
156% at end 2020. We continue to be comfortable with our capital
coverage.
Geopolitical volatility
As I write this report Europe is facing military aggression and
we are carefully monitoring events. Our business has very limited
direct exposure resulting from the conflict but our thoughts are
with the many people impacted.
In conclusion
During this unprecedented period of the pandemic we are
continuing to ensure we live up to our purpose. I am very grateful
to my colleagues for their resilience, commitment and adaptability
during this period of changing working patterns. With our capital
base now strengthened we have shown that we can grow the business
sustainably. This means that we are able to help more people
achieve a better later life while also rewarding shareholders.
David Richardson
Group Chief Executive Officer
1 The determination of carbon intensity per employee is based on
published information from peer group companies from the UK FTSE
350 for 2020.
Business review
Sustainable growth in profits
Over the past two years, we have rebuilt the capital base and
achieved capital self-sufficiency. This, combined with the Group's
compelling propositions in the attractive UK retirement market
provide the foundation for the delivery of on-going sustainable
growth, which in turn delivers value for customers and
shareholders.
The Business Review presents the results of the Group for the
year ended 31 December 2021, including IFRS and Solvency II
information.
The business continues to benefit from the strong positive
progress in previous years, in particular a transformed, lower
capital intensity new business model, combined with a strengthened
and increasingly resilient capital base. Our new business franchise
delivered 25% growth in Retirement Income sales during 2021, with
strong momentum continuing into the first half of 2022. We continue
to maintain discipline in pricing and risk selection as we build on
our strong foundations and the Group moves forwards in the next
phase of its development to deliver sustainable long-term
growth.
We have a track record of delivering results that exceed our
commitments. After achieving the capital self-sufficiency milestone
more than a year earlier than originally planned, we have
subsequently almost trebled the underlying organic capital
generation, also a year ahead of target. This strong performance
was driven by our disciplined approach to acquiring business
through our highly successful new business franchise, which
delivers low levels of capital strain. We have eliminated the cost
overrun as planned. We have also successfully reduced our property
sensitivity, and in September, took advantage of favourable credit
market conditions to lower future debt interest costs.
The strong sales growth in 2021 helped achieve a 13% increase in
new business profit, to GBP225m, with sales of GBP2,674m up 25% and
a new business margin of 8.4% (2020: 9.3%). 2021 margins reflected
adjustments made to the asset mix backing the new business, tighter
credit spreads, in particular on lifetime mortgages, and a
significant increase in the proportion of DB deferred business
within the sales mix (2021: 38% of DB sales, 2020, 2% of DB sales).
DB deferred sales are more capital efficient, but are longer
duration with a lower upfront margin than pensioner in payment DB
and retail business. 2021 IFRS adjusted operating profit was
broadly unchanged at GBP238m (2020: GBP239m) as the increased new
business profit was offset by lower assumption changes and reduced
in-force profit (with 2020 boosted by increased credit spreads).
Rising interest rates led to IFRS losses from hedges we use to
protect the Solvency II balance sheet. Sales of LTM portfolios to
reduce the sensitivity of our Solvency II balance sheet to UK house
prices resulted in a loss of GBP161m. These two elements offset the
operating profit above, leading to an IFRS post tax loss of
GBP16m.
Underlying organic capital generation increased by GBP33m in
2021 to GBP51m (2020: GBP18m), even after writing significantly
higher new business volumes during the year. Our target to double
the 2020 result by 2022, but we have strongly exceeded that
objective one year early. The capital strain from writing new
business reduced to 1.5% (2020: 2.2%) reflecting continued pricing
discipline and risk selection, together with the increased
proportion of low capital strain DB deferred business in 2021.
Over the past 3 years we have implemented management actions to
reduce, the recurring core management expense cost base by 18%. In
2021, we achieved our target to successfully eliminate the new
business expense overrun in line with target.
The GBP51m of underlying organic capital generation contributed
towards a further strengthening of the Group's Solvency II capital
position. During the year, the Solvency II capital coverage ratio
increased to 164%(1) (2020: 156%(1) ), a level we continue to be
comfortable to operate at.
Recognising the strengthened financial position of the Group,
the Board has decided to re-introduce a dividend for the Group's
shareholders. Over the past two years, we have demonstrated our
ability to deliver significant growth in new business, at low
strain, our capital generation is now sufficient to fund our
on-going growth ambitions and pay a distribution to shareholders,
while continuing to maintain a comfortable capital position. We now
expect growth in new business and in-force profits to deliver on
average 15% growth per annum in our IFRS underlying operating
profit over the medium term.
In the second half of 2021, we completed an internal model
update, incorporating the new regulatory treatment of LTMs, which
was approved by the Prudential Regulation Authority in December
2021. The overall impact of the new model was a GBP33m decrease in
the capital surplus. This was more than offset by management
actions of GBP16m and other operating items including positive
mortality experience, which contributed GBP26m towards the capital
surplus.
Over the past three years, we have successfully taken action to
reduce the Group's exposure and sensitivity of the Solvency II
balance sheet to UK house prices. This has been achieved through a
combination of NNEG hedging, LTM portfolio sales and reducing the
LTM backing for new business. We have completed three NNEG risk
transfer hedges totalling GBP1.4bn and with the third LTM portfolio
sale announced in February 2022, we have also completed our planned
programme of portfolio sales (totalling GBP1.6bn of LTMs). The LTM
backing ratio for new business in 2021 at 18% was below our 20%
target. Taken together, our various property de-risking actions
have almost halved the Solvency II UK house price sensitivity to
close to 10% (for a 10% house price fall) a level at which we are
comfortable.
In 2022, we expect further clarification from HM Treasury
following its review of Solvency II and its consultation on the
Future Regulatory Framework ("FRF") Review for financial services
following the UK's exit from Europe. We anticipate progress in
helping the insurance industry to better support the government's
twin-pronged agenda of infrastructure development and decarbonising
the economy through an increased pool of matching adjustment
eligible assets, which we can invest in to back our customer
promises.
Financial markets have had limited impact on the Group's capital
position over the past two years, which demonstrates the resilience
of our balance sheet. Interest rates rose during 2021, the impact
of which was hedged in relation to our Solvency II position but
resulted in a loss for our IFRS balance sheet of GBP226m for the
year. We continue to monitor the effect of the interest rate
hedging programme on the IFRS result, with rates being volatile on
geopolitical and other macro-economic concerns such as inflation.
The key sensitivities of the Group's capital and financial position
to future economic and demographic factors are set out below and in
notes 17 and 23 of these financial statements.
Credit downgrades affecting 9% of the Group's corporate bond
portfolio were offset by credit upgrades on 8% of the portfolio as
the economy continues to recover. This led to a negligible GBP13m
reduction in the Solvency II surplus, which was more than offset by
GBP49m of positive capital impacts from portfolio management. We
are committed to further growing and diversifying the non-LTM
illiquid portfolio, in particular through continued investment in
infrastructure projects, commercial real estate, ground rents,
social housing and local authority loans. Our manager of managers
investment model for non-LTM illiquid assets has 13 active
originators, which provides a healthy pipeline of investment
opportunities, both domestic and international. Typically, going
forward, we expect non-LTM illiquids to back up to 30% of new
business, with LTMs backing up to 20% and liquid bonds/cash backing
the remainder.
At this time, the outlook for the economy continues to evolve,
as the world learns to live with COVID-19 and with heightened
geopolitical tensions associated with the conflict in Ukraine.
Inflation is likely to continue to be the dominant economic theme
in 2022, as central banks commence tightening of monetary policy to
combat rising prices. We expect these macro forces to have a
negligible effect on the Group's business model, with active
hedging to protect the Solvency II capital position and limited
impact from higher interest rates/inflation on demand for our
products. We have a strong, stable and more resilient capital base
and a low strain business model that is now generating substantial
on-going excess capital on an underlying basis. The foundations are
firmly in place to take advantage of the multiple growth
opportunities available in our attractive markets.
1 The 2020 Solvency II capital coverage ratio allows for a
notional recalculation of TMTP at 31 December 2020. In 2021, the
ratio includes the estimated impact of the biennial reset of TMTP
as at 31 December 2021 and the TMTP has been calculated excluding
the contribution from the LT Ms that have been sold on 22 February
2022.
Alternative performance measures and key performance
indicators
Within the Business Review, the Group has presented a number of
alternative performance measures ("APMs"), which are used in
addition to IFRS statutory performance measures. The Board believes
that the use of APMs gives a more representative view of the
underlying performance of the Group. The APMs used by the Group
are: return on equity, organic capital generation, underlying
organic capital generation, new business operating profit, in-force
operating profit, underlying operating profit, adjusted operating
profit before tax, Retirement Income sales, management expenses and
adjusted earnings per share. Further information on our APMs can be
found in the glossary, together with a reference to where the APM
has been reconciled to the nearest statutory equivalent.
The Board has also adopted a number of KPIs, which include
certain APMs, and which are considered to give an understanding of
the Group's underlying performance drivers. KPIs are regularly
reviewed against the Group's strategic objectives to ensure that we
continue to have the appropriate set of measures in place to assess
and report on our progress. During the second half of 2021 the
Group introduced two new KPIs, return on equity and underlying
operating profit, and discontinued organic capital generation as a
KPI. During the second half of 2020 the Group introduced two new
KPIs, management expenses, and underlying organic capital
generation, and discontinued in-force operating profit as a KPI.
These changes reflect the Group's focus on monitoring and
controlling its costs and growing capital, and provide a balance of
KPIs across capital, sales, expenses, profit and net assets. The
Group's KPIs are discussed in more detail on the following
pages.
The Group's KPIs are shown below:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm Change
========================================= ============ ============ =======
Return on equity(1) 9.4% 9.7% (0.3)pp
========================================= ============ ============ =======
Retirement Income sales(1) 2,674 2,145 25%
========================================= ============ ============ =======
Underlying organic capital generation(1) 51 18 183%
========================================= ============ ============ =======
New business operating profit(1) 225 199 13%
========================================= ============ ============ =======
Adjusted operating profit before tax(1) 238 239 -
========================================= ============ ============ =======
Underlying operating profit(1) 210 193 9%
========================================= ============ ============ =======
IFRS (loss)/profit before tax (21) 237 (109)%
========================================= ============ ============ =======
Management expenses(1) 147 159 (8)%
========================================= ============ ============ =======
31 December 31 December
2021 2020
GBPm GBPm Change
====================================== =========== =========== =======
Solvency II capital coverage ratio(2) 164% 156% 8pp
====================================== =========== =========== =======
IFRS net assets 2,440 2,490 (2)%
====================================== =========== =========== =======
1 Alternative performance measure, see glossary for definition.
2 This figure allows for a notional recalculation of TMTP as at
31 December 2020. In 2021, the figures include the estimated impact
of the biennial reset of the TMTP as at 31 December 2021 and the
TMTP has been calculated excluding the contribution from the LTMs
that have been sold on 22 February 2022.
Return on equity
The return on equity in the year to 31 December 2021 was 9.4%
(2020: 9.7%), based on adjusted operating profit after attributed
tax of GBP193m (2020: GBP194m) arising on average tangible net
assets of GBP2,048m (2020: GBP1,989m). Tangible net assets are
reconciled to IFRS total equity as follows:
31 December 31 December
2021 2020
GBPm GBPm
=============================================== =========== ===========
IFRS total equity 2,440 2,490
=============================================== =========== ===========
Less intangible assets (120) (134)
=============================================== =========== ===========
Less tax on amortised intangible assets 17 19
=============================================== =========== ===========
Less equity attributable to Tier 1 noteholders (322) (294)
=============================================== =========== ===========
Tangible net assets 2,015 2,081
=============================================== =========== ===========
Adjusted operating profit
Year ended Year ended
31 December 31 December
2021 2020 Change
GBPm GBPm %
============================================ ============ ============ ======
New business operating profit 225 199 13
============================================ ============ ============ ======
In-force operating profit 90 98 (8)
============================================ ============ ============ ======
Other Group companies' operating results (15) (17) (12)
============================================ ============ ============ ======
Development expenditure (7) (7) -
============================================ ============ ============ ======
Reinsurance and finance costs (83) (80) 4
============================================ ============ ============ ======
Underlying operating profit 210 193 9
============================================ ============ ============ ======
Operating experience and assumption changes 28 46 (39)
============================================ ============ ============ ======
Adjusted operating profit before tax(1) 238 239 -
============================================ ============ ============ ======
1 See reconciliation to IFRS Loss/profit before tax further in this Business Review.
Adjusted operating profit before tax
Adjusted operating profit before tax of GBP238m was broadly flat
in 2021 (2020: GBP239m) as higher new business profit was offset by
lower operating experience and assumption changes and in-force
operating profit.
Underlying operating profit
Underlying operating profit, which is the same as adjusted
operating profit before tax but excludes operating experience and
assumption changes, rose 9% to GBP210m.
New business operating profit
New business operating profit increased by 13% to GBP225m (2020:
GBP199m) driven by a 25% increase in Retirement Income sales to
GBP2,674m (2020: GBP2,145m). The new business margin achieved on
Retirement Income sales during the year was 8.4% (2020: 9.3%),
reflecting adjustments made to the asset mix backing the new
business, tighter credit spreads, in particular on lifetime
mortgages, and a significant increase in the proportion of DB
deferred business within the sales mix (2021: 38% of DB sales,
2020: 2% of DB sales).
Management expenses
Management expenses have decreased by 8% to GBP147m (2020:
GBP159m). A formal three year cost reduction programme concluded at
the end of 2021. Going forward, we will continue to maintain a
focus on cost control, with premium and business growth to outpace
costs, thus further improving operational leverage.
In-force operating profit
In-force operating profit decreased by 8% to GBP90m (2020:
GBP98m) with 2020 profit inflated due to the elevated credit
spreads following the onset of COVID-19. Aside from reduced profit
emerging due to credit spreads, the Group's in-force operating
profit benefited from a growing in-force book of business and
higher surplus assets.
Other Group companies' operating results
The operating result for other Group companies was a loss of
GBP15m in 2021 (2020: loss of GBP17m). These costs arise from the
holding company, Just Group plc, and the HUB group of
businesses.
Development expenditure
Development expenditure mainly relates to product development
and new initiatives, such as LTM medical underwriting and new
capital light products. It also includes preparations for the new
insurance accounting standard IFRS 17 and distribution improvements
such as online capability and digital access.
Reinsurance and finance costs
Reinsurance and finance costs include the coupon on the Group's
Restricted Tier 1 notes, as well as the interest payable on the
Group's Tier 2 and Tier 3 notes. The increase for the year is due
to a full 12 months of coupon on the Green GBP250m Tier 2 notes
issued in October 2020. In September 2021, we opportunistically
refinanced the 2019 issued Restricted Tier 1 bond and issued a new
GBP325m Sustainability Restricted Tier 1 bond. This discrete bond
refinancing will reduce the future interest costs on the RT1
component of the capital structure by GBP12m pre-tax per annum,
while also lengthening the maturity by at least 7.5 years, with a
call option available from March 2031.
Operating experience and assumption changes
The Group has paid close attention to developments as the
COVID-19 vaccine and subsequent booster programme rolls out across
the population, in particular with its customer base, many of whom
are in the more vulnerable category. The long-term impact of the
COVID-19 pandemic on the population, including the health of those
who recovered from the disease, the future efficacy of the various
vaccines and secondary impacts such as delayed diagnosis for other
illnesses or behavioural changes continue to be difficult to assess
with any confidence. Given this on-going uncertainty over the
impact of COVID-19 on longer term mortality, the Group has made no
changes to its long-term mortality assumptions at 31 December 2021,
but will continue to assess actively during 2022. Sensitivity
analysis is shown in notes 17 and 23, which sets out the impact on
the IFRS results from changes to key assumptions, including
mortality and property.
Overall, positive operating experience and assumption changes of
GBP28m were reported in 2021 (2020: GBP46m). The overall net GBP33m
of positive experience variance reflected the largely COVID-19
driven impact of increased mortality in our annuitant customers,
offset by increased early redemptions, in part mortality driven,
within our LTM book. Assumption changes were negligible and
combined to a GBP5m reserve strengthening. In 2020, assumption
changes driven by the adoption of CMI_19 across our product range
combined to a net GBP26m release.
On a statutory IFRS basis, the Restricted Tier 1 coupon is
accounted for as a distribution of capital, consistent with the
classification of the Restricted Tier 1 notes as equity, but the
coupon is included as a finance cost on an adjusted operating
profit basis.
Retirement income sales
Year ended Year ended
31 December 31 December
2021 2020 Change
GBPm GBPm %
============================================== ============ ============ ======
Defined Benefit De-risking Solutions ("DB") 1,935 1,508 28
============================================== ============ ============ ======
Guaranteed Income for Life Solutions ("GIfL") 688 586 17
============================================== ============ ============ ======
Care Plans ("CP") 51 51 -
============================================== ============ ============ ======
Retirement Income sales 2,674 2,145 25
============================================== ============ ============ ======
Retirement Income sales for 2021 increased by 25% to GBP2,674m
(2020: GBP2,145m).
DB sales were GBP1,935m, an increase of 28%, and a record for
the Group. In early 2021 we expanded our proposition in the DB
de-risking market to meet fully the needs of schemes and trustees.
As a consequence of multi-year de-risking journeys, scheme funding
levels across the industry have improved. This has increased the
deferred part of the DB market with more schemes able to afford
full scheme de-risking and buyout as opposed to pensioner only
de-risking. We expect this trend to continue. Adding DB deferred
capability to our proposition has enhanced the opportunity
available to us in the GBP2.3tn DB liability market, thus
increasing our ability to risk select and triage the industry
pipeline. The defined benefit de-risking market was subdued in the
first half of 2021, however activity rebounded in the second half.
For the year as a whole, we completed 29 transactions (2020: 23
transactions). Our efforts in 2021 were recognised by being named
"Risk Management Provider of the Year" at the Pensions Age awards
in February 2022.
The heightened activity in the second half of 2021 has created
strong momentum in the market year to date. Willis Towers Watson
are predicting a GBP40bn buy-in/buy-out market in 2022 (Just
estimate GBP28-30bn in 2021), with the long-term growth opportunity
even more substantial. Lane Clark Peacock ("LCP") have cumulatively
forecast GBP150-GBP250bn of buy-in/buy-out transactions over the
next five years, and thereafter rising beyond GBP50bn per annum,
potentially to GBP100bn per annum by 2030, as funding deficits
amongst the largest pension schemes are gradually closed. Up to
GBP650bn of DB buy-in and buy-out transactions are forecast over
the decade to 2030.
GIfL sales increased by 17% to GBP688m for 2021, recovering
strongly following the COVID-19 related sales disruption in the
first half of 2020. Retail sales (GIfL and Care) in 2021 were 8%
higher than 2019 levels. In recognition of the outstanding service
we deliver, we were named Company of the Year at the recent
Financial Adviser Service Awards, as well as achieving five stars
in both the Pensions and Protection, and Mortgages categories.
Economic uncertainty has demonstrated to customers the importance
and security of a guaranteed income. We continue to invest in our
proposition, and launched a refreshed version of our medical
underwriting engine PrognoSys(TM) during 2021. Care sales were
subdued and remain impacted by customer behaviour changes due to
the pandemic, remaining at less than 2% of Retirement Income
sales.
Other new business sales
Lifetime Mortgage advances were GBP528m for 2021 (2020:
GBP512m), an increase of 3%. The LTM backing ratio for new business
was 18%, which is below our target of 20%, and aided by the change
in sales mix as DB deferred sales are fully backed by bonds and
non-LTM illiquids. 2021 also includes GBP40m of LTM origination on
behalf of a third party (2020: GBP36m). The Group does not hold an
economic exposure for these assets; instead it earns a fee for
originating and administering these loans. In line with other
assets, LTM spreads compressed somewhat during the first half of
the year as risk-free rates rose, which impacted the new business
margin. In the second half, the market repriced and LTM spreads
partially widened back out.
We continue to be selective in the mortgages we originate, as we
use our market insight and distribution to target certain
sub-segments of the market, for example shorter duration loans to
older borrowers, and/or customers with sufficient income to service
interest on their borrowings. During 2021, we introduced medical
underwriting across the entire lifetime mortgage range and also
signed an exclusive distribution agreement with Saga. Increased
investment in LTM digital capabilities and proposition has been
well received by financial advisers, and contributed to the five
star awards mentioned above.
Adjusted Earnings per share
Adjusted EPS (based on adjusted operating profit after
attributed tax) has decreased from 18.8 pence for 2020, to 18.7
pence for 2021.
Year ended Year ended
31 December 31 December
2021 2020
============================================ ============ ============
Adjusted earnings (GBPm) 193 194
============================================ ============ ============
Weighted average number of shares (million) 1,034 1,031
============================================ ============ ============
Adjusted EPS(1) (pence) 18.7 18.8
============================================ ============ ============
1 Alternative performance measure, see glossary for definition.
Earnings per share
Year ended Year ended
31 December 31 December
2021 2020
============================================ ============ ============
Earnings (GBPm) (35) 166
============================================ ============ ============
Weighted average number of shares (million) 1,034 1,031
============================================ ============ ============
EPS (pence) (3.4) 16.1
============================================ ============ ============
Reconciliation of operating profit to statutory IFRS results
The tables on the following pages present the Group's results on
a statutory IFRS basis.
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
========================================================== ============ ============
Adjusted operating profit before tax 238 239
========================================================== ============ ============
Non-recurring and project expenditure (15) (13)
========================================================== ============ ============
Implementation of cost saving initiatives - (8)
========================================================== ============ ============
Investment and economic (losses)/profits (251) 9
========================================================== ============ ============
Interest adjustment to reflect IFRS accounting for Tier 1
notes as equity 25 28
========================================================== ============ ============
Amortisation costs (18) (18)
========================================================== ============ ============
IFRS (loss)/profit before tax (21) 237
========================================================== ============ ============
Non-recurring and project expenditure
Non-recurring and project expenditure was GBP15m (2020: GBP13m).
This included support for the internal model change to incorporate
recent regulatory changes for LTMs, and updating for best practice
since the model was first incorporated in December 2015. We plan to
move PLACL from standard formula onto a Group internal model over
the next 12-18 months. There were also a number of smaller project
costs such as LTM portfolio sales. The Group continues to improve
its business processes, and increase efficiency by investing in
systems, which will lead to long-term cost and control
benefits.
Investment and economic (losses)/profits
Year ended Year ended
31 December 31 December
2021 2020
========================================= ============ ============
Change in interest rates (226) 360
========================================= ============ ============
Credit spreads 57 (14)
========================================= ============ ============
Property growth experience 56 (34)
========================================= ============ ============
House price inflation assumption change - (166)
========================================= ============ ============
Sale of LTM portfolio (161) (136)
========================================= ============ ============
Other 23 (1)
========================================= ============ ============
Investment and economic (losses)/profits (251) 9
========================================= ============ ============
Investment and economic losses for 2021 were GBP251m (2020:
GBP9m profit). The main driver for the large difference compared to
the prior year is the increase in risk-free rates during the year,
which contributed losses of GBP226m compared to a gain of GBP360m
when interest rates fell during 2020. The Group actively hedges its
interest rate exposure to protect the Solvency II capital position,
but in doing so we accept the accounting volatility that ensues. We
have adjusted our hedging structure during 2022 to better balance
hedging of the solvency position whilst minimising the cost in
IFRS, should rates rise over 2022. Other movements cancelled each
other as the GBP161m cost from the second in our planned programme
of LTM portfolio sales has been offset by positives from narrower
credit spreads (GBP57m), positive property growth experience
(GBP56m) and minimal corporate bond defaults within our portfolio
during the period (2020: no defaults). In the prior year, credit
spreads widened, property growth was below our long term
assumption, and we reduced the house price inflation assumption by
0.5% to 3.3%, which led to a GBP166m reserve strengthening.
Further details and sensitivities to changes in property
assumptions are given in notes 17 and 23 of the financial
statements.
Amortisation of acquired intangibles
Amortisation mainly relates to the acquired in-force business
asset relating to Partnership Assurance Group plc, which is being
amortised over ten years in line with the expected run-off of the
in-force business.
Capital management
Just Group plc estimated Solvency II capital position
The Group's coverage ratio was estimated at 164% at 31 December
2021 after recalculation of transitional measures on technical
provisions ("TMTP") (31 December 2020: 156% after a notional
recalculation of TMTP). The Solvency II capital coverage ratio is a
key metric and is considered to be one of the Group's KPIs.
31 December 31 December
2021 2020
Unaudited GBPm GBPm
============================= =========== ===========
Own funds 3,004 3,014
============================= =========== ===========
Solvency Capital Requirement (1,836) (1,938)
============================= =========== ===========
Excess own funds 1,168 1,076
============================= =========== ===========
Solvency coverage ratio(1) 164% 156%
============================= =========== ===========
1 This figure allows for a notional recalculation of TMTP as at
31 December 2020. In 2021, the figures include the estimated impact
of the biennial reset of the TMTP as at 31 December 2021 and the
TMTP has been calculated excluding the contribution from the LTMs
that have been sold on 22 February 2022.
The Group has approval to apply the matching adjustment and TMTP
in its calculation of technical provisions and uses a combination
of an internal model and the standard formula to calculate its
Group Solvency Capital Requirement ("SCR").
Movement in excess own funds(1)
The table below analyses the movement in excess own funds, in
the year ended 31 December 2021.
2021 2020
Unaudited GBPm GBPm
============================================= ===== =====
Excess own funds at 1 January 1,076 748
============================================= ===== =====
Operating
============================================= ===== =====
In-force surplus net of TMTP amortisation(2) 191 174
============================================= ===== =====
New business strain (40) (48)
============================================= ===== =====
Finance cost (71) (66)
============================================= ===== =====
Group and other costs (29) (42)
============================================= ===== =====
Underlying organic capital generation 51 18
============================================= ===== =====
Other 42 203
============================================= ===== =====
Total organic capital generation(3) 93 221
============================================= ===== =====
Non-operating
============================================= ===== =====
Accelerated TMTP amortisation - (24)
============================================= ===== =====
Regulatory changes (38) (19)
============================================= ===== =====
Economic movements 56 37
============================================= ===== =====
T2 and equity issuance, net of costs(4) (19) 113
============================================= ===== =====
Excess own funds at 31 December 1,168 1,076
============================================= ===== =====
1 All figures are net of tax, and reflect the estimated impact
of a TMTP recalculation as at 31 December 2021. Figures for 2020
include a notional recalculation of TMTP where applicable.
2 The in-force line excludes the accelerated amortisation of a
portion of TMTP which has been shown separately.
3 Organic capital generation includes surplus from in-force, new
business strain, overrun and other expenses, interest and dividends
and other operating items. It excludes economic variances,
regulatory changes, accelerated TMTP amortisation, and capital
issuance.
4 2020 figure is PLACL's Tier 2 bond which was called in March 2020.
Underlying Organic capital generation
GBP51m of underlying organic capital generation in 2021, whilst
delivering new business premium growth of 25%, was an outstanding
result. We more than achieved our target of doubling 2020
underlying organic capital generation of GBP18m by 2022, and did so
a year early. At this level of underlying organic capital
generation we believe the business is delivering sufficient
on-going capital generation to support decisions on the deployment
of capital between supporting further profitable growth, providing
returns to our capital providers and further investment in the
strategic growth of the business.
The improvement in underlying organic capital generation has
benefitted from the on-going focus across the business on
minimising new business capital strain. In 2021, new business
strain fell by a further GBP8m to GBP40m, which represents 1.5% of
new business premium (2020: 2.2%). This outperformance was driven
by continued pricing discipline and risk selection, together with
an increased proportion of the DB deferred business within the
sales mix, following enhancements to our proposition in 2020.
Capital light DB deferred business represented 38% of total DB
sales in 2021 (2020: 2%). In-force surplus has continued to
increase as the size of the in-force book grows. Group and other
costs includes GBP11m (2020 GBP10m) of non-life costs previously
included in in-force surplus. Finance costs have peaked and are
expected to materially decline in future as we gradually refinance
the outstanding debt to coupons more commensurate to our credit
rating and representative of the progress made to reduce risks and
improve capital generation over the past three years. We also
completed our three year cost-base reduction programme, which
contributed towards eliminating the cost overruns in line with our
2021 target (2020: GBP8m overruns).
The GBP18m of expenses incurred include development (GBP6m) and
non-recurring (GBP12m) costs. Management actions and other
contributed GBP42m to the capital surplus, leading to a total of
GBP93m from organic capital generation.
Non-operating items
Included within regulatory changes is the impact of the major
model change (GBP33m) and the transition of the Solvency II
prescribed risk-free rates from LIBOR to SONIA, offset by the
positive impact of the corporation tax rate changes, which
increases the Group's deferred tax assets.
Economic movements included a positive property variance of
GBP82m due to actual property price growth of over 9% during 2021
being in excess of our 3.3% long-term growth assumption, offset by
an adjustment to move to individual updated property prices
calculated across our portfolio, rather than using the ONS index.
This gain was offset by a negative GBP76m from higher interest
rates (though largely neutral for the solvency ratio) and the net
GBP19m upfront cost of the RT1 refinancing, which will benefit the
Group's underlying organic capital generation in the longer term
through lower financing costs. The cost of credit migration during
the year was GBP13m, significantly less than 1% reduction in the
Solvency II capital coverage ratio, as credit conditions remained
benign.
The property sensitivity has reduced to 11% on a pro forma
basis, taking into account the third LTM portfolio sale completed
post year end (31 December 2020: 14% and a peak of 20% on 30 June
2019). We expect that by maintaining a reduced LTM backing ratio of
c.20% on new business and selective NNEG hedges where commercially
attractive, we will contain the Solvency II sensitivity to house
prices to at or below this level over time. Note that the credit
quality step downgrade sensitivity below, as well as being a severe
stress requiring a significant downgrade in credit quality for 20%
of our credit portfolio, does not allow for the positive impact
from credit portfolio management during a time of stress.
Sensitivities to economic and other key metrics are shown in the
table below.
Estimated Group Solvency II sensitivities(1)
Unaudited % GBPm
================================================================== ==== =====
Solvency coverage ratio/excess own funds at 31 December
2021(2) 164 1,168
================================================================== ==== =====
-50 bps fall in interest rates (with TMTP recalculation) (4) 42
================================================================== ==== =====
+100 bps credit spreads 2 5
================================================================== ==== =====
Credit quality step downgrade (with TMTP recalculation)(3) (8) (156)
================================================================== ==== =====
+10% LTM early redemption 1 4
================================================================== ==== =====
-10% property values (with TMTP recalculation)(4) (12) (197)
================================================================== ==== =====
-10% property values post LTM sale (with TMTP recalculation)(4,5) (11) (178)
================================================================== ==== =====
-5% mortality (12) (210)
================================================================== ==== =====
1 In all sensitivities the Effective Value Test ("EVT")
deferment rate is maintained at the level consistent with base
balance sheet, except for the interest rate sensitivity where the
deferment rate reduces in line with the reduction in risk-free
rates but is subject to the minimum deferment rate floor of 0.50%
as at 31 December 2021 (0% as at 31 December 2020).
2 Sensitivities are applied to the reported capital position
which includes a TMTP recalculation.
3 Sensitivity shows the impact of an immediate full letter
downgrade on 20% of assets where the capital treatment depends on a
credit rating (including corporate bonds, commercial mortgages and
infrastructure loans), but excludes lifetime mortgage senior notes.
All credit assets were grouped into rating class, then 20% of each
group were downgraded.
4 After application of NNEG hedges.
5 Including the impact of the February 2022 LTM portfolio sale.
Reconciliation of IFRS total equity to Solvency II own funds
31 December 31 December
2021(1) 2020
Unaudited GBPm GBPm
======================================================= =========== ===========
Shareholders' net equity on IFRS basis 2,440 2,490
======================================================= =========== ===========
Goodwill (34) (34)
======================================================= =========== ===========
Intangibles (86) (100)
======================================================= =========== ===========
Solvency II risk margin (759) (846)
======================================================= =========== ===========
Solvency II TMTP(1) 1,657 2,106
======================================================= =========== ===========
Other valuation differences and impact on deferred tax (987) (1,391)
======================================================= =========== ===========
Ineligible items (3) (5)
======================================================= =========== ===========
Subordinated debt 781 795
======================================================= =========== ===========
Group adjustments (5) (1)
======================================================= =========== ===========
Solvency II own funds(1) 3,004 3,014
======================================================= =========== ===========
Solvency II SCR(1) (1,836) (1,938)
======================================================= =========== ===========
Solvency II excess own funds(1) 1,168 1,076
======================================================= =========== ===========
1 These figures allow for a notional recalculation of TMTP as at
31 December 2020. In 2021, the figures include the estimated impact
of the biennial reset of TMTP as at 31 December 2021 and the TMTP
has been calculated excluding the contribution from LTMs that have
been sold on 22 February 2022.
Reconciliation from regulatory capital surplus to reported
capital surplus
31 December 31 December 31 December 31 December
2021 2021 2020 2020
GBPm % GBPm %
=============================== =========== =========== =========== ===========
Regulatory capital surplus 1,168 164 1,071 155
=============================== =========== =========== =========== ===========
Notional recalculation of TMTP - - 5 1
=============================== =========== =========== =========== ===========
Reported capital surplus 1,168 164 1,076 156
=============================== =========== =========== =========== ===========
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.
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
========================================== ============ ============
Gross premiums written 2,676 2,148
========================================== ============ ============
Reinsurance premiums ceded (23) (232)
========================================== ============ ============
Reinsurance recapture - 940
========================================== ============ ============
Net premium revenue 2,653 2,856
========================================== ============ ============
Net investment income (130) 1,778
========================================== ============ ============
Fee and commission income 16 11
========================================== ============ ============
Total revenue 2,539 4,645
========================================== ============ ============
Net claims paid (1,141) (1,000)
========================================== ============ ============
Change in insurance liabilities (1,039) (2,983)
========================================== ============ ============
Change in investment contract liabilities (1) (2)
========================================== ============ ============
Acquisition costs (49) (44)
========================================== ============ ============
Other operating expenses (193) (220)
========================================== ============ ============
Finance costs (137) (159)
========================================== ============ ============
Total claims and expenses (2,560) (4,408)
========================================== ============ ============
(Loss)/profit before tax (21) 237
========================================== ============ ============
Income tax 5 (44)
========================================== ============ ============
(Loss)/profit after tax (16) 193
========================================== ============ ============
Gross premiums written
Gross premiums written for the year were GBP2,676m, an increase
of 25% compared to the prior period (2020: GBP2,148m). As discussed
above, this reflects the strong growth in Retirement Income new
business premiums, driven by growth in DB deferred and GIfL
business.
Reinsurance premiums ceded
Reinsurance premiums ceded (expense of GBP23m) has decreased
significantly in the current period as the first six months of 2020
included a one-off reinsurance expense in relation to a pioneering
DB partnering transaction.
Reinsurance recapture
During 2020, the Group recaptured all of the remaining quota
share reinsurance arrangements held by its subsidiary Just
Retirement Limited ("JRL"). These reinsurance treaties included
financing arrangements, which allowed a capital benefit under the
old Solvency I regime. The treaties allowed the recapture of
business once the financing loan from the reinsurer had been
repaid, and the Group has now fully repaid all such financing
arrangements.
Net premium revenue
Net premium revenue has decreased by 7% to GBP2,653m (2020:
GBP2,856m), as the one-off reinsurance recapture and premiums ceded
described above more than offset the increase in gross premiums
written.
Net investment income
Net investment income decreased to an expense of GBP130m (2020:
income of GBP1,778m). 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. There has been an
increase in risk-free rates during the year which has resulted in
unrealised losses in relation to assets held at fair value, and
hence the swing from income to expense, as in the prior period,
interest rates fell. We closely match our assets and liabilities,
hence fluctuations in interest rates will drive both sides of the
IFRS balance sheet. We actively hedge interest rate exposure to
protect the Solvency II capital position and in doing so we accept
the accounting volatility.
Net claims paid
Net claims paid increased to GBP1,141m (2020: GBP1,000m)
reflecting the continuing growth of the in-force book.
Change in insurance liabilities
Change in insurance liabilities was GBP1,039m for the current
year (2020: GBP2,983m). The decrease is principally due to an
increase in the valuation interest rate due to the rise in
risk-free rates noted above. The prior period also reflected a
reinsurance recapture.
Acquisition costs
Acquisition costs have increased to GBP49m (2020: GBP44m),
mainly due to a 3% increase in LTM origination to fund the 25%
increase in new business premiums, which are now backed by a
reduced LTM ratio.
Other operating expenses
Other operating expenses decreased to GBP193m in the current
year from GBP220m in 2020. This reduction reflects the benefit of
the cost saving initiatives carried out over the past three
years.
Finance costs
The Group's overall finance costs decreased to GBP137m (2020:
GBP159m). The main driver relates to a reduction in reinsurance
deposits, which have fallen in line with the GBP940m reinsurance
recaptures made at the end of 2020, as mentioned above. This
decrease was partly offset by a full year of interest on the Tier 2
loan notes issued in October 2020. Note that the coupon on the
Group's Restricted Tier 1 notes is recognised as a capital
distribution directly within equity and not within finance
costs.
Income tax
Income tax for the year ended 31 December 2021 was a credit of
GBP5m (2020: charge of GBP44m). The effective tax rate of 26.4%
(2020: 18.7%) is 7.4% higher than the standard 19% corporation tax
rate. This is due to the small base of profit/loss for 2021
compared to 2020 leading to the impact of tax adjustments having a
far more significant impact on the effective tax rate than in
2020.
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 31 December
2021 2020
GBPm GBPm
=========================================================== =========== ===========
Assets
=========================================================== =========== ===========
Financial investments 24,682 23,270
=========================================================== =========== ===========
Reinsurance assets 2,808 3,132
=========================================================== =========== ===========
Other assets 858 1,771
=========================================================== =========== ===========
Total assets 28,348 28,173
=========================================================== =========== ===========
Share capital and share premium 199 198
=========================================================== =========== ===========
Other reserves 948 949
=========================================================== =========== ===========
Accumulated profit and other adjustments 973 1,051
=========================================================== =========== ===========
Total equity attributable to ordinary shareholders of Just
Group plc 2,120 2,198
=========================================================== =========== ===========
Tier 1 notes 322 294
=========================================================== =========== ===========
Non-controlling interest (2) (2)
=========================================================== =========== ===========
Total equity 2,440 2,490
=========================================================== =========== ===========
Liabilities
=========================================================== =========== ===========
Insurance liabilities 21,813 21,118
=========================================================== =========== ===========
Reinsurance liabilities 275 267
=========================================================== =========== ===========
Other financial liabilities 2,866 3,305
=========================================================== =========== ===========
Insurance and other payables 93 92
=========================================================== =========== ===========
Other liabilities 861 901
=========================================================== =========== ===========
Total liabilities 25,908 25,683
=========================================================== =========== ===========
Total equity and liabilities 28,348 28,173
=========================================================== =========== ===========
Financial investments
During the year, financial investments increased by GBP1.4bn to
GBP24.7bn (2020: GBP23.3bn), as investment of the Group's new
business premiums and credit spread narrowing was offset by
increases in risk-free rates during the period. The credit quality
of the corporate bond portfolio has improved, with 54% of the
Group's corporate bond and gilts portfolio rated A or above (2020:
50%), as upgrades across the portfolio and an increase in
Government investments offset downgrades. Our diversified portfolio
continues to grow and is well balanced across a range of industry
sectors and geographies. Accommodative central bank and fiscal
stimulus during 2021 led to continued credit spread tightening,
however, in 2022, we expect various government asset purchase
programmes in response to the pandemic to be gradually unwound. At
the same time, central banks are expected to raise base rates from
their historical low levels to counteract the effect of inflation,
albeit inflation momentum is expected to soften in the second half
of 2022. In the longer term, a normalisation of central bank
and
government fiscal policy is welcome, as interest rates remain
extremely low compared to historical levels.
Credit rating agencies had been slow to restore previously
downgraded companies or corporates to a level our fundamental
credit analysis supports, which provides opportunities to increase
our exposure to certain sectors that will benefit from the economic
growth expected. The Group has selectively added to its consumer
(staples), energy, basic materials and infrastructure investments,
with minor rotational changes during the year as we reduced
exposure to banks and real estate including REITs.
During the year, we continued to invest in commercial mortgages,
income strips, social housing, and have separately disclosed ground
rents for the first time. These illiquid real estate investments
are typically much longer duration and very beneficial to match the
DB deferred liabilities. Government investments increased by over
GBP1bn as the Group temporarily invested excess cash, however this
is expected to be recycled into other corporate bonds and illiquid
assets during 2022 as opportunities arise. We also received UK
gilts as part of the August 2020 LTM sale proceeds and invested in
both developed and emerging market sovereign bonds.
The Group has limited exposure to those sectors that are most
sensitive to structural change, such as auto manufacturers and
consumer (cyclical), while the BBB-rated bonds are weighted towards
the most defensive sectors including utilities, communications and
technology, and infrastructure. During the year, we sold GBP157m of
bonds, including those that were most exposed to downgrade. We
constantly review the sector allocations and within those, take the
opportunity to trade out of individual names to stay ahead of
credit rating agency actions, whilst maintaining
diversification.
At 31 December 2021, the Group had ample liquidity. We continue
to prudently manage the balance sheet by hedging all foreign
exchange and inflation exposure, while maintaining an extensive
interest rate hedging programme, which is primarily designed to
protect against movements in the Solvency II capital coverage
ratio. Our interest rate hedging has been adapted during the latter
stages of 2021 and into 2022 to provide a better balance between
solvency protection and IFRS cost, in particular as rates rise.
The loan-to-value ratio of the mortgage portfolio was 36.1%
(2020: 36.1%), reflecting strong property growth across our
geographically diversified portfolio, which offsets interest
roll-up. Lifetime mortgages at GBP7.4bn decreased by a further 5
percentage points to 30% of total financial investments. In August
2021, we completed a second LTM portfolio sale, and post year end
completed a third LTM portfolio sale. In total the Group has
disposed of GBP1.6bn of lifetime mortgages as part of our objective
to reduce the sensitivity of the capital position to house price
movements, which at 11% pro forma capital ratio impact for a 10%
fall in UK house prices is now at a level at which we are
comfortable. At the present time, further portfolio sales are not
envisaged as the sensitivity is expected to be contained around
10%. The value of LTMs post the latest portfolio sales is expected
to be 27% of our investment assets. With a lower new business
backing ratio, we anticipate the LTM proportion will fall to around
25% over time. Furthermore, during 2021 and continuing into 2022,
the increase in long-term interest rates has decreased the value of
LTMs on our balance sheet.
Other Illiquid assets and Environmental, Social and Governance
investing
During the year, the Group originated GBP615m (2020: GBP485m) of
new investments in other illiquid assets including infrastructure,
real estate investments mentioned above and private placements.
Just has invested GBP3.0bn of other illiquid assets, representing
12.3% (2020: 11.2%) of the total financial investments portfolio.
We anticipate that the upcoming Solvency II reform will broaden the
matching adjustment eligibility criteria, which will create
opportunities to invest in line with the Government "levelling up"
agenda through infrastructure, decarbonising the economy and
investment in science and research. Many of the other illiquids are
invested in a range of ESG assets including renewable energy,
social housing and local authority loans. We have invested GBP1.6bn
in dedicated ESG assets (10.3% of GBP15.3bn corporate/government
bond portfolio). By the end of 2021, we had already completed our
Green bond GBP250m investment commitment, a little over a year
after issuance, and have completed over half of the GBP325m
Sustainable bond investment commitment. We are on track to complete
our total GBP575m investment in green and social asset commitment
by the end of 2022. The Green/Sustainability bond allocation report
is available on https://www.justgroupplc.co.uk/investors/esg.
The following table provides a breakdown by credit rating of
financial investments, including privately rated investments
allocated to the appropriate rating.
31 December 31 December 31 December 31 December
2021 2021 2020 2020
GBPm % GBPm %
=================== =========== =========== =========== ===========
AAA(1) 2,448 10 2,197 9
=================== =========== =========== =========== ===========
AA(1) and gilts 3,194 13 1,989 9
=================== =========== =========== =========== ===========
A(2) 4,384 18 4,136 18
=================== =========== =========== =========== ===========
BBB 6,500 26 6,024 26
=================== =========== =========== =========== ===========
BB or below 388 1 408 2
=================== =========== =========== =========== ===========
Unrated/Other 414 2 255 1
=================== =========== =========== =========== ===========
Lifetime mortgages 7,423 30 8,261 35
=================== =========== =========== =========== ===========
Total(2) 24,751 100 23,270 100
=================== =========== =========== =========== ===========
1 Includes units held in liquidity funds.
2 Includes investment in trust which holds ground rent
generating assets which are included in investment properties in
the IFRS consolidated statement of financial position.
The sector analysis of the Group's financial investments
portfolio is shown below and continues to be well diversified
across a variety of industry sectors.
31 December 31 December 31 December 31 December
2021 2021 2020 2020
GBPm % GBPm %
======================================== =========== =========== =========== ===========
Basic materials 264 1.1 200 0.9
======================================== =========== =========== =========== ===========
Communications and technology 1,430 5.8 1,189 5.1
======================================== =========== =========== =========== ===========
Auto manufacturers 319 1.3 385 1.7
======================================== =========== =========== =========== ===========
Consumer (staples including healthcare) 1,174 4.7 977 4.2
======================================== =========== =========== =========== ===========
Consumer (cyclical) 187 0.7 113 0.5
======================================== =========== =========== =========== ===========
Energy 633 2.6 463 2.0
======================================== =========== =========== =========== ===========
Banks 1,192 4.8 1,422 6.1
======================================== =========== =========== =========== ===========
Insurance 845 3.4 825 3.5
======================================== =========== =========== =========== ===========
Financial - other 481 1.9 462 2.0
======================================== =========== =========== =========== ===========
Real estate including REITs 661 2.7 771 3.3
======================================== =========== =========== =========== ===========
Government 2,415 9.7 1,340 5.8
======================================== =========== =========== =========== ===========
Industrial 920 3.7 840 3.6
======================================== =========== =========== =========== ===========
Utilities 2,302 9.3 2,030 8.7
======================================== =========== =========== =========== ===========
Commercial mortgages 678 2.7 592 3.0
======================================== =========== =========== =========== ===========
Ground rents(1) 263 1.1 115 -
======================================== =========== =========== =========== ===========
Infrastructure 1,474 6.0 1,220 5.2
======================================== =========== =========== =========== ===========
Other 38 0.2 38 0.2
======================================== =========== =========== =========== ===========
Corporate/government bond total 15,276 61.7 12,982 55.8
======================================== =========== =========== =========== ===========
Lifetime mortgages 7,423 30.0 8,261 35.5
======================================== =========== =========== =========== ===========
Liquidity funds 1,311 5.3 1,129 4.8
======================================== =========== =========== =========== ===========
Derivatives and collateral 741 3.0 898 3.9
======================================== =========== =========== =========== ===========
Total(1) 24,751 100.0 23,270 100.0
======================================== =========== =========== =========== ===========
1 Includes investment in trust which holds ground rent
generating assets which are included in investment properties in
the IFRS consolidated statement of financial position.
Reinsurance assets and liabilities
Reinsurance assets decreased to GBP2,808m at 31 December 2021
(2020: GBP3,132m) as the reinsurance quota share treaties gradually
run-off. Since the introduction of Solvency II in 2016, the Group
has increased its use of reinsurance swaps rather than quota share
treaties. Reinsurance liabilities relate to liability balances in
respect of the Group's longevity swap arrangements.
Other assets
Other assets decreased to GBP858m at 31 December 2021 (2020:
GBP1,771m). These assets mainly comprise cash, and intangible
assets. The Group holds significant amounts of assets in cash, so
as to protect against liquidity stresses. During 2020 the Group
significantly increased the amount of assets held in cash so as to
safeguard against market volatility. The reduction in 2021 reflects
a more stable operating environment and reduced market
volatility.
Insurance liabilities
Insurance liabilities increased to GBP21,813m at 31 December
2021 (2020: GBP21,118m). The increase in liabilities arose from the
new business premiums written during the year, which was offset by
an increase to the valuation rate of interest over the period.
Other financial liabilities
Other financial liabilities decreased to GBP2,866m at 31
December 2021 (2020: GBP3,305m). These liabilities mainly relate to
deposits received from reinsurers, together with derivative
liabilities and cash collateral received. The reduction from the
prior year relates to corresponding reduction in reinsurance assets
as mentioned above and lower amounts of derivatives and collateral,
given the reduced market volatility.
Other liabilities
Other liability balances decreased to GBP861m at 31 December
2021 (2020: GBP901m), due to reductions in the deferred tax
liability and accruals.
IFRS net assets
The Group's total equity at 31 December 2021 was GBP2,440m
(2020: GBP2,490m) at 31 December 2020. Total equity includes the
Restricted Tier 1 notes of GBP322m (after issue costs) issued by
the Group in September 2021, which refinanced GBP294m of higher
coupon Restricted Tier 1 notes issued in 2019. Including the
upfront cost of the refinancing, total equity attributable to
ordinary shareholders decreased from GBP2,198m to GBP2,120m
resulting in net asset value per ordinary share of 204p (2020:
212p).
Dividends
Reflecting our strong performance in 2021, improved capital
position and confidence in our future performance, the Board is
recommending a final dividend of 1.0p (GBP10m). In the near term,
we expect to deploy the majority of capital we generate to support
the new business available to us in the DB and GIfL markets, whilst
supporting an on-going sustainable dividend, which we would expect
to grow over time.
From 2022 onwards, we intend to declare dividends twice annually
with an interim dividend to be declared at our interim results in
August and paid in September and the final dividend to be declared
at the final results in March and paid in May. In future we would
expect the interim dividend to be approximately one third of the
prior year full year dividend and if this policy had applied for
2021 as a whole the equivalent dividend for the full year would
have been 1.5p (GBP15m).
ANDY PARSONS
Group Chief Financial Officer
Risk management
The Group's enterprise-wide risk management strategy is to
enable all colleagues to take more effective business decisions
through a better understanding of risk.
PURPOSE
The Group risk management framework supports management in
making decisions that balance the competing risks and rewards. This
allows them to generate value for shareholders, deliver appropriate
outcomes for customers and provide 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 framework, owned by the Board, covers all aspects
involved in the successful management of risk, including
governance, reporting and policies. Our appetite for different
types of risk is embedded across the business to create a culture
of confident risk-taking. The framework is continually developed to
reflect our risk environment and emerging best practice. Over the
past year it has been enhanced to facilitate the identification,
assessment and reporting of risks arising from climate change
("climate risk"), with risk category definitions updated to
integrate climate risk aspects. A high-level qualitative climate
risk appetite has been added to the Group's existing high-level
appetites, which include reputation and capital, recognising the
importance of climate risk. Group policies have been updated to
draw out any climate specific considerations for risk
management.
RISK EVALUATION AND REPORTING
We evaluate our principal and emerging 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 ("GRCC") with his independent assessment of
the principal and emerging 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 the risks included in the
Solvency Capital Requirement ("SCR") and how they translate into
regulatory capital needs. By applying stress and scenario testing,
we gain insights into how risks might impact the Group in different
circumstances.
The associated policies govern the exposure of the Group to a
range of risks, including climate risk, and define the risk
management activities to ensure these risks remain within
appetite.
Quantification of the financial impact of climate risk is
subject to significant uncertainty. Risks arising from the
transition risk to a lower carbon economy are heavily dependent on
government policy developments and social responses to policy.
Just's initial focus has therefore been placed on implementation of
strategies to reduce the likely risk exposure to this risk. Just
will continue to adapt its view of climate risk as more data and
methodologies emerge.
The aggregate exposure to climate risk is assessed against
existing risk appetites, with climate risk a factor to be
considered in the management of these risks. Risk appetite
tolerances will be reviewed as further stress-testing results
become available.
OWN RISK AND SOLVENCY ASSESSMENT
The Group's Own Risk and Solvency Assessment ("ORSA") process
embeds comprehensive risk reviews into our Group management
activities. Our annual ORSA report is a key part of our business
risk management cycle. It summarises work done through the year on
business model and strategic risks, tests the business in a variety
of quantitative scenarios and integrates findings from recovery and
run-off analysis. The report provides an opinion on the viability
and sustainability of the Group and thus informs strategic decision
making. Updates are prepared each quarter, including factors such
as key risk limit consumption as well as operational and market
risk developments, to keep the Board appraised of the Group's
evolving risk profile.
Reporting on climate risk is being integrated into the Group's
regular reporting processes to its Risk Committees, including the
Group ORSA. Reporting will evolve as quantification of risk
exposures develops and further key risk indicators ("KRIs") are
identified.
Principal risks and uncertainties
STRATEGIC PRIORITIES
1 Improve our capital position
2 Transform how we work
3 Get closer to our customers and partners
4 Generate growth in new markets
5 Be proud to work at Just
Risk Description and impact Mitigation and management action
----------------- ----------------------------------- ----------------------------------------------
Risk A The financial services industry Just monitors and assesses regulatory
Risks from continues to see a high level developments on an on-going basis.
regulatory of regulatory activity and We seek to actively participate in
changes and regulatory supervision. This all regulatory initiatives which
supervision is shown in the Business Plans may affect or provide future opportunities
Strategic of the Prudential Regulation for the Group. Our aims are to implement
priorities Authority ("PRA") and the any changes required effectively,
1, 3, 4, Financial Conduct Authority and deliver better outcomes for our
5 ("FCA"). customers and competitive advantage
Change in The PRA has retained its focus for the business. We develop our
the period on the use of illiquid assets strategy by giving consideration
No change/stable in matching adjustment portfolios to planned political and regulatory
Risk outlook (including equity release developments and allowing for contingencies
No change/stable mortgages) as insurers continue should outcomes differ from our expectations.
their asset allocations in The Group also keeps under review
this area. the possible need for capital management
The PRA is carrying out a actions, such as reducing new business
quantitative impact study volumes.
("QIS") to assess the financial Just has an approved partial internal
impact of a variety of potential model to calculate the Group Solvency
reforms to the Solvency II Capital Requirement, which it keeps
regime, including most notably under review for continued appropriateness.
for Just, reform of the matching Just received approval for changes
adjustment and the risk margin. proposed as part of a Major Model
The Group remains exposed Change in December 2021 incorporating
to the changes following SS3/17, the requirements of SS3/17 for JRL's
notably to the PRA changing internal model and a regulatory treatment
the parameters used to determine for the no-negative equity guarantee
compliance with the Effective risk transfer transactions already
Value Test, limiting the matching completed.
adjustment available from Further steps to manage our exposure
equity release mortgages. to UK residential property and the
These changes are partially amount of capital we have to hold
offset by TMTP for business for lifetime mortgages continue,
written prior to the introduction with a range of actions building
of Solvency II. on the no-negative equity guarantee
The Treasury is undertaking hedging and lifetime mortgage portfolio
a review of the future regulatory sale transactions completed to date.
framework in the UK post-Brexit. A revised investment risk framework
This covers the general regulatory and limits was adopted by the Board
framework and roles of the in support of the Group's on-going
UK regulators as well as a compliance with the Prudent Person
review focused on adapting Principle following the PRA's supervisory
Solvency II to fit the UK statement. The Group operates a number
insurance market. The impact of governance committees to ensure
on the risk of regulatory continuing compliance with the framework
change remains uncertain. and limits.
The PRA required firms to Just is reviewing the potential implications
have fully implemented their of the Treasury review of Solvency
plans for identifying and II and the opportunities it presents.
managing the financial risks Just has participated in the QIS
from climate change by the related to the potential Solvency
end of 2021. The FCA expected II reforms to understand the financial
premium-listed firms (including impacts of the scenarios requested
Just Group plc) to comply by the PRA.
with the recommendations of The trade deal agreed between the
the Financial Stability Board's UK and the EU following UK's withdrawal
Taskforce on Climate-related from the EU did not address the issue
Financial Disclosures ("TCFD") of UK insurers continuing payments
in their annual reports for to EU/EEA resident customers from
financial years starting from 1 January 2021 after the end of the
1 January 2021. transition period. However, following
The PRA and FCA have issued engagement with EU/EEA regulators,
requirements to strengthen permanent or interim solutions are
operational resilience in in place for jurisdictions where
the financial services sector. material numbers of our customers
This is a key priority for reside. Just will engage with national
the regulators. regulators to ensure any further
The risk of a negative impact measures are taken as required to
on the Group's capital position allow policyholder payments to continue.
from broader financial services We have identified the potential
regulatory change is not limited impacts of climate change on the
to the matters described in Group's risks. The Group's risk management
the paragraphs above. framework has been developed to accommodate
The change in accounting standard and report on climate risks and make
to IFRS 17 due to be implemented appropriate disclosures in line with
in 2023 will produce a different TCFD recommendations. Climate and
profit recognition profile environmental considerations have
to which market participants been embedded in the Group's governance
will take time to adjust. and decision making.
Just has carried out a programme
of development of its operational
resilience approach to meet the regulators'
expectations ahead of the implementation
deadline at the end of March 2022.
We will endeavour to educate investors
on the changes resulting from IFRS
17 ahead of full implementation.
----------------- ----------------------------------- ----------------------------------------------
Risk Description and impact Mitigation and management action
----------------- ---------------------------------- ---------------------------------------------
Risk B The premiums paid by the Group's Economic conditions are actively
Risks from customers are invested to monitored, and alternative scenarios
the economic enable future benefits to modelled to better understand the
and political be paid when expected with potential impacts of significant
environment a high degree of certainty. economic changes on the amount of
Strategic The economic environment and capital required to be held to cover
priorities financial market conditions risks, and to inform management action
1, 3, 4, have a significant influence plans. The Group's strategy is to
5 on the value of assets and buy and hold high-quality, investment
Change in liabilities the Group holds grade assets in its investment portfolio
the period and on the income the Group to ensure that it has sufficient
No change/stable receives. A deterioration income to meet outgoings as they
Risk outlook in the economic environment fall due. Portfolio credit risk is
No change/stable could impact the availability managed by a combination of Just's
and attractiveness of certain internal investment team and specialist
securities and increase the external fund managers, overseen
risk of credit downgrades by Just's own credit specialists,
and defaults in our asset executing a diversified investment
portfolio. strategy in assets within concentration
A fall in residential property risk limits.
values could reduce the amounts Improved returns are sought by increasing
received from lifetime mortgage the types, geographies, industry
redemptions and may affect sectors and classes of assets into
the relative attractiveness which the Group invests. This creates
of the LTM product to customers. exposures to foreign exchange risk,
The regulatory capital needed which is controlled using derivative
to support the possible shortfall instruments. Derivative instruments
on the redemption of lifetime are also used to reduce exposures
mortgages also increases if to interest rate volatility. The
property values drop. Conversely, counterparty exposure arising from
significant rises in property transacting in these instruments
values could increase the is mitigated by collateral arrangements
incidence of early mortgage and managed to avoid concentration
redemptions, leading to an exposures wherever practical.
earlier receipt of anticipated For lifetime mortgages, the Group
cash flows with the consequential underwrites the properties against
reinvestment risk. which it lends using valuations from
It remains possible that the expert third parties. The Group's
Bank of England could maintain property risk is controlled by limits
negative real interest rates to the initial Loan-to-value ratio,
as a policy tool to stimulate supported by product design features
the economy. The effect that and limiting specific property types
this would have on customer and exposure in each region. We also
behaviour or on the market monitor the exposure to adverse house
for credit investments or price movements and the accuracy
lifetime mortgages is unclear. of our indexed valuations. While
Most defined benefit pension the Group's capital models accommodate
schemes link member benefits negative interest rates, there is
to inflation through indexation. no historical data to validate the
As the Group's defined benefit behaviour of the economy in such
de-risking business volumes an environment.
grow, its gross exposure to The Group manages its exposure to
inflation risk increases. inflation risk using inflation hedges
The conflict in Ukraine is and index-linked securities. The
expected to impact energy Group closely monitors inflationary
prices and hence increases pressures, including energy prices,
our expectations of inflation and other factors that may have implications
in the near term. Depending for our investments.
on how the conflict is resolved, Liquidity risk is managed by ensuring
it may have implications for that assets of a suitable maturity
certain of the investments and marketability are held to meet
in our investment portfolio. liabilities as they fall due.
Market risks may affect the There can be some short-term volatility
liquidity position of the in the Group's cash position, which
Group by, for example, having is a consequence of its derivative
to realise assets to meet hedging. Regular cash flow forecasts
liabilities during stressed predict liquidity levels over both
market conditions or to service the short-term and long-term and
collateral requirements due stress tests help us determine the
to the changes in market value required liquidity to hold. The Group
of financial derivatives. monitors market conditions to ensure
A lack of market liquidity appropriate liquid resources are
is also a risk to any need held at all times to cover extreme
that the Group may have to stresses such as those seen in March
raise capital or refinance 2020. The Group's liquidity requirements
existing debt. have been met over the past year
Just's asset and derivative and forecasting indicates that this
counterparties have climate position can reasonably be expected
risk exposure which may impact to continue for both investments
their creditworthiness in and business operations.
due course. The monitoring of climate risk exposures
of counterparties is an evolving
area as climate disclosures and regulatory
expectations are developing. Assessing
such exposure includes consideration
of climate risk disclosures, alongside
any associated public reporting and
the actions of credit rating agencies
and where appropriate regulators.
----------------- ---------------------------------- ---------------------------------------------
Risk Description and impact Mitigation and management action
----------------- ---------------------------------------- -------------------------------------------
Risk C Our purpose is to help people The Group actively seeks to differentiate
Risks to achieve a better later life. its business from competitors by
the Group's Our Group's brands reflect investing in brand enhancing activities.
brand and the way we aim to conduct Fairness to customers and high service
reputation our business and treat our standards are at the heart of the
Strategic customers and wider stakeholder Just brand, and we encourage our
priorities groups. colleagues to take pride in the quality
1, 2, 3, The Group's reputation could of service they provide. Engaging
4, 5 be damaged if the Group is our colleagues in the Just brand
Change in perceived to be acting, even and its associated values has been,
the period unintentionally, below the and remains, a critical part of our
No change/stable standards we set for ourselves. internal activity.
Risk outlook This could include, for example, Just is proactive in pursuing its
Increasing failing to achieve the goals sustainability responsibilities and
we have set for enhancing recognises the importance of its
our sustainability framework social purpose. We have set sustainability
and contributing to global targets aiming for our operations
efforts to reduce climate to be carbon net zero by 2025 and
change risk. for emissions from our investment
The Group's reputation could portfolio to be net zero by 2050,
also be threatened by external with a 50% reduction in emissions
risks such as a cyber attack, from the portfolio by 2030. Performance
a data protection breach, against these targets will be carefully
or regulatory enforcement monitored and reported.
action. Such regulatory action Protecting the personal data of our
could result directly from customers and colleagues remains
the Group's actions or through a key priority. This is achieved
contagion from other companies both by high standards of information
in the sectors in which we security and keeping the use of such
operate. data under tight control. We also
Damage to our reputation may take care to ensure that all data
adversely affect our underlying subjects can exercise their rights
profitability, through reducing under GDPR, such as the ability to
sales volumes, restricting make subject access requests to obtain
access to distribution channels the data we hold about them and the
and attracting increased regulatory right to be forgotten.
scrutiny.
----------------- ---------------------------------------- -------------------------------------------
Risk Description and impact Mitigation and management action
----------------- ---------------------------------------- -------------------------------------------
Risk D Writing long-term defined Current mortality rates are largely
Risks from benefit de-risking, Guaranteed derived using historical experience.
our pricing Income for Life and lifetime The Group has the benefit of its
and reinsurance mortgage business requires extensive underwritten mortality
Strategic a range of assumptions to data, as well as external mortality
priorities be made based on historical datasets, in setting base longevity
1, 3, 4 experience, current data and assumptions. Experience is regularly
Change in future expectations, for customers' monitored to ensure consistency with
the period longevity, corporate bond expected levels of mortality. If
No change/stable yields, interest and inflation there are material differences between
Risk outlook rates, property values and assumptions and emerging experience,
No change/stable expenses. These assumptions bases are modified appropriately.
are applied to the calculation Assumptions relating to future longevity
of the reserves needed for are based on our analysis of trends
future liabilities and solvency and likely drivers of future change.
margins using recognised actuarial This analysis includes the potential
approaches. impact (both direct and indirect)
Experience may differ materially of COVID-19 on the longevity of customers.
from the Group's assumptions, Given the uncertainty around the
requiring them to be recalibrated potential impact of both COVID-19
in future. This could affect and climate risk on longevity, no
the level of reserves needed, explicit allowance is made for these
with an impact on profitability in our assumptions. Any material
and the Group's solvency position. climate risk developments will be
As part of its overall risk considered as part of our overall
mitigation and capital management basis setting.
strategy, the Group purchases The Group performs due diligence
reinsurance from a number on our reinsurance partners, who
of reinsurance providers to themselves undertake due diligence
cover a significant proportion on the Group's approach to risk selection.
of its longevity risk exposure. The Group manages its exposure to
Use of reinsurance creates reinsurers on an on-going basis within
a counterparty default risk the Group's risk appetite limit,
exposure in the unlikely event with the maximum exposure to individual
of the failure of the reinsurance counterparties being subject to limits
provider. set by the Group Board. This exposure
Just's reinsurance counterparties is partially mitigated through the
have climate risk exposure posting of collateral into third
which may impact their creditworthiness party trusts or similar security
in due course. arrangements, or the deposit of premiums
back to the Group.
The Group measures its counterparty
exposure as the change in its Solvency
II SCR coverage ratio from a default
of each individual counterparty combined
with simultaneous longevity and market
stresses. The measures used include
the change immediately upon default
and after allowing for management
actions such as re-establishing cover.
Potential increased counterparty
risk in respect of the reinsurer
due to climate risk is at present
difficult to assess due to the diverse
nature of the reinsurers' business
models but should become clearer
over time.
----------------- ---------------------------------------- -------------------------------------------
Risk Description and impact Mitigation and management action
----------------- ----------------------------------------- --------------------------------------------
Risk E The Group relies on its operational The Group maintains a system of internal
Risks processes and IT systems to control, with associated policies
arising conduct its business, including and operational procedures, to ensure
from operational the pricing and sale of its its processes operate with a low
processes products, managing its investments, level of risk of failure. The Group
and measuring and monitoring its also defines clear expectations of
IT systems underwriting liabilities, the standards we expect of all colleagues.
Strategic processing applications and Protecting our customers and their
priorities delivering customer service data remains our highest priority,
1, 2, 3, and maintaining accurate records. while maintaining a resilient framework
4, 5 These processes and systems on our existing, well-established
Change in may not operate as expected, business continuity management and
the period may not fulfil their intended disaster recovery capabilities.
No change/stable purpose or may be damaged In parallel to this and as part of
Risk outlook or interrupted by human error, our commitment to continuous improvement,
No change/stable unauthorised access, natural 2021 has seen some significant changes
disaster or similarly disruptive in the Group's infrastructure, with
events. Any failure of the the migration and rationalisation
Group's IT and communications of data centres forming part of a
systems and/or the third party wider network and technology transformation
infrastructure on which it programme. This means that the Group
relies could lead to costs is in an even stronger position to
and disruptions that could ensure the continuity of IT service
adversely affect its business availability, particularly for the
and ability to serve its customers technologies that enable important
as well as harm its reputation. business services to support the
Large organisations continue needs of our customers.
to be targeted for cyber crime. Group security and management of
This includes attacks by state-sponsored data has also seen advances in the
actors on national infrastructure capability implemented, including
as well as criminal attacks the latest technologies to protect
on particular organisations our customers' information from advanced
that hold customers' personal cyber threats.
details. The Group is exposed Further management and security tools
to the effects of indirect have been added to the Group email
and direct attacks and these system to identify and resist malicious
could affect customer confidence, attacks. The newly deployed telephony
or lead to financial losses. system builds security and resilience
into all contact points with our
customers and partners. A specialist
Security Operations Centre monitors
all Group externally facing infrastructure
and services, providing real-time
threat analysis and incident management
and response capabilities.
The Group continues to invest in
market-leading products to protect
a hybrid workforce and to maintain
our multilayered approach to information
security and resilience.
----------------- ----------------------------------------- --------------------------------------------
Risk Description and impact Mitigation and management action
------------------- ------------------------------------- -------------------------------------------
Risk F The Group operates in a market The Group offers a range of retirement
Risks from where changes in pensions options, allowing it to remain agile
our chosen legislation can have a considerable in this changing environment, and
market environment effect on our strategy and flexes its offerings in response
Strategic could reduce our sales and to market dynamics. Our approach
priorities profitability or require us to legislative change in our markets
1, 2, 3, to hold more capital. is to participate actively and engage
4 Our chosen market of helping with policymakers.
Change in people approaching and in-retirement We are well placed to adapt to changing
the period is rightly highly regulated. customer demand, supported by our
No change/stable While we maintain strong controls brand promise, innovation credentials,
Risk outlook across our services, we could digital expertise and financial strength.
No change/stable fail to meet these ever increasing The most influential factors in the
standards and fail to deliver successful delivery of the Group's
to our core purpose of helping plans are closely monitored to help
people achieve a better later inform the business. The factors
life. Likewise, customer needs include market forecasts and market
and expectations continue share, supported by insights into
to evolve and change in profile, customer and competitor behaviour.
and we may not optimise our Demand from scheme trustees for defined
professional services offering benefit de-risking solutions is expected
and distribution models to to continue to grow, mitigating the
suit their requirements. Failures impacts on Just of increased market
in these areas would raise competition.
the risk of losing one or The automated advice service Destination
more of our key partners on Retirement is a strategic response
whom we rely for customer by the distribution business to address
introductions. changing needs in the retirement
Competitive pressure in the market. This service is targeted
lifetime mortgage market is at people approaching or in-retirement
strong with lenders moving with modest pension savings who may
to control distribution as be unable to afford traditional financial
well as competing on rates advice.
and early repayment charges. The risk of increased competition
The range of products available in the lifetime mortgage market is
in this market has increased mitigated through continuing work
substantially in the last to improve the customer appeal of
few years while average rates the Group's products, explore new
have reduced, squeezing margins. product variants and meet distributors'
A significant fall in home digital and service needs.
prices, although not expected We continue to develop stress testing
to occur, could affect customer capabilities to further improve monitoring
appetite for equity release. of the potential impact of climate
Climate risk could affect change on our investment and equity
Just Group's financial risks release portfolios. Government policy
due to its exposure to residential on the energy performance of residential
property through its lifetime properties is being monitored.
mortgage portfolio and through We already take risks from flooding,
its corporate bond and illiquid coastal erosion and subsidence into
investment portfolio. account in our lending decisions,
For lifetime mortgages: and are keeping the lifetime mortgage
(i) transition risk - government lending policy under review in light
policy changes may impact of climate risks, making adjustments
the value of residential properties, as required.
such as through the introduction Just has enhanced its approach to
of minimum energy performance ESG in its investment strategy as
requirements at the time of set out in its Responsible Investment
sale; Framework. This has resulted in new
(ii) physical risks - such premium income being invested in
as increased flooding, resulting bonds and illiquid investments with
from severe rainfall, or more a lower carbon footprint.
widespread subsidence due
to extended droughts, may
affect the value of properties
not seen as having such an
exposure at present.
For corporate bond and illiquid
investment portfolios, the
impact of climate risk on
assets or business models
may affect the ability of
corporate bond issuers and
commercial borrowers to service
their liabilities. The yields
available from corporate bonds
may also be affected by any
litigation or reputational
risks associated with the
issuers' environmental policies
or adherence to emissions
targets.
The increased consideration
of sustainability in investment
decisions may restrict investment
choice and the yields available;
it may also create new opportunities
to invest in assets that are
perceived to be more sustainable.
------------------- ------------------------------------- -------------------------------------------
Consolidated statement of comprehensive income
for the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note GBPm GBPm
======================================================= ===== ============ ============
Gross premiums written 6 2,676.1 2,147.8
======================================================= ===== ============ ============
Reinsurance premiums ceded (23.3) (232.0)
======================================================= ===== ============ ============
Reinsurance recapture - 940.0
======================================================= ===== ============ ============
Net premium revenue 2,652.8 2,855.8
======================================================= ===== ============ ============
Net investment (expense)/income 2 (130.3) 1,777.7
======================================================= ===== ============ ============
Fee and commission income 6 15.6 11.7
======================================================= ===== ============ ============
Total revenue 2,538.1 4,645.2
======================================================= ===== ============ ============
Gross claims paid (1,381.3) (1,321.1)
======================================================= ===== ============ ============
Reinsurers' share of claims paid 239.9 320.9
======================================================= ===== ============ ============
Net claims paid (1,141.4) (1,000.2)
======================================================= ===== ============ ============
Change in insurance liabilities:
======================================================= ===== ============ ============
Gross amount (706.7) (2,116.6)
======================================================= ===== ============ ============
Reinsurers' share (332.0) 73.5
======================================================= ===== ============ ============
Reinsurance recapture - (940.0)
======================================================= ===== ============ ============
Net change in insurance liabilities (1,038.7) (2,983.1)
======================================================= ===== ============ ============
Change in investment contract liabilities 24 (0.8) (1.8)
======================================================= ===== ============ ============
Acquisition costs 3 (48.6) (44.5)
======================================================= ===== ============ ============
Other operating expenses 4 (193.2) (219.9)
======================================================= ===== ============ ============
Finance costs 5 (136.8) (159.0)
======================================================= ===== ============ ============
Total claims and expenses (2,559.5) (4,408.5)
======================================================= ===== ============ ============
(Loss)/profit before tax 6 (21.4) 236.7
======================================================= ===== ============ ============
Income tax 7 5.6 (44.2)
======================================================= ===== ============ ============
(Loss)/profit for the year (15.8) 192.5
======================================================= ===== ============ ============
Other comprehensive income:
======================================================= ===== ============ ============
Items that will not be reclassified subsequently to
profit or loss:
======================================================= ===== ============ ============
Revaluation of land and buildings 7, 14 - (1.1)
======================================================= ===== ============ ============
Items that may be reclassified subsequently to profit
or loss:
======================================================= ===== ============ ============
Exchange differences on translating foreign operations (0.6) (0.6)
======================================================= ===== ============ ============
Other comprehensive loss for the year, net of income
tax (0.6) (1.7)
======================================================= ===== ============ ============
Total comprehensive (loss)/income for the year (16.4) 190.8
======================================================= ===== ============ ============
(Loss)/profit attributable to:
======================================================= ===== ============ ============
Equity holders of Just Group plc (15.0) 193.6
======================================================= ===== ============ ============
Non-controlling interest 35 (0.8) (1.1)
======================================================= ===== ============ ============
(Loss)/profit for the year (15.8) 192.5
======================================================= ===== ============ ============
Total comprehensive income attributable to:
======================================================= ===== ============ ============
Equity holders of Just Group plc (15.6) 191.9
======================================================= ===== ============ ============
Non-controlling interest 35 (0.8) (1.1)
======================================================= ===== ============ ============
Total comprehensive (loss)/income for the year (16.4) 190.8
======================================================= ===== ============ ============
Basic earnings per share (pence) 11 (3.42) 16.06
======================================================= ===== ============ ============
Diluted earnings per share (pence) 11 (3.42) 15.89
======================================================= ===== ============ ============
The notes are an integral part of these financial
statements.
Consolidated statement of changes in equity
for the year ended 31 December 2021
Shares
held Total Tier Non-
Year ended Share Share Reorganisation Merger Revaluation by Accumulated shareholders' 1 controlling
31 December capital premium reserve reserve reserve trusts profit(1) equity notes interest Total
2021 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
At 1 January
2021 103.8 94.5 348.4 597.1 3.3 (5.4) 1,056.6 2,198.3 294.0 (1.9) 2,490.4
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Loss for the
year - - - - - - (15.0) (15.0) - (0.8) (15.8)
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Other
comprehensive
loss for the
year, net
of income
tax - - - - (0.5) - (0.1) (0.6) - - (0.6)
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Total
comprehensive
loss for the
year - - - - (0.5) - (15.1) (15.6) - (0.8) (16.4)
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Contributions
and
distributions
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Shares issued 21 0.1 0.1 - - - - - 0.2 - - 0.2
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Tier 1 notes
issued (net
of costs) 22 - - - - - - - - 322.4 322.4
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Tier 1 notes
redeemed 22 - - - - - - (47.0) (47.0) (294.0) - (341.0)
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Dividends 12 - - - - - - - - - - -
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Interest paid
on Tier 1
notes (net
of tax) 22 - - - - - - (20.4) (20.4) - - (20.4)
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Share-based
payments - - - - - 1.1 3.7 4.8 - - 4.8
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Total
contributions
and
distributions 0.1 0.1 - - - 1.1 (63.7) (62.4) 28.4 - (34.0)
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Changes in
ownership
interest
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Acquisition
of
non-controlling
interest 35 - - - - - - (0.8) (0.8) - 0.8 -
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Total changes
in ownership
interests - - - - - - (0.8) (0.8) - 0.8 -
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
At 31 December
2021 103.9 94.6 348.4 597.1 2.8 (4.3) 977.0 2,119.5 322.4 (1.9) 2,440.0
================ ==== ======= ======= ============== ======= ============ ====== =========== ============= ======= =========== =======
Shares
held Total Tier Non-
Year ended Share Share Reorganisation Merger Revaluation by Accumulated shareholders' 1 controlling
31 December capital premium reserve reserve reserve trusts profit1 equity notes interest Total
2020 Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
At 1 January
2020 103.5 94.5 348.4 597.1 4.4 (6.0) 885.9 2,027.8 294.0 (0.8) 2,321.0
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
Profit/(loss)
for the year - - - - - - 193.6 193.6 - (1.1) 192.5
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
Other
comprehensive
loss for
the year,
net of income
tax - - - - (1.1) - (0.6) (1.7) - - (1.7)
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
Total
comprehensive
income/(loss)
for the year - - - - (1.1) - 193.0 191.9 - (1.1) 190.8
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
Contributions
and
distributions
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
Shares issued 21 0.3 - - - - - - 0.3 - - 0.3
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
Dividends 12 - - - - - - (0.1) (0.1) - - (0.1)
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
Interest
paid on Tier
1 notes 22 - - - - - - (28.1) (28.1) - - (28.1)
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
Share-based
payments - - - - - 0.6 5.9 6.5 - - 6.5
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
Total
contributions
and
distributions 0.3 - - - - 0.6 (22.3) (21.4) - - (21.4)
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
At 31 December
2020 103.8 94.5 348.4 597.1 3.3 (5.4) 1,056.6 2,198.3 294.0 (1.9) 2,490.4
============== ==== ======= ======= ============== ======= ============ ====== =========== ============= ===== =========== =======
1 Includes currency translation reserve.
The notes are an integral part of these financial
statements.
Consolidated statement of financial position
as at 31 December 2021
31 December 31 December
2021 2020
Note GBPm GBPm
====================================================== ==== =========== ===========
Assets
====================================================== ==== =========== ===========
Intangible assets 13 119.7 133.5
====================================================== ==== =========== ===========
Property, plant and equipment 14 14.2 20.5
====================================================== ==== =========== ===========
Investment property 15 69.6 -
====================================================== ==== =========== ===========
Financial investments 16 24,681.7 23,269.8
====================================================== ==== =========== ===========
Reinsurance assets 23 2,808.2 3,132.6
====================================================== ==== =========== ===========
Deferred tax assets 18 - 11.5
====================================================== ==== =========== ===========
Current tax assets 30.2 2.9
====================================================== ==== =========== ===========
Prepayments and accrued income 75.6 74.3
====================================================== ==== =========== ===========
Insurance and other receivables 19 35.4 32.0
====================================================== ==== =========== ===========
Cash available on demand 20 510.2 1,496.3
====================================================== ==== =========== ===========
Assets classified as held for sale 14 3.1 -
====================================================== ==== =========== ===========
Total assets 28,347.9 28,173.4
====================================================== ==== =========== ===========
Equity
====================================================== ==== =========== ===========
Share capital 21 103.9 103.8
====================================================== ==== =========== ===========
Share premium 21 94.6 94.5
====================================================== ==== =========== ===========
Reorganisation reserve 348.4 348.4
====================================================== ==== =========== ===========
Merger reserve 21 597.1 597.1
====================================================== ==== =========== ===========
Revaluation reserve 14 2.8 3.3
====================================================== ==== =========== ===========
Shares held by trusts (4.3) (5.4)
====================================================== ==== =========== ===========
Accumulated profit 977.0 1,056.6
====================================================== ==== =========== ===========
Total equity attributable to owners of Just Group plc 2,119.5 2,198.3
====================================================== ==== =========== ===========
Tier 1 notes 22 322.4 294.0
====================================================== ==== =========== ===========
Non-controlling interest 35 (1.9) (1.9)
====================================================== ==== =========== ===========
Total equity 2,440.0 2,490.4
====================================================== ==== =========== ===========
Liabilities
====================================================== ==== =========== ===========
Insurance liabilities 23 21,812.9 21,118.4
====================================================== ==== =========== ===========
Reinsurance liabilities 23 274.7 267.1
====================================================== ==== =========== ===========
Investment contract liabilities 24 33.6 42.8
====================================================== ==== =========== ===========
Loans and borrowings 25 774.3 773.5
====================================================== ==== =========== ===========
Lease liabilities 26 3.9 6.8
====================================================== ==== =========== ===========
Other financial liabilities 27 2,865.6 3,305.1
====================================================== ==== =========== ===========
Deferred tax liabilities 18 5.3 22.8
====================================================== ==== =========== ===========
Other provisions 1.2 1.0
====================================================== ==== =========== ===========
Accruals and deferred income 43.1 53.9
====================================================== ==== =========== ===========
Insurance and other payables 30 93.3 91.6
====================================================== ==== =========== ===========
Total liabilities 25,907.9 25,683.0
====================================================== ==== =========== ===========
Total equity and liabilities 28,347.9 28,173.4
====================================================== ==== =========== ===========
The notes are an integral part of these financial
statements.
The financial statements were approved by the Board of Directors
on 9 March 2022 and were signed on its behalf by:
Andy Parsons
Director
Consolidated statement of cash flows
for the year ended 31 December 2021
Year ended Year ended
31 December 31 December
2021 2020
Note GBPm GBPm
======================================================= ==== ============ ============
Cash flows from operating activities
======================================================= ==== ============ ============
(Loss)/profit before tax (21.4) 236.7
======================================================= ==== ============ ============
Property revaluation loss through profit and loss 14 - 1.2
======================================================= ==== ============ ============
Depreciation of property, plant and equipment 14 4.2 3.9
======================================================= ==== ============ ============
Impairment of property, plant and equipment 14 0.3 -
======================================================= ==== ============ ============
Amortisation of intangible assets 13 20.4 19.9
======================================================= ==== ============ ============
Impairment of intangible assets 13 - 1.1
======================================================= ==== ============ ============
Share-based payments 4.8 6.5
======================================================= ==== ============ ============
Interest income 2 (572.1) (631.7)
======================================================= ==== ============ ============
Interest expense 5 136.8 159.0
======================================================= ==== ============ ============
Realised and unrealised gains on financial investments (1,103.8) (1,039.7)
======================================================= ==== ============ ============
Decrease in reinsurance assets 332.0 866.5
======================================================= ==== ============ ============
Increase in prepayments and accrued income (1.3) (3.7)
======================================================= ==== ============ ============
Increase in insurance and other receivables (3.8) (6.1)
======================================================= ==== ============ ============
Increase in insurance liabilities 694.5 2,114.7
======================================================= ==== ============ ============
Decrease in investment contract liabilities (9.2) (11.2)
======================================================= ==== ============ ============
Decrease in deposits received from reinsurers (270.3) (775.3)
======================================================= ==== ============ ============
Decrease/(increase) in accruals and deferred income (10.8) 3.3
======================================================= ==== ============ ============
Increase in insurance and other payables 1.7 19.0
======================================================= ==== ============ ============
Decrease in other creditors (60.4) (162.7)
======================================================= ==== ============ ============
Interest received 337.8 314.5
======================================================= ==== ============ ============
Interest paid (78.7) (107.7)
======================================================= ==== ============ ============
Taxation paid (12.7) (60.6)
======================================================= ==== ============ ============
Net cash (outflow)/inflow from operating activities (612.0) 947.6
======================================================= ==== ============ ============
Cash flows from investing activities
======================================================= ==== ============ ============
Additions to internally generated intangible assets 13 (6.6) (0.1)
======================================================= ==== ============ ============
Acquisition of property and equipment 14 (0.7) (2.3)
======================================================= ==== ============ ============
Acquisition of subsidiaries 15 (70.6) -
======================================================= ==== ============ ============
Acquisition of non-controlling interest 35 - -
======================================================= ==== ============ ============
Net cash outflow from investing activities (77.9) (2.4)
======================================================= ==== ============ ============
Cash flows from financing activities
======================================================= ==== ============ ============
Issue of ordinary share capital (net of costs) 21 0.2 0.3
======================================================= ==== ============ ============
Proceeds from issue of Tier 1 notes (net of costs) 22 321.8 -
======================================================= ==== ============ ============
Redemption of Tier 1 notes (including costs) 22 (350.6) -
======================================================= ==== ============ ============
Increase in borrowings (net of costs) 25 - 110.6
======================================================= ==== ============ ============
Dividends paid 12 - (0.1)
======================================================= ==== ============ ============
Coupon paid on Tier 1 notes 12 (25.2) (28.1)
======================================================= ==== ============ ============
Interest paid on borrowings (56.7) (49.8)
======================================================= ==== ============ ============
Payment of lease liabilities - principal 26 (3.6) (4.1)
======================================================= ==== ============ ============
Payment of lease liabilities - interest 26 (0.1) (0.2)
======================================================= ==== ============ ============
Net cash (outflow)/inflow from financing activities (114.2) 28.6
======================================================= ==== ============ ============
Net (decrease)/increase in cash and cash equivalents (804.1) 973.8
======================================================= ==== ============ ============
Cash and cash equivalents at 1 January 2,624.8 1,651.0
======================================================= ==== ============ ============
Cash and cash equivalents at 31 December 1,820.7 2,624.8
======================================================= ==== ============ ============
Cash available on demand 510.2 1,496.3
======================================================= ==== ============ ============
Units in liquidity funds 1,310.5 1,128.5
======================================================= ==== ============ ============
Cash and cash equivalents at 31 December 20 1,820.7 2,624.8
======================================================= ==== ============ ============
The notes are an integral part of these financial
statements.
Notes to the consolidated financial statements
1 Significant accounting policies
General information
Just Group plc (the "Company") is a public company limited by
shares, incorporated and domiciled in England and Wales. The
Company's registered office is Enterprise House, Bancroft Road,
Reigate, Surrey, RH2 7RP.
1.1 Basis of preparation
The consolidated financial statements have been prepared in
accordance with the Companies Act 2006, including application of
international accounting standards and other disclosure
requirements, International Financial Reporting Standards ("IFRS")
as adopted by the UK Endorsement Board, and IFRS adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European
Union. The change in basis of preparation to UK adopted IFRS is
required by UK company law for the purposes of financial reporting
as a result of the UK's exit from the EU on 31 January 2020 and the
cessation of the transition period on 31 December 2020. This change
does not constitute a change in accounting policy but a change in
framework which is required to ground the use of IFRS in company
law. There is no impact on recognition, measurement or disclosure
between the two frameworks in the period reported.
The consolidated financial statements have been prepared under
the historical cost convention, as modified by the revaluation of
land and buildings, and financial assets and financial liabilities
(including derivative instruments and investment contract
liabilities) at fair value. Values are expressed to the nearest
GBP0.1m.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2021
and 2020 but is derived from those accounts. Statutory accounts for
2020 have been delivered to the registrar of companies, and those
for 2021 will be delivered in due course. The auditor has reported
on those statutory accounts. Their report for the year ended 31
December 2021 was (i) unqualified, (ii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006, and (iii)
did not include a reference to any matters to which the auditor
drew attention by way of emphasis without qualifying their report.
Their report for the year ended 31 December 2020 was (i)
unqualified, (ii) did not contain a statement under section 498 (2)
and (3) of the Companies Act 2006, and (iii) by way of emphasis of
matter, without qualifying their report, drew attention to note 35,
Capital, to the 2020 statutory accounts.
i) Going concern
A detailed going concern assessment has been undertaken and
having completed this assessment, the Directors are satisfied that
the Group has adequate resources to continue to operate as a going
concern for a period of not less than 12 months from the date of
this report, and that there is no material uncertainty in relation
to going concern. Accordingly, they continue to adopt the going
concern basis in preparing the financial statements.
This assessment includes the consideration of the Group's
business plan approved by the Board; steps taken by the Group over
the last three years to improve capital efficiency; the projected
liquidity position of the Company and the Group; on-going impacts
of COVID-19; current financing arrangements and contingent
liabilities; and a range of forecast scenarios with differing
levels of new business and associated additional capital
requirements to write anticipated levels of new business.
The Group has a robust liquidity framework designed to withstand
1-in-200 year stress events. The Group liquid resources includes an
undrawn revolving credit facility of up to GBP200m for general
corporate and working capital purposes. The borrowing facility is
subject to covenants that are measured biannually in June and
December, being the ratio of consolidated net debt to the sum of
net assets and consolidated net debt not being greater than 45%.
The ratio on 31 December 2020 was 17.5%. The facility is expected
to be renewed in June 2022 for a further five years. The Group's
business plan indicates that liquidity headroom will be maintained
above the Group's borrowing facilities and financial covenants will
be met throughout the period.
The Group and its regulated insurance subsidiaries are required
to comply with the requirements established by the Solvency II
Framework directive as adopted by the Prudential Regulation
Authority ("PRA") in the UK, and to measure and monitor its capital
resources on this basis. The overriding objective of the Solvency
II capital framework is to ensure there is sufficient capital
within the insurance company to protect policyholders and meet
their payments when due. They are required to maintain eligible
capital, or "Own Funds", in excess of the value of their Solvency
Capital Requirements ("SCR"). The SCR represents the risk capital
required to be set aside to absorb 1-in-200 year stress tests, over
the next year time horizon, of each risk type that the Group is
exposed to, including longevity risk, property risk, credit risk,
and interest rate risk. These risks are all aggregated with
appropriate allowance for diversification benefits.
The resilience of the solvency capital position has been tested
under a range of adverse scenarios, which considers the possible
impacts on the Group's business, including stresses to UK
residential property prices, house price inflation, the credit
quality of assets, mortality, and risk-free rates, together with a
reduction in new business levels. In addition, the results of
extreme property stress tests were considered, including a property
price fall in excess of 40%. Eligible own funds exceeded the
minimum capital requirements in all stressed scenarios described
above.
The Group has several mitigating management actions that can be
taken to manage stress, which are considered by the Board. Some of
these actions are deemed to be more fully within the Group's
control.
Furthermore the Directors note that in a scenario where the
Group ceases to write new business the going concern basis would
continue to be applicable while the Group continued to service
in-force policies.
The Directors' assessment concluded that it remains appropriate
to value assets and liabilities on the assumption that there are
adequate resources to continue in business and meet obligations as
they fall due for the foreseeable future, being at least 12 months
from the date of signing this report. The Directors also considered
the findings of the work performed to support the long-term
viability statement of the Group on page 59 of the Annual Report
and Accounts, which is undertaken together with the going concern
assessment. The Board and Audit Committee considered going concern
over 12 months as well as the consistency with the longer-term
viability of the Group, reviewing this over five years.
Accordingly, the going concern basis has been adopted in the
valuation of assets and liabilities.
ii) New accounting standards and new significant accounting
policies
The Group has applied UK-adopted IFRS from 1 January 2021. The
accounting policies adopted in the preparation of these
consolidated financial statements are consistent with those
followed in the preparation of the Group's consolidated financial
statements for the year ended 31 December 2020.
The following new accounting standards and amendments to
existing accounting standards are effective from 1 January 2021 but
do not have a significant impact on the Group's 2021 financial
statements.
-- Amendments to IFRS 9, Financial instruments; IAS 39,
Financial instruments: recognition and measurement; IFRS 7,
Financial instruments: disclosures; IFRS 4, Insurance contracts;
and IFRS 16, Leases - Interest Rate Benchmark Rate (IBOR) Reform
Phase 2.
During the year the London Inter Bank Offered Rate ("LIBOR")
interest rate benchmark was replaced with the Sterling Overnight
Index Average ("SONIA"). In order to avoid unintended accounting
consequences from IBOR reform, the IASB made amendments to
accounting standards. The amendments address issues that arise
during the reform of an interest rate benchmark rate, including the
replacement of one benchmark with an alternative one. The
amendments provide relief when changing the basis for determining
contractual cash flows for financial assets and liabilities
(including lease liabilities), and provide hedge accounting reliefs
that will allow most hedge relationships that are directly affected
by IBOR reform to continue.
The Group does not have financial assets or liabilities or
leases that are based on an interest rate benchmark, and the Group
does not use hedge accounting. Therefore there is no impact on
profit and loss or equity from these amendments.
The following new accounting standards and amendments to
existing accounting standards in issue and significant to the Group
have not yet been adopted by the Group.
-- IFRS 9, Financial instruments (effective 1 January 2018).
Amendments to IFRS 4, Insurance Contracts, published in
September 2016 and adopted by the Group with effect from 1 January
2018, permits the deferral of the application of IFRS 9 until
accounting periods commencing on 1 January 2023 for eligible
insurers. Just continues to defer IFRS 9 as explained in note
1.17.
If the Group had adopted IFRS 9 it would continue to classify
financial assets at fair value through profit or loss. Therefore,
under IFRS 9 all financial assets would continue to be recognised
at fair value through profit or loss and the fair value at 31
December 2021 would be unchanged at GBP24,681.7m. As well as
financial assets, the Group also holds Insurance and other
receivables and Cash and cash equivalent assets, with contractual
terms that give rise to cash flows on specified dates; the fair
value of these investments is considered to be materially
consistent with their carrying value, as disclosed in notes 19 and
20.
-- IFRS 17, Insurance contracts (effective 1 January 2023, not yet endorsed).
IFRS 17 was issued in May 2017 with an effective date of 1
January 2021. In June 2020, the IASB issued an amended standard
which delayed the effective date to 1 January 2023. The amendments
issued in June 2020 aimed to assist entities implementing the
standard. The transition requirements of IFRS 9 prescribe that
comparative periods are not restated for certain accounting changes
introduced by IFRS 9. This can result in accounting mismatches with
restated IFRS 17 comparative information. As a result the IASB
published an amendment to IFRS 17 in December 2021 permitting an
entity to present financial asset comparative information as if the
classification and measurement requirements of IFRS 9 had been
applied to that financial asset. Once effective, IFRS 17 will
replace IFRS 4 that was issued in 2005. The final standard remains
subject to endorsement by the UK Endorsement Board which has sought
views of accounts preparers and users in a final consultation
process that closed in February 2022. The Group has participated
actively in industry consultations to date, with implementation
matters continuing to be debated, these are expected to conclude in
time for the 1 January 2023 effective date.
IFRS 17 provides a comprehensive revision of the accounting for
insurance contracts including their valuation, income statement
presentation and disclosure. The main impact of the standard
applicable to annuities is the deferment of premium revenues and
expenses on the balance sheet within a "contractual service margin"
("CSM") account instead of recognition at point of sale under IFRS
4. The CSM is then recognised in the profit or loss account over
the life of contracts. The presentation of insurance revenue in the
statement of comprehensive income will be based on the concept of
insurance services provided in the period rather than the value of
premiums as presented under IFRS 4. The standard also requires an
explicit allowance for non-financial risk instead of the prudence
margins held on an implicit basis under IFRS 4.
Given the long-term nature of the Group's business, the impact
of IFRS 17 on the measurement and presentation of insurance
contracts in the Group's statutory reporting is expected to be
significant. The transition requirements of IFRS 17 include three
approaches: retrospective, modified retrospective and fair value
approach. Although the impact is not known or reasonably
estimatable, there is expected to be a reduction in equity on
transition as a result of the deferment of premium revenues and
expenses on the balance sheet within the CSM.
The Group initiated a project in 2017 to develop measurement and
reporting systems and processes which will apply to all of the
Group's insurance business. The requirements of the new standard
are complex and will require fundamental changes to accounts
reporting systems and processes as well as the application of
significant judgement. A steering committee chaired by the Group
Chief Financial Officer provides oversight and strategic direction,
a technical committee provides governance over the technical
interpretation and accounting policies selected, with delivery of
the project managed within the Group's broader Finance
Transformation Programme. During 2021 the Group has made
significant progress.
The following amendments to existing standards in issue have not
been adopted by the Group and are not expected to have a
significant impact on the financial statements. The amendments
include clarifications that are not inconsistent with the Group's
existing accounting treatment and other insignificant changes.
-- IAS 16, Property, plant and equipment - Amendments in respect
of proceeds before intended use (effective 1 January 2022, not yet
endorsed);
-- IFRS 3, Business combinations - Amendments to references to
the conceptual framework for financial reporting (effective 1
January 2022, not yet endorsed);
-- IAS 37, Provisions, contingent liabilities and contingent
assets - Amendments in respect of costs of fulfilling a contract
(effective 1 January 2022, not yet endorsed);
-- IAS 1, Presentation of financial statements - Amendments in
respect of the classification of liabilities as current or
non-current and in respect of disclosures of accounting policies
(effective 1 January 2023, not yet endorsed);
-- IAS 8, Accounting policies - Amendments in respect of the
definition of accounting estimates (effective 1 January 2023, not
yet endorsed);
-- IAS 12, Income taxes - Amendments in respect of deferred tax
related to assets and liabilities arising from a single transaction
(effective 1 January 2023, not yet endorsed).
1.2 Significant accounting policies and the use of judgements,
estimates and assumptions
The preparation of financial statements requires the Group to
select accounting policies and make estimates and assumptions that
affect items reported in the Consolidated statement of
comprehensive income, Consolidated statement of financial position,
other primary statements and Notes to the consolidated financial
statements.
The major areas of judgement used as part of accounting policy
application are summarised below.
Accounting policy Item involving judgement Critical accounting judgement
================= ================================= =============================================
1.6 Classification of insurance Assessment of significance of insurance
and investment contracts risk transferred.
A contract is classified as an insurance
contract if it transfers significant
insurance risk from the policyholder
to the insurer, or from the cedent
to the reinsurer in the case of a
reinsurance contract. Insurance risk
is significant if an insured event
could cause an insurer to pay significant
additional benefits to those payable
if no insured event occurred.
Any contracts that do not include
the transfer of significant insurance
risk are classified as investment
contracts.
================= ================================= =============================================
1.17 Financial investments Classification of financial investments
and determining whether an active
market exists for a financial investment.
Financial investments classified at
fair value through profit or loss
include those that are designated
as such by management at initial recognition
as they are managed on a fair value
basis.
Management's assessment of the market
activity of a financial investment
determines the fair value hierarchy
of the valuation method used to determine
the fair value of the financial investment.
================= ================================= =============================================
1.17 Measurement of fair value The use of a variant of the Black-Scholes
of loans secured by residential option pricing formula with real world
mortgages, including measurement assumptions.
of the no-negative equity The measurement of the no-negative
guarantees equity guarantee underlying the fair
value of loans secured by mortgages
uses a variant of the Black-Scholes
option pricing formula, which has
been adapted to use real world assumptions
instead of risk neutral assumptions
due to the lack of relevant observable
market inputs to support a risk neutral
valuation approach. This approach
is in line with common industry practice
and there does not appear to be an
alternative approach that is widely
supported in the industry. We acknowledge
that there has been significant recent
academic and market debate concerning
the valuation of no-negative equity
guarantees and we intend to continue
to actively monitor this debate.
================= ================================= =============================================
All estimates are based on management's knowledge of current
facts and circumstances, assumptions based on that knowledge and
predictions of future events and actions. Actual results may differ
significantly from those estimates. Where relevant the impact of
COVID-19 has been considered and detail included in the relevant
note disclosures.
The table below sets out those items the Group considers
susceptible to changes in critical estimates and assumptions.
Management applies judgement in making estimates and assumptions
that are applied to the balances described in the table below.
Accounting
policy and Item involving estimates
notes and assumptions Critical estimates and assumptions
============= ========================== ==============================================
1.17, 17(a) Measurement of fair The critical estimates used in valuing
and (d) value of loans secured loans secured by residential mortgages
by residential mortgages, include the projected future receipts
including measurement of interest and loan repayments, and
of the no-negative the future costs of administering the
equity guarantees loan portfolio.
The key assumptions used as part of the
valuation calculation include future
property prices and their volatility,
mortality, the rate of voluntary redemptions
and the liquidity premium added to the
risk-free curve and used to discount
the mortgage cash flows.
============= ========================== ==============================================
1.18, 17(a) Measurement of reinsurance The critical estimates used in measuring
and (d), 23, assets and deposits the value of reinsurance assets include
27 received from reinsurers the projected future cash flows arising
arising from reinsurance from reinsurers' share of the Group's
arrangements insurance liabilities.
The key assumptions used in the valuation
include discount rates, as described
below, and assumptions around the reinsurers'
ability to meet its claim obligations.
Deposits received from reinsurers are
measured in accordance with the reinsurance
contract and taking account of an appropriate
discount rate for the timing of the expected
cash flows of the liabilities.
For deposits received from reinsurers
measured at fair value through profit
or loss, the key assumption used in the
valuation is the discount rate.
============= ========================== ==============================================
1.21, 23(b) Measurement of insurance The critical estimates used in measuring
liabilities arising insurance liabilities include the projected
from writing Retirement future Retirement Income payments and
Income insurance the cost of administering payments to
policyholders.
The key assumptions are the discount
rates and mortality experience used in
the valuation of future Retirement Income
payments, and level and inflation of
costs of administration.
The valuation discount rates are derived
from yields on supporting assets after
deducting allowances for default. Mortality
assumptions are derived from the appropriate
standard mortality tables, adjusted to
reflect the future expected mortality
experience of the policyholders. Maintenance
expenses are determined from expense
analyses and are assumed to inflate at
market-implied rates.
============= ========================== ==============================================
All estimates are based on management's knowledge of current
facts and circumstances, assumptions based on that knowledge and
predictions of future events and actions. Actual results may differ
significantly from those estimates. Where relevant the impact of
COVID-19 has been considered and detail included in the relevant
note disclosures.
1.3 Consolidation principles
The consolidated financial statements incorporate the assets,
liabilities, results and cash flows of the Company and its
subsidiaries.
Subsidiaries are those investees over which the Group has
control. The Group has control over an investee if all of the
following are met: (1) it has power over the investee; (2) it is
exposed, or has rights, to variable returns from its involvement
with the investee; and (3) it has the ability to use its power over
the investee to affect its own returns. Subsidiaries are
consolidated from the date on which control is transferred to the
Group and are excluded from consolidation from the date on which
control ceases. All inter-company transactions, balances and
unrealised surpluses and deficits on transactions between Group
companies are eliminated. Accounting policies of subsidiaries are
aligned on acquisition to ensure consistency with Group
policies.
The Group uses the acquisition method of accounting for business
combinations. Under this method, the cost of acquisition is
measured as the aggregate of the fair value of the consideration at
date of acquisition and the amount of any non-controlling interest
in the acquiree. The excess of the consideration transferred over
the identifiable net assets acquired is recognised as goodwill. The
Group uses the equity method to consolidate its investments in
joint ventures and associates. Under the equity method of
accounting the investment is initially recognised at fair value and
adjusted thereafter for the post-acquisition change in the Group's
share of net assets of the joint ventures and associates.
1.4 Segments
The Group's segmental results are presented on a basis
consistent with internal reporting used by the Chief Operating
Decision Maker ("CODM") to assess the performance of operating
segments and the allocation of resources. The CODM has been
identified as the Group Executive Committee.
The internal reporting used by the CODM includes product
information (which comprises analysis of product revenues, LTM
advances and amounts written under investment contracts) and
information on adjusted operating profit and profit before tax and
amortisation costs for the Group's operating segments.
Material product information is analysed by product line and
includes DB, GIfL, Care Plans, Protection, LTM and Drawdown
products.
An operating segment is a component of the Group that engages in
business activities from which it earns revenues and incurs
expenses.
The operating segments from which the Group derives revenues and
incurs expenses are as follows:
-- the writing of insurance products for distribution to the at-
or in-retirement market, which is undertaken through the activities
of the life companies (this is referred to as the insurance segment
in note 6, Segmental reporting);
-- the arranging of guaranteed income for life contracts and
lifetime mortgages through regulated advice and intermediary
services; and
-- the provision of licensed software to financial advisers,
banks, building societies, life assurance companies and pension
trustees.
Operating segments, where certain materiality thresholds in
relation to total results from operating segments are not exceeded,
are combined when determining reportable segments. For segmental
reporting, the arranging of guaranteed income for life contracts,
providing intermediary mortgage advice and arranging, plus the
provision of licensed software, are included in the Other segment
along with Group activities, such as capital and liquidity
management, and investment activities.
The information on adjusted operating profit and profit before
tax used by the CODM is presented on a combined product basis
within the insurance operating segment and is not analysed further
by product.
1.5 Foreign currencies
Transactions in foreign currencies are translated to sterling at
the rates of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies
are translated into sterling at the rates of exchange ruling at the
end of the financial year. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in
foreign currencies are recognised in profit or loss.
The assets and liabilities of foreign operations are translated
to sterling at the rates of exchange at the reporting date. The
revenues and expenses are translated to sterling at the average
rates of exchange for the year. Foreign exchange differences
arising on translation to sterling are accounted for through other
comprehensive income.
1.6 Classification of insurance and investment contracts
The measurement and presentation of assets, liabilities, income
and expenses arising from life and pensions business contracts
issued and associated reinsurance contracts held is dependent upon
the classification of those contracts as either insurance or
investment contracts.
A contract is classified as insurance only if it transfers
significant insurance risk. Insurance risk is significant if an
insured event could cause an insurer to pay significant additional
benefits to those payable if no insured event occurred. A contract
that is classified as an insurance contract remains an insurance
contract until all rights and obligations are extinguished or
expire. DB, GIfL, Care Plan and Protection policies currently
written by the Group are classified as insurance contracts.
Any contracts not considered to be insurance contracts under
IFRS are classified as investment contracts. Capped Drawdown
pension business is classified as investment contracts as there is
no transfer of longevity risk due to the premium protection option
within these fixed term contracts. Capped Drawdown contracts are no
longer marketed by the Group.
1.7 Premium revenue
Premium revenue in respect of individual GIfL contracts is
accounted for when the liability to pay the GIfL contract is
established.
Premium revenue in respect of Defined Benefit De-risking
contracts is accounted for when the Company becomes "on risk",
which is the date from which the policy is effective. If a timing
difference occurs between the date from which the policy is
effective and the receipt of payment, the amount due for payment
but not yet received is recognised as a receivable in the
Consolidated statement of financial position.
Premium revenue in respect of Care Plans and Protection policies
is accounted for when the insurance contract commences.
Deposits collected under investment contracts are not accounted
for through the Consolidated statement of comprehensive income,
except for fee income and attributable investment income, but are
accounted for directly through the Consolidated statement of
financial position as an adjustment to the investment contract
liability.
Reinsurance premiums payable in respect of reinsurance treaties
are accounted for when the reinsurance premiums are due for payment
under the terms of the contract. Reinsurance premiums previously
incurred can be recaptured under certain conditions, notably once
reinsurance financing for an underwriting year is fully repaid.
1.8 Net investment income
Investment income consists of interest receivable for the year
and realised and unrealised gains and losses on financial assets
and liabilities at fair value through profit or loss.
Interest income is recognised as it accrues.
Realised gains and losses on financial assets and liabilities
occur on disposal or transfer and represent the difference between
the proceeds received net of transaction costs, and the original
cost.
Unrealised gains and losses arising on financial assets and
liabilities represent the difference between the carrying value at
the end of the year and the carrying value at the start of the year
or purchase value during the year, less the reversal of previously
recognised unrealised gains and losses in respect of disposals made
during the year.
1.9 Revenue from contracts with customers
The Group recognises revenue from contracts with customers in
accordance with IFRS 15, in an amount that reflects the
consideration to which the Group expects to be entitled in exchange
for the services provided. Revenue from contracts with customers
comprises commission on GIfL contracts, commission on LTM advances
and other income which includes investment management fees,
administration fees and software licensing fees.
Fee income excludes facilitated adviser charges collected on
behalf of advisers.
1.10 Claims paid
Claims paid includes policyholder benefits and claims handling
expenses. Policyholder benefits are accounted for when due for
payment. Reinsurance paid claim recoveries are accounted for in the
same period as the related claim.
Death claims are accounted for when notified.
1.11 Acquisition costs
Acquisition costs comprise direct costs such as commission and
indirect costs of obtaining and processing new business.
Acquisition costs are not deferred as they relate to single premium
business.
1.12 Finance costs
Finance costs on deposits received from reinsurers are
recognised as an expense in the period in which they are incurred.
Interest on reinsurance financing is accrued in accordance with the
terms of the financing arrangements.
Interest on loans and borrowings is accrued in accordance with
the terms of the loan agreement. Issue costs are added to the loan
amount and interest expense is calculated using the effective
interest rate method.
1.13 Employee benefits
Defined contribution plans
The Group operates a defined contribution pension scheme. The
assets of the scheme are held separately from those of the Group in
funds managed by a third party. Obligations for contributions to
the defined contribution pension scheme are recognised as an
expense in profit or loss when due.
Share-based payment transactions
Equity-settled share-based payments to employees are measured at
the fair value of the equity instruments at grant date, determined
using stochastic and scenario-based modelling techniques where
appropriate. The fair value of each scheme, based on the Group's
estimate of the equity instruments that will eventually vest, is
expensed in the Consolidated statement of comprehensive income on a
straight-line basis over the vesting period, with a corresponding
credit to equity. At each balance sheet date, the Group revises its
estimate of the number of equity instruments that will eventually
vest as a result of changes in non-market-based vesting conditions,
and recognises the impact of the revision of original estimates in
the Consolidated statement of comprehensive income over the
remaining vesting period, with a corresponding adjustment to
equity. Where a leaver is entitled to their scheme benefits, this
is treated as an acceleration of the vesting in the period they
leave. Where a scheme is modified before it vests, any change in
fair value as a result of the modification is recognised over the
remaining vesting period. Where a scheme is cancelled, this is
treated as an acceleration in the period of the vesting of all
remaining options.
1.14 Intangible assets
Intangible assets consist of goodwill, which is deemed to have
an indefinite useful life, Present Value of In-Force business
("PVIF"), acquired and internally generated intellectual property
(including PrognoSys(TM)), and purchased and internally developed
software, which are deemed to have finite useful lives.
Goodwill represents the excess of the cost of an acquisition
over the fair value of the Group's share of the net assets of the
acquired subsidiary and represents the future economic benefit
arising from assets that are not capable of being individually
identified and separately recognised. Goodwill is measured at
initial value less any accumulated impairment losses. Goodwill is
not amortised, but assessed for impairment annually or when
circumstances or events indicate there may be uncertainty over the
carrying value.
For the purpose of impairment testing, goodwill has been
allocated to cash-generating units and an impairment is recognised
when the carrying value of the cash-generating unit exceeds its
recoverable amount. Impairment losses are recognised directly in
the Consolidated statement of comprehensive income and are not
subsequently reversed.
Other intangible assets are recognised if it is probable that
the relevant future economic benefits attributable to the asset
will flow to the Group, and are measured at cost less accumulated
amortisation and any impairments.
PVIF, representing the present value of future profits from the
purchased in-force business, is recognised upon acquisition and is
amortised over its expected remaining economic life up to 16 years
on a straight-line basis. PVIF is assessed for impairment when
circumstances or events indicate there may be uncertainty over the
carrying value. PVIF is within the scope of IFRS 4.
PrognoSys(TM) is the Group's proprietary underwriting engine.
The Group has over two million person-years of experience collected
over 20 years of operations. It is enhanced by an extensive breadth
of external primary and secondary healthcare data and medical
literature.
Costs that are directly associated with the production of
identifiable and unique software products controlled by the Group
are capitalised and recognised as an intangible asset. Direct costs
include the incremental software development team's employee costs.
All other costs associated with researching or maintaining computer
software programmes are recognised as an expense as incurred.
Intangible assets with finite useful lives are amortised on a
straight-line basis over their useful lives, which range from two
to 16 years. The useful lives are determined by considering
relevant factors, such as usage of the asset, potential
obsolescence, competitive position and stability of the
industry.
For intangible assets with finite useful lives, impairment
testing is performed where there is an indication that the carrying
value of the assets may be subject to an impairment. An impairment
loss is recognised where the carrying value of an intangible asset
exceeds its recoverable amount.
The significant intangible assets recognised by the Group, their
useful economic lives and the methods used to determine the cost of
intangibles acquired in a business combination are as follows:
Estimated useful economic
Intangible asset life Valuation method
===================== ========================= =======================================
Estimated value in-force using European
PVIF Up to 16 years embedded value model
===================== ========================= =======================================
Intellectual property 12 - 15 years Estimated replacement cost
===================== ========================= =======================================
The useful economic lives of intangible assets recognised by the
Group other than those acquired in a business combination are as
follows:
Intangible asset Estimated useful economic life
================ ==============================
PrognoSys(TM) 12 years
================ ==============================
Software 3 years
================ ==============================
1.15 Property, plant and equipment
Land and buildings are measured at their revalued amounts less
subsequent depreciation, and impairment losses are recognised at
the date of revaluation. Valuations are performed with sufficient
frequency to ensure that the fair value of the revalued asset does
not differ materially from its carrying value.
A revaluation surplus is recognised in other comprehensive
income and credited to the revaluation reserve in equity. However,
to the extent that it reverses a revaluation deficit of the same
asset previously recognised in profit or loss, the increase is
recognised in profit or loss. A revaluation deficit is recognised
in profit or loss, except to the extent that it offsets an existing
surplus on the same asset recognised in the revaluation
reserve.
Buildings are depreciated on a straight-line basis over the
estimated useful lives of the buildings of 25 years.
Equipment is stated at cost less accumulated depreciation and
impairment losses. Depreciation is calculated on a straight-line
basis to write down the cost to residual value over the estimated
useful lives as follows:
Plant and equipment Estimated useful economic life
=================== ==============================
Computer equipment 3 - 4 years
=================== ==============================
Furniture and 2 - 10 years
fittings
=================== ==============================
1.16 Investment property
Investment property includes property that is held to earn
rentals or for capital appreciation or both. Investment property is
initially recognised at cost, including any directly attributable
transaction costs and subsequently measured at fair value. Fair
value is the price that would be received to sell a property in an
orderly transaction between market participants at the measurement
date. The measurement of fair value reflects, among other things,
rental income from current leases and other assumptions that market
participants would use when pricing investment property under
current market conditions. Gains and losses arising from the change
in fair value are recognised as income or an expense in the
Consolidated statement of comprehensive income. Where investment
property is leased out by the Group, rental income from these
operating leases is recognised as income in the Consolidated
statement of comprehensive income on a straight-line basis over the
period of the lease.
1.17 Financial investments
Classification
The Group classifies financial investments in accordance with
IAS 39 whereby, subject to specific criteria, they are accounted
for at fair value through profit and loss. This comprises assets
designated by management as fair value through profit or loss on
inception, as they are managed on a fair value basis, and
derivatives that are classified as held for trading. These
investments are measured at fair value with all changes thereon
being recognised in investment income in the Consolidated statement
of comprehensive income.
Derivatives are recognised at fair value through profit or loss.
All derivatives are carried as assets when the fair value is
positive and liabilities when the fair values are negative. The
Group does not use hedge accounting.
Recognition and derecognition
Regular-way purchases and sales of investments are recognised on
the trade date, which is the date that the Group commits to
purchase or sell the assets. Amounts payable or receivable on
unsettled purchases or sales are recognised in other payables or
other receivables respectively. Transaction costs are expensed
through profit or loss.
Loans secured by residential mortgages, "LTMs", are recognised
when cash is advanced to borrowers.
The Group receives and pledges collateral in the form of cash or
securities in respect of derivative, reinsurance or other contracts
such as securities lending. Cash collateral received that is not
legally segregated from the Group is recognised as an asset in the
Consolidated statement of financial position with a corresponding
liability for the repayment in other financial liabilities.
Non-cash collateral received is not recognised in the Consolidated
statement of financial position unless it qualifies for
derecognition by the transferor. Certain reinsurance arrangements
involve premiums being deposited back with the Group. The
recognition of such collateral is assessed based on the terms of
the arrangement, including consideration of the Group's exposure to
the economic benefits. See note 28 for further details.
Non-cash collateral pledged continues to be recognised in the
Consolidated statement of financial position within the appropriate
asset classification when the Group continues to control the
collateral and receives the economic benefit.
The Group's policy is to derecognise financial investments when
our rights when the contractual cash flows expire or it is deemed
that substantially all the risks and rewards of ownership have been
transferred.
Use of fair value
The Group uses current bid prices to value its investments with
quoted prices. Actively traded investments without quoted prices
are valued using prices provided by third parties. If there is no
active established market for an investment, the Group applies an
appropriate valuation technique as described below.
Determining the fair value of financial investments when the
markets are not active
The Group holds certain financial investments which are not
quoted in active markets and include loans secured by residential
mortgages, derivatives and other financial investments for which
markets are not active. When the markets are not active, there is
generally no or limited observable market data that can be used in
the fair value measurement of the financial investments. The
determination of whether an active market exists for a financial
investment requires management's judgement.
Fixed maturity securities, in line with market practice, are
generally valued using an independent pricing service. These
valuations are determined using independent external quotations
from multiple sources and are subject to a number of monitoring
controls, such as monthly price variances, stale price reviews and
variance analysis. Pricing services, where available, are used to
obtain the third party broker quotes. When prices are not available
from pricing services, prices are sourced from external asset
managers or internal models and treated as level 3 under the fair
value hierarchy. A third party fixed income liquidity provider is
used to determine whether there is an active market for a
particular security.
If the market for a financial investment of the Group is not
active, the fair value is determined using valuation techniques.
The Group establishes fair value for these financial investments by
using quotations from independent third parties or internally
developed pricing models. The valuation technique is chosen with
the objective of arriving at a fair value measurement which
reflects the price at which an orderly transaction would take place
between market participants on the measurement date. The valuation
techniques include the use of recent arm's length transactions,
reference to other instruments that are substantially the same,
discounted cash flow analysis and option pricing models. The
valuation techniques may include a number of assumptions relating
to variables such as credit risk and interest rates and, for loans
secured by mortgages, mortality, future expenses, voluntary
redemptions and house price assumptions. Changes in assumptions
relating to these variables impact the reported fair value of these
financial instruments positively or negatively.
The financial investments measured at fair value are classified
into the three-level hierarchy described in note 17 on the basis of
the lowest level of inputs that are significant to the fair value
measurement of the financial investment concerned.
Deferral of IFRS 9
IFRS 4, Insurance contracts, permits the deferral of the
application of IFRS 9 until accounting periods commencing on 1
January 2023 to align with the effective date of IFRS 17, the
replacement insurance contracts standard. The option to defer the
application of IFRS 9, which the Group has continued to adopt for
2021, is subject to meeting criteria relating to the predominance
of insurance activity.
Eligibility for the deferral approach was based on an assessment
of the Group's liabilities as at 31 December 2016, the end of the
annual period during which the acquisition of Partnership Assurance
Group plc took place and the most recent period of significant
change in the magnitude of the Group's activities. At this date the
Group's liabilities connected with insurance exceeded the 90%
threshold required for the carrying amount of the Group's total
liabilities. In the statement of financial position at this date,
the Group's total liabilities were GBP22,283.9m and liabilities
connected with insurance were GBP21,497.7m, consisting of insurance
contracts within the scope of IFRS 4 of GBP15,748.0m, investment
contract liabilities of GBP222.3m, and certain amounts within other
financial liabilities and insurance payables which arise in the
course of writing insurance business of GBP5,527.4m, giving a
predominancy ratio of 96%.
1.18 Reinsurance
Reinsurance assets and liabilities
Amounts recoverable from reinsurers are measured in a consistent
manner with insurance liabilities or relevant financial liabilities
and are classified as reinsurance assets. If a reinsurance asset is
impaired, the carrying value is reduced accordingly and that
impairment loss is recognised in the Consolidated statement of
comprehensive income. Reinsurance longevity swap arrangements are
classified as either reinsurance assets or reinsurance liabilities
based on the net position on the swap at the reporting date.
Financial liabilities
Where reinsurance contracts entered into by the Group require
deposits received from reinsurers to be repaid, such amounts are
classified as "deposits received from reinsurers" and included in
other financial liabilities in the Consolidated statement of
financial position. Where the liability carries no insurance risk,
it is initially recognised at fair value at the date the deposited
asset is recognised and subsequently remeasured at fair value at
each balance sheet date. Fair value is determined as the amount
repayable discounted from the first date that the amount is
required to be paid. The resulting gain or loss is recognised in
the Consolidated statement of comprehensive income.
Amounts receivable/payable
Where reinsurance contracts entered into by the Group include
longevity swap arrangements, such contracts are settled on a net
basis and amounts receivable from or payable to the reinsurers are
included in the appropriate heading under either Insurance and
other receivables or Insurance and other payables. Amounts due on
quota share reinsurance contracts are included within Insurance and
other payables.
1.19 Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and in hand,
deposits held at call with banks, and other short-term highly
liquid investments with less than 90 days' maturity from the date
of acquisition.
1.20 Equity
The difference between the proceeds received on issue of the
shares, net of share issue costs, and the nominal value of the
shares issued is credited to the share premium account.
Interim dividends are recognised in equity in the year in which
they are paid. Final dividends are recognised when they have been
approved by shareholders.
Where the Company purchases shares for the purposes of employee
incentive plans, the consideration paid, net of issue costs, is
deducted from equity. Upon issue or sale, any consideration
received is credited to equity net of related costs.
The reserve arising on the reorganisation of the Group
represents the difference in the value of the shares in the Company
and the value of shares in Just Retirement Group Holdings Limited
for which they were exchanged as part of the Group reorganisation
in November 2013.
Loan notes are classified as either debt or equity based on the
contractual terms of the instruments. Loan notes have been
classified as equity when they do not meet the definition of a
liability because they are perpetual with no fixed redemption or
maturity date, they are only repayable on liquidation, conversion
is only triggered under certain circumstances of non-compliance,
and the notes bear interest which is non-cumulative and cancellable
at the discretion of the Company.
1.21 Insurance liabilities
Measurement
Long-term insurance liabilities arise from the Group writing
Retirement Income contracts, including Guaranteed Income for Life
Solutions, Defined Benefit De-risking Solutions, long-term care
insurance, and whole of life and term protection insurance. Their
measurement uses estimates of projected future cash flows arising
from payments to policyholders plus the costs of administering
them. This is in accordance with the SORP on Accounting for
Insurance Business issued by the ABI in December 2005 (amended in
December 2006) and withdrawn with effect for accounting periods
beginning on or after 1 January 2015, but which continues to apply
to the Group as the grandfathered existing accounting policy under
IFRS 4. Valuation of insurance liabilities is derived using
discount rates, adjusted for default allowance and mortality
assumptions, taken from the appropriate mortality tables and
adjusted to reflect actual and expected experience, and expense
level and inflation assumptions. The assumptions in the valuation
are set on a prudent basis.
Liability adequacy test
The Group performs adequacy testing on its insurance liabilities
to ensure the carrying amount is sufficient to cover the current
estimate of future cash flows. Any deficiency is immediately
charged to the Consolidated statement of comprehensive income.
1.22 Investment contract liabilities
Investment contracts are measured at fair value through profit
or loss in accordance with IAS 39. The fair value of investment
contracts is estimated using an internal model and determined on a
policy-by-policy basis using a prospective valuation of future
Retirement Income benefit and expense cash flows.
1.23 Loans and borrowings
Loans and borrowings are initially recognised at fair value, net
of transaction costs, and subsequently amortised through profit or
loss over the period to maturity at the effective rate of interest
required to recognise the discounted estimated cash flows to
maturity.
1.24 Taxation
The current tax expense is based on the taxable profits for the
year, using tax rates substantively enacted at the Consolidated
statement of financial position date, and after any adjustments in
respect of prior years. Tax, including tax relief for losses if
applicable, is allocated over profit before taxation and amounts
charged or credited to components of other comprehensive income and
equity as appropriate.
Provision is made for deferred tax liabilities, or credit taken
for deferred tax assets, using the liability method, on all
material temporary differences between the tax bases of assets and
liabilities and their carrying amounts in the consolidated
financial statements. The principal temporary differences arise
from the revaluation of certain financial assets and liabilities,
including technical provisions and other insurance items and tax
losses carried forward, and include amortised transitional tax
adjustments resulting from changes in tax basis. The deferred tax
assets and liabilities are measured using substantively enacted
rates based on the timings of when they are expected to
reverse.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profit will be available against which
the temporary differences can be utilised.
2 Net investment (Expense)/income
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
======================================================= ============ ============
Interest income:
======================================================= ============ ============
Assets at fair value through profit or loss 572.1 631.7
======================================================= ============ ============
Movement in fair value:
======================================================= ============ ============
Financial assets and liabilities designated on initial
recognition at fair value through profit or loss (832.1) 818.3
======================================================= ============ ============
Derivative financial instruments (note 28) 129.7 327.7
======================================================= ============ ============
Total net investment (expense)/income (130.3) 1,777.7
======================================================= ============ ============
3 Acquisition costs
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
=========================== ============ ============
Commission 17.2 14.9
=========================== ============ ============
Other acquisition expenses 31.4 29.6
=========================== ============ ============
Total acquisition costs 48.6 44.5
=========================== ============ ============
4 Other operating expenses
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
============================================== ============ ============
Personnel costs (note 9) 101.5 107.5
============================================== ============ ============
Investment expenses and charges 16.8 17.5
============================================== ============ ============
Depreciation of property, plant and equipment 4.2 3.9
============================================== ============ ============
Amortisation of intangible assets 20.4 19.9
============================================== ============ ============
Impairment of property, plant and equipment 0.3 -
============================================== ============ ============
Impairment of intangible assets - 1.1
============================================== ============ ============
Other costs 50.0 70.0
============================================== ============ ============
Total other operating expenses 193.2 219.9
============================================== ============ ============
Other costs include reassurance management fees, professional
fees, IT and marketing costs.
Reconciliation of Other operating expenses to Management
expenses
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
=========================================== ============ ============
Total other operating expenses 193.2 219.9
=========================================== ============ ============
Investment expenses and charges (16.8) (17.5)
=========================================== ============ ============
Reassurance management fees (8.4) (22.2)
=========================================== ============ ============
Amortisation of acquired intangible assets (18.0) (18.0)
=========================================== ============ ============
Other costs (2.6) (2.9)
=========================================== ============ ============
Total management expenses 147.4 159.3
=========================================== ============ ============
During the year the following services were provided by the
Group's auditor at costs as detailed below:
Year ended Year ended
31 December 31 December
2021 2020
GBP000 GBP000
================================================================== ============ ============
Fees payable for the audit of the Parent Company and consolidated
accounts 550 540
================================================================== ============ ============
Fees payable for other services:
================================================================== ============ ============
The audit of the Company's subsidiaries pursuant to legislation 1,876 1,618
================================================================== ============ ============
Audit-related assurance services 656 842
================================================================== ============ ============
Other assurance services 65 65
================================================================== ============ ============
Other non-audit services not covered above - 1
================================================================== ============ ============
Auditor remuneration 3,147 3,066
================================================================== ============ ============
Fees payable to other audit firms:
================================================================== ============ ============
The audit of the Company's subsidiaries pursuant to legislation - 60
================================================================== ============ ============
Corporate finance services - 146
================================================================== ============ ============
Total 3,147 3,272
================================================================== ============ ============
Fees payable for the audit of the Company's subsidiaries
pursuant to legislation includes fees of GBP455,000 for audit
activities related to the implementation of IFRS 17. Audit-related
assurance services mainly include fees relating to the audit of the
Group's Solvency II regulatory returns and review procedures in
relation to the Group's interim results. The fees payable to other
audit firms during 2020 noted above includes fees paid to KPMG in
relation to the 2020 audit of the Group's South African
subsidiaries and fees paid to KPMG in relation to corporate finance
services carried out during 2019.
5 Finance costs
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
====================================================== ============ ============
Interest payable on deposits received from reinsurers 78.7 107.7
====================================================== ============ ============
Interest payable on subordinated debt 55.6 47.3
====================================================== ============ ============
Other interest payable 2.5 4.0
====================================================== ============ ============
Total finance costs 136.8 159.0
====================================================== ============ ============
The interest payable on deposits received from reinsurers is as
defined by the respective reinsurance treaties and calculated with
reference to the risk-adjusted yield on the relevant backing asset
portfolio.
6 Segmental reporting
Segmental analysis
The insurance segment writes insurance products for the
retirement market - which include Guaranteed Income for Life
Solutions, Defined Benefit De-risking Solutions, Care Plans and
Protection - and invests the premiums received from these contracts
in debt and other fixed income 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.
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 long-term nature of
the products. Underlying operating profit represents a combination
of both the profit generated from new business written in the year
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 year, and the
impacts of changes to future operating assumptions applied in the
year, are then also included in arriving at adjusted operating
profit.
New business profits represent expected investment returns on
the financial instruments assumed to be newly purchased to back
that business after allowances for expected movements in
liabilities and deduction of acquisition costs. Profits arising
from the in-force book of business represent the expected return on
surplus assets, the expected unwind of prudent reserves above best
estimates for mortality, expenses, and corporate bond defaults.
Adjusted operating profit excludes the impairment and
amortisation of goodwill and other intangible assets arising on
consolidation, non-recurring and project expenditure and
implementation costs for cost saving initiatives, 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, including on surplus assets and on
assets assumed to back new business, and gains and losses on the
revaluation of land and buildings, are also disclosed outside
adjusted operating profit.
Segmental reporting and reconciliation to financial
information
Year ended 31 December Year ended 31 December
2021 2020
========================================== ========================== ==========================
Insurance Other Total Insurance Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
========================================== ========= ====== ======= ========== ====== ======
New business operating profit 224.7 - 224.7 199.2 - 199.2
========================================== ========= ====== ======= ========== ====== ======
In-force operating profit 87.3 2.7 90.0 96.8 1.0 97.8
========================================== ========= ====== ======= ========== ====== ======
Other Group companies' operating results - (15.1) (15.1) - (17.1) (17.1)
========================================== ========= ====== ======= ========== ====== ======
Development expenditure (4.2) (2.6) (6.8) (5.9) (1.4) (7.3)
========================================== ========= ====== ======= ========== ====== ======
Reinsurance and financing costs (89.1) 6.0 (83.1) (79.5) - (79.5)
========================================== ========= ====== ======= ========== ====== ======
Underlying operating profit 218.7 (9.0) 209.7 210.6 (17.5) 193.1
========================================== ========= ====== ======= ========== ====== ======
Operating experience and assumption
changes 28.0 - 28.0 46.2 - 46.2
========================================== ========= ====== ======= ========== ====== ======
Adjusted operating profit/(loss) before
tax 246.7 (9.0) 237.7 256.8 (17.5) 239.3
========================================== ========= ====== ======= ========== ====== ======
Non-recurring and project expenditure (14.8) (0.2) (15.0) (7.1) (5.6) (12.7)
========================================== ========= ====== ======= ========== ====== ======
Implementation of cost saving initiatives - - - (7.8) (0.7) (8.5)
========================================== ========= ====== ======= ========== ====== ======
Investment and economic profit/(loss) (248.6) (2.6) (251.2) 9.4 (0.9) 8.5
========================================== ========= ====== ======= ========== ====== ======
Interest adjustment to reflect IFRS
accounting for Tier 1 notes as equity 28.1 (3.0) 25.1 28.1 - 28.1
========================================== ========= ====== ======= ========== ====== ======
Profit/(loss) before amortisation
costs and tax 11.4 (14.8) (3.4) 279.4 (24.7) 254.7
========================================== ========= ====== ======= ========== ====== ======
Amortisation of acquired intangibles - (18.0) (18.0) - (18.0) (18.0)
========================================== ========= ====== ======= ========== ====== ======
Profit/(loss) before tax 11.4 (32.8) (21.4) 279.4 (42.7) 236.7
========================================== ========= ====== ======= ========== ====== ======
Additional analysis of segmental profit or loss
Revenue (other than fee and commission income presented in the
disaggregation of fee and commission income below), depreciation of
property, plant and equipment, and amortisation of intangible
assets (other than amortisation of acquired intangibles presented
in the table above) are materially all allocated to the insurance
segment. The interest adjustment in respect of Tier 1 notes in the
other segment represents the difference between interest charged to
the insurance segment in respect of Tier 1 notes and interest
incurred by the Group in respect of Tier 1 notes.
Product information analysis
Additional analysis relating to the Group's products is
presented below. The Group's gross premiums written, as shown in
the Consolidated statement of comprehensive income, is analysed by
product below:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
============================================== ============ ============
Defined Benefit De-risking Solutions ("DB") 1,934.6 1,507.9
============================================== ============ ============
Guaranteed Income for Life contracts ("GIfL") 688.2 585.9
============================================== ============ ============
Care Plans ("CP") 51.1 51.5
============================================== ============ ============
Protection 2.2 2.5
============================================== ============ ============
Gross premiums written 2,676.1 2,147.8
============================================== ============ ============
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 year for these products is shown below:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
================================================ ============ ============
LTM loans advanced 528.2 511.7
================================================ ============ ============
Drawdown deposits and other investment products 1.1 1.0
================================================ ============ ============
Reconciliation of gross premiums written to Retirement Income
sales
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
========================================================= ============ ============
Gross premiums written 2,676.1 2,147.8
========================================================= ============ ============
Protection sales not included in Retirement Income sales (2.2) (2.5)
========================================================= ============ ============
Retirement Income sales 2,673.9 2,145.3
========================================================= ============ ============
Disaggregation of fee and commission income
Year ended 31 December Year ended 31 December
2021 2020
================================== ========================== ==========================
Insurance Other Total Insurance Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================== =========== ====== ===== =========== ====== =====
Product/service
================================== =========== ====== ===== =========== ====== =====
GIfL commission - 6.1 6.1 - 4.5 4.5
================================== =========== ====== ===== =========== ====== =====
LTM commission and advice
fees - 2.0 2.0 - 2.1 2.1
================================== =========== ====== ===== =========== ====== =====
Other 3.9 3.6 7.5 2.3 2.8 5.1
================================== =========== ====== ===== =========== ====== =====
3.9 11.7 15.6 2.3 9.4 11.7
================================== =========== ====== ===== =========== ====== =====
Timing of revenue recognition
================================== =========== ====== ===== =========== ====== =====
Products transferred at
point in time 3.9 11.4 15.3 2.3 9.0 11.3
================================== =========== ====== ===== =========== ====== =====
Products and services transferred
over time - 0.3 0.3 - 0.4 0.4
================================== =========== ====== ===== =========== ====== =====
Revenue from contracts with
customers 3.9 11.7 15.6 2.3 9.4 11.7
================================== =========== ====== ===== =========== ====== =====
All revenue from contracts with customers is from the UK.
7 Income tax
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
================================================== ============ ============
Current taxation
================================================== ============ ============
Current year 0.8 46.6
================================================== ============ ============
Adjustments in respect of prior periods (0.4) 1.0
================================================== ============ ============
Total current tax 0.4 47.6
================================================== ============ ============
Deferred taxation
================================================== ============ ============
Origination and reversal of temporary differences (5.7) (4.0)
================================================== ============ ============
Adjustments in respect of prior periods - (0.9)
================================================== ============ ============
Rate change (0.3) 1.5
================================================== ============ ============
Total deferred tax (6.0) (3.4)
================================================== ============ ============
Total income tax recognised in profit or loss (5.6) 44.2
================================================== ============ ============
On 3 March 2021, the government announced an increase in the
rate of corporation tax rate to 25% from 1 April 2023. The change
in rate was substantively enacted on 24 May 2021, and the impact of
the rate change is that the net deferred tax balances carried
forward increased by GBP0.3m.
The deferred tax assets and liabilities at 31 December 2021 have
been calculated based on the rate at which they are expected to
reverse.
Reconciliation of total income tax to the applicable tax
rate
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
================================================= ============ ============
(Loss)/profit on ordinary activities before tax (21.4) 236.7
================================================= ============ ============
Income tax at 19% (2020: 19%) (4.1) 45.0
================================================= ============ ============
Effects of:
================================================= ============ ============
Expenses not deductible for tax purposes 1.0 2.0
================================================= ============ ============
Rate change (0.3) 1.5
================================================= ============ ============
Unrecognised deferred tax asset 0.1 1.3
================================================= ============ ============
Adjustments in respect of prior periods (0.4) 0.1
================================================= ============ ============
Relief on Tier 1 interest included in equity1 - (5.3)
================================================= ============ ============
Other (1.9) (0.4)
================================================= ============ ============
Total income tax recognised in profit or loss (5.6) 44.2
================================================= ============ ============
1 Income tax relief on Tier 1 interest for the year ended 31
December 2021 is recognised directly in equity rather than in
profit or loss (see below).
Income tax recognised in other comprehensive income
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
========================================================== ============ ============
Deferred taxation
========================================================== ============ ============
Revaluation of land and buildings - (0.1)
========================================================== ============ ============
Total deferred tax - (0.1)
========================================================== ============ ============
Total income tax recognised in other comprehensive income - (0.1)
========================================================== ============ ============
Income tax recognised directly in equity
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
=============================================== ============ ============
Current taxation
=============================================== ============ ============
Relief on Tier 1 interest (4.8) -
=============================================== ============ ============
Relief on cost of redeeming RT1 (9.6) -
=============================================== ============ ============
Other (0.6) -
=============================================== ============ ============
Total current tax (15.0) -
=============================================== ============ ============
Total income tax recognised directly in equity (15.0) -
=============================================== ============ ============
Taxation of life insurance companies was fundamentally changed
following the publication of the Finance Act 2012. Since 1 January
2013, life insurance tax has been based on financial statements;
prior to this date, the basis for profits chargeable to corporation
tax was surplus arising within the Pillar 1 regulatory regime.
Cumulative differences arising between the two bases, which
represent the differences in retained profits and taxable surplus
which are not excluded items for taxation, are brought back into
the computation of taxable profits. However, legislation provides
for transitional arrangements whereby such differences are
amortised on a straight-line basis over a ten year period from 1
January 2013. Similarly, the resulting cumulative transitional
adjustments for tax purposes in adoption of IFRS will be amortised
on a straight-line basis over a ten year period from 1 January
2016. The tax charge for the year to 31 December 2021 includes
profits chargeable to corporation tax arising from amortisation of
transitional balances of GBP2.5m (2020: GBP2.5m).
Tax balances included within these financial statements include
the use of estimates and assumptions which are based on
management's best knowledge of current circumstances and future
events and actions. This includes the determination of tax
liabilities and recoverables for uncertain tax positions. The
actual outcome may differ from the estimated position.
8 Remuneration of Directors
Information concerning individual Directors' emoluments,
interests and transactions is given in the Directors' Remuneration
Report. For the purposes of the disclosure required by Schedule 5
to the Companies Act 2006, the total aggregate emoluments of the
Directors in the year was GBP3.9m (2020: GBP3.6m). Employer
contributions to pensions for Executive Directors for qualifying
periods were GBPnil (2020: GBPnil). The aggregate net value of
share awards granted to the Directors in the year was GBP2.0m
(2020: GBP2.2m). The net value has been calculated by reference to
the closing middle-market price of an ordinary share at the date of
grant. Two Directors exercised share options during the year with
an aggregate gain of GBP0.6m (2020: two Directors exercised options
with an aggregate gain of GBP0.3m).
9 Staff numbers and costs
The average number of persons employed by the Group (including
Directors) during the financial year, analysed by category, was as
follows:
Year ended Year ended
31 December 31 December
2021 2020
Number Number
======================== ============ ============
Directors 9 9
======================== ============ ============
Senior management 123 119
======================== ============ ============
Staff 944 949
======================== ============ ============
Average number of staff 1,076 1,077
======================== ============ ============
The aggregate personnel costs were as follows:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
============================ ============ ============
Wages and salaries 82.3 87.2
============================ ============ ============
Social security costs 9.9 9.2
============================ ============ ============
Other pension costs 4.3 4.3
============================ ============ ============
Share-based payment expense 5.0 6.8
============================ ============ ============
Total personnel costs 101.5 107.5
============================ ============ ============
10 Employee benefits
Defined contribution pension scheme
The Group operates a defined contribution pension scheme. The
pension cost charge for the year represents contributions payable
to the fund and amounted to GBP4.3m (2020: GBP4.3m).
Employee share plans
The Group operates a number of employee share option plans.
Details of those plans are as follows:
Just Retirement Group plc 2013 Long Term Incentive Plan
("LTIP")
The Group has made awards under the LTIP to Executive Directors
and other senior managers. Awards are made in the form of nil-cost
options which become exercisable on the third anniversary of the
grant date, subject to the satisfaction of service and performance
conditions set out in the Directors' Remuneration Report. Options
are exercisable until the tenth anniversary of the grant date.
Options granted since 2018 are subject to a two year holding period
after the options have been exercised.
The options are accounted for as equity-settled schemes.
The number and weighted-average remaining contractual life of
outstanding options under the LTIP are as follows:
Year ended Year ended
31 December 31 December
2021 2020
Number Number
of options of options
==================================================== ============ ============
Outstanding at 1 January 19,264,506 15,196,343
==================================================== ============ ============
Granted 6,795,784 8,951,149
==================================================== ============ ============
Forfeited (868,418) (941,906)
==================================================== ============ ============
Exercised (1,351,472) (2,261,267)
==================================================== ============ ============
Expired (1,437,275) (1,679,813)
==================================================== ============ ============
Outstanding at 31 December 22,403,125 19,264,506
==================================================== ============ ============
Exercisable at 31 December 3,853,927 3,119,248
==================================================== ============ ============
Weighted-average share price at exercise (GBP) 1.02 0.57
==================================================== ============ ============
Weighted-average remaining contractual life (years) 1.19 1.36
==================================================== ============ ============
The exercise price for options granted under the LTIP is
nil.
During the year to 31 December 2021, awards of LTIPs were made
on 24 March 2021 and 17 September 2021. The weighted-average fair
value and assumptions used to determine the fair value of the LTIPs
and the buy-out options granted during the year are as follows:
Fair value at grant date GBP0.85
========================================== ===================================
Option pricing models used Black-Scholes, Stochastic, Finnerty
========================================== ===================================
Share price at grant date GBP0.94
========================================== ===================================
Exercise price Nil
========================================== ===================================
Expected volatility - TSR performance 60.80%
========================================== ===================================
Expected volatility - holding period 61.54%
========================================== ===================================
Option life 3 years + 2 year holding period
========================================== ===================================
Dividends Nil
========================================== ===================================
Risk-free interest rate - TSR performance 0.15%
========================================== ===================================
Risk-free interest rate - holding period 0.34%
========================================== ===================================
A Black-Scholes option pricing model is used where vesting is
related to an earnings per share target or a solvency capital
generation target, a Stochastic model is used where vesting is
related to a total shareholder return target, and a Finnerty model
is used to model the holding period.
For awards subject to a TSR performance condition, expected
volatility has been calculated using historic volatility of the
Company and each company in the TSR comparator group, where
available, over the period of time commensurate with the remainder
of the performance period immediately prior to the date of grant.
For awards with a holding period condition, expected volatility has
been calculated using historic volatility of the Company over the
period of time commensurate with the holding period immediately
prior to the date of grant. Volatility of the market in 2020 due to
COVID-19 has been considered and it has been concluded that the
Company's share price was not materially affected and no adjustment
has been made.
Deferred share bonus plan ("DSBP")
The DSBP is operated in conjunction with the Group's short-term
incentive plan for Executive Directors and other senior managers of
the Company or any of its subsidiaries, as explained in the
Directors' Remuneration Report. Awards are made in the form of
nil-cost options which become exercisable on the third anniversary,
and until the tenth anniversary, of the grant date.
The options are accounted for as equity-settled schemes.
The number and weighted-average remaining contractual life of
outstanding options under the DSBP are as follows:
Year ended Year ended
31 December 31 December
2021 2020
Number Number
of options of options
==================================================== ============ ============
Outstanding at 1 January 5,094,921 4,287,693
==================================================== ============ ============
Granted 1,432,610 1,882,472
==================================================== ============ ============
Forfeited - (15,004)
==================================================== ============ ============
Exercised (739,528) (1,060,240)
==================================================== ============ ============
Outstanding at 31 December 5,788,003 5,094,921
==================================================== ============ ============
Exercisable at 31 December 1,683,566 1,716,596
==================================================== ============ ============
Weighted-average share price at exercise (GBP) 0.93 0.54
==================================================== ============ ============
Weighted-average remaining contractual life (years) 0.93 1.10
==================================================== ============ ============
The exercise price for options granted under the DSBP is
nil.
During the year to 31 December 2021, awards of DSBPs were made
on 24 March 2021. The weighted-average fair value and assumptions
used to determine the fair value of options granted during the year
under the DSBP are as follows:
Fair value at grant date GBP0.94
========================= =============
Option pricing model used Black-Scholes
========================= =============
Share price at grant date GBP0.94
========================= =============
Exercise price Nil
========================= =============
Expected volatility Nil
========================= =============
Option life 3 years
========================= =============
Dividends Nil
========================= =============
Risk-free interest rate Nil
========================= =============
Save As You Earn ("SAYE") scheme
The Group operates SAYE plans for all employees, allowing a
monthly amount to be saved from salaries over either a three or
five year period which can be used to purchase shares in the
Company at a predetermined price. The employee must remain in
employment for the duration of the saving period and satisfy the
monthly savings requirement (except in "good leaver"
circumstances). Options are exercisable for up to six months after
the saving period.
The options are accounted for as equity-settled schemes.
The number, weighted-average exercise price, weighted-average
share price at exercise, and weighted-average remaining contractual
life of outstanding options under the SAYE are as follows:
Year ended 31 December Year ended 31 December
2021 2020
========================================= ============================= =============================
Weighted-average Weighted-average
exercise exercise
Number price Number price
of options GBP of options GBP
========================================= =========== ================ =========== ================
Outstanding at 1 January 15,516,003 0.41 9,953,188 0.56
========================================= =========== ================ =========== ================
Granted 1,149,350 0.74 13,031,462 0.38
========================================= =========== ================ =========== ================
Forfeited (1,081,602) 0.42 (603,970) 0.57
========================================= =========== ================ =========== ================
Cancelled (363,145) 0.45 (6,609,575) 0.54
========================================= =========== ================ =========== ================
Exercised (408,488) 0.45 (46,892) 0.52
========================================= =========== ================ =========== ================
Expired (32,565) 0.84 (208,210) 1.03
========================================= =========== ================ =========== ================
Outstanding at 31 December 14,779,553 0.44 15,516,003 0.41
========================================= =========== ================ =========== ================
Exercisable at 31 December 278,130 0.60 58,930 0.46
========================================= =========== ================ =========== ================
Weighted-average share price at exercise 0.93 0.60
========================================= =========== ================ =========== ================
Weighted-average remaining contractual
life (years) 1.66 2.56
========================================= =========== ================ =========== ================
The range of exercise prices of options outstanding at the end
of the year are as follows:
2020
2021 Number
Number of
of options options
outstanding outstanding
======== ============ ============
GBP0.38 11,119,351 12,476,881
======== ============ ============
GBP0.52 2,443,437 2,870,402
======== ============ ============
GBP0.74 1,079,922 -
======== ============ ============
GBP1.07 66,166 66,166
======== ============ ============
GBP1.18 70,677 102,554
======== ============ ============
Total 14,779,553 15,516,003
======== ============ ============
During the year to 31 December 2021, awards of SAYEs were made
on 21 April 2021. The weighted-average fair value and assumptions
used to determine the fair value of options granted during the year
under the SAYE are as follows:
Fair value at grant date GBP0.53
======================================== ==================
Option pricing model used Black-Scholes
======================================== ==================
Share price at grant date GBP1.05
======================================== ==================
Exercise price GBP0.74
======================================== ==================
Expected volatility - 3 year scheme 56.62%
======================================== ==================
Expected volatility - 5 year scheme 50.98%
======================================== ==================
Option life 3.36 or 5.36 years
======================================== ==================
Dividends Nil
======================================== ==================
Risk-free interest rate - 3 year scheme 0.17%
======================================== ==================
Risk-free interest rate - 5 year scheme 0.36%
======================================== ==================
Saving forfeit discounts 5%
======================================== ==================
Expected volatility has been calculated using historic
volatility of the Company over the period of time commensurate with
the expected term of the awards immediately prior to the date of
grant. Volatility of the market in 2020 due to COVID-19 has been
considered and it has been concluded that the Company's share price
was not materially affected and no adjustment has been made.
Share-based payment expense
The share-based payment expense recognised in the Consolidated
statement of comprehensive income for employee services receivable
during the year is as follows:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
======================= ============ ============
Equity-settled schemes 5.0 6.8
======================= ============ ============
Total expense 5.0 6.8
======================= ============ ============
11 Earnings per share
The calculation of basic and diluted earnings per share is based
on dividing the profit or loss attributable to ordinary equity
holders of the Company by the weighted-average number of ordinary
shares outstanding, and by the diluted weighted-average number of
ordinary shares potentially outstanding at the end of the year. The
weighted-average number of ordinary shares excludes shares held by
the Employee Benefit Trust on behalf of the Company to satisfy
future exercises of employee share scheme awards.
Year ended 31 December Year ended 31 December
2021 2020
======================================= ================================ ==============================
Weighted- Weighted-
average average Earnings
number Earnings number per
Earnings of shares per share Earnings of shares share
GBPm million pence GBPm million pence
======================================= ======== ========== ========== ======== ========== ========
(Loss)/profit attributable to equity
holders of Just Group plc (15.0) - - 193.6 - -
======================================= ======== ========== ========== ======== ========== ========
Coupon payments in respect of Tier
1 notes (net of tax) (20.4) - - (28.1) - -
======================================= ======== ========== ========== ======== ========== ========
(Loss)/profit attributable to ordinary
equity holders of Just Group plc
(basic) (35.4) 1,033.7 (3.42) 165.5 1,030.7 16.06
======================================= ======== ========== ========== ======== ========== ========
Effect of potentially dilutive share
options1 - - - - 11.1 (0.17)
======================================= ======== ========== ========== ======== ========== ========
Diluted (35.4) 1,033.7 (3.42) 165.5 1,041.8 15.89
======================================= ======== ========== ========== ======== ========== ========
1 The weighted-average number of share options for the year
ended 31 December 2021 that could potentially dilute basic earnings
per share in the future but are not included in diluted EPS because
they would be antidilutive was 21.9 million share options.
12 Dividends and appropriations
Dividends and appropriations paid in the year were as
follows:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
======================================================== ============ ============
Dividends paid on the vesting of employee share schemes - 0.1
======================================================== ============ ============
Total dividends paid - 0.1
======================================================== ============ ============
Coupon payments in respect of Tier 1 notes1 25.2 28.1
======================================================== ============ ============
Total distributions to equity holders in the period 25.2 28.2
======================================================== ============ ============
1 Coupon payments on Tier 1 notes are treated as an
appropriation of retained profits and, accordingly, are accounted
for when paid.
Subsequent to 31 December 2021, the Directors proposed a final
dividend for 2021 of 1.0 pence per ordinary share (2020: nil),
amounting to GBP10m (2020: GBPnil) in total. Subject to approval by
shareholders at the Company's 2022 AGM, the dividend will be paid
on 17 May 2022 to shareholders on the register of members at the
close of business on 22 April 2022, and will be accounted for as an
appropriation of retained earnings in year ending 31 December
2022.
13 Intangible assets
Acquired intangible assets
============= ======================================================================= ============= ======== =======
Present
value
of
in-force Distribution Intellectual
Year ended 31 Goodwill business network Brand property Software Leases PrognoSys(TM) Software Total
December 2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Cost
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
At 1 January
2021 34.9 200.0 26.6 5.6 2.0 11.1 2.0 5.9 18.4 306.5
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Additions - - - - - - - - 6.6 6.6
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Disposals - - (26.6) (5.6) - (11.1) (2.0) - - (45.3)
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
At 31
December
2021 34.9 200.0 - - 2.0 - - 5.9 25.0 267.8
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Amortisation
and
impairment
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
At 1 January
2021 (0.8) (107.6) (26.6) (5.6) (0.6) (11.1) (2.0) (2.6) (16.1) (173.0)
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Disposals - - 26.6 5.6 - 11.1 2.0 - 45.3
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Charge for
the
year - (17.8) - - (0.1) - - (0.5) (2.0) (20.4)
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
At 31
December
2021 (0.8) (125.4) - - (0.7) - - (3.1) (18.1) (148.1)
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Net book
value
at 31
December
2021 34.1 74.6 - - 1.3 - - 2.8 6.9 119.7
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Net book
value
at 31
December
2020 34.1 92.4 - - 1.4 - - 3.3 2.3 133.5
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Acquired intangible assets
============= ======================================================================= ============= ======== =======
Present
value
of
in-force Distribution Intellectual
Year ended 31 Goodwill business network Brand property Software Leases PrognoSys(TM) Software Total
December 2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Cost
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
At 1 January
2020 34.9 200.0 26.6 5.6 2.0 11.1 2.0 5.9 18.3 306.4
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Additions - - - - - - - - 0.1 0.1
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
At 31
December
2020 34.9 200.0 26.6 5.6 2.0 11.1 2.0 5.9 18.4 306.5
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Amortisation
and
impairment
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
At 1 January
2020 (0.8) (89.7) (26.6) (5.6) (0.5) (11.1) (2.0) (2.1) (13.6) (152.0)
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Impairment - - - - - - - - (1.1) (1.1)
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Charge for
the
year - (17.9) - - (0.1) - - (0.5) (1.4) (19.9)
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
At 31
December
2020 (0.8) (107.6) (26.6) (5.6) (0.6) (11.1) (2.0) (2.6) (16.1) (173.0)
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Net book
value
at 31
December
2020 34.1 92.4 - - 1.4 - - 3.3 2.3 133.5
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
Net book
value
at 31
December
2019 34.1 110.3 - - 1.5 - - 3.8 4.7 154.4
============= ======== ======== ============ ===== ============ ======== ====== ============= ======== =======
The amortisation and impairment charge is recognised in other
operating expenses in profit or loss.
Impairment testing
Goodwill is tested for impairment in accordance with IAS 36,
Impairment of Assets, at least annually.
The Group's goodwill of GBP34.1m at 31 December 2021 represents
GBP1.0m recognised on the 2018 acquisition of HUB Pension
Consulting (Holdings) Limited, GBP0.3m recognised on the 2016
acquisition of the Partnership Assurance Group and GBP32.8m on the
2009 acquisition by Just Retirement Group Holdings Limited of Just
Retirement (Holdings) Limited, the holding company of Just
Retirement Limited ("JRL").
The existing goodwill has been allocated to the insurance
segment as the cash-generating unit. The recoverable amounts of
goodwill have been determined from value-in-use. The key
assumptions of this calculation are noted below:
2021 2020
======================================================== ======= =======
Period on which management approved forecasts are based 5 years 5 years
======================================================== ======= =======
Discount rate (pre-tax) 10.5% 11.7%
======================================================== ======= =======
The value-in-use of the insurance operating segment is
considered by reference to the latest business plans over the next
five years, which reflect management's best estimate of future cash
flows based on historical experience, expected growth rates and
assumptions around market share, customer numbers, expense
inflation and mortality rates, including a temporary increase in
mortality rates due to COVID-19. The discount rate was determined
using a weighted average cost of capital approach, with appropriate
adjustments to reflect a market participant's view. The outcome of
the impairment assessment is that the goodwill in respect of the
insurance operating segment is not impaired and that the
value-in-use is higher than the carrying value of goodwill.
Any reasonably possible changes in assumptions will not cause
the carrying value of the goodwill to exceed the recoverable
amounts.
Present Value of In-Force business ("PVIF") and other intangible
assets with finite useful economic lives are tested for impairment
when there is an indication that the carrying value of the asset
may be subject to an impairment.
The Group's PVIF of GBP74.6m at 31 December 2021 represents the
present value of future profits from the purchased in-force
business of GBP60.6m recognised on the 2016 acquisition of
Partnership Assurance Group and GBP14.0m on the 2009 acquisition of
Just Retirement (Holdings) Limited, the holding company of Just
Retirement Limited. The remaining useful economic lives of the
Group's PVIF ranges from between three to five years. There are no
indications of impairment of the carrying values of PVIF or other
intangible assets with finite useful economic lives.
14 Property, plant and equipment
Freehold
land and Computer Furniture Right-of-use
buildings equipment and fittings assets Total
Year ended 31 December 2021 GBPm GBPm GBPm GBPm GBPm
=================================== ========== ========== ============= ============ ======
Cost or valuation
=================================== ========== ========== ============= ============ ======
At 1 January 2021 14.3 9.9 6.3 6.1 36.6
=================================== ========== ========== ============= ============ ======
Acquired during the year - 0.7 - 0.6 1.3
=================================== ========== ========== ============= ============ ======
Transfer to held for sale (3.5) - - - (3.5)
=================================== ========== ========== ============= ============ ======
At 31 December 2021 10.8 10.6 6.3 6.7 34.4
=================================== ========== ========== ============= ============ ======
Depreciation and impairment
=================================== ========== ========== ============= ============ ======
At 1 January 2021 (0.1) (7.2) (5.9) (2.9) (16.1)
=================================== ========== ========== ============= ============ ======
Impairment (0.3) - - - (0.3)
=================================== ========== ========== ============= ============ ======
Depreciation charge for the year (0.5) (1.4) (0.2) (2.1) (4.2)
=================================== ========== ========== ============= ============ ======
Transfer to held for sale 0.4 - - - 0.4
=================================== ========== ========== ============= ============ ======
At 31 December 2021 (0.5) (8.6) (6.1) (5.0) (20.2)
=================================== ========== ========== ============= ============ ======
Net book value at 31 December 2021 10.3 2.0 0.2 1.7 14.2
=================================== ========== ========== ============= ============ ======
Net book value at 31 December 2020 14.2 2.7 0.4 3.2 20.5
=================================== ========== ========== ============= ============ ======
Freehold
land and Computer Furniture Right-of-use
buildings equipment and fittings assets Total
Year ended 31 December 2020 GBPm GBPm GBPm GBPm GBPm
=================================== ========== ========== ============= ============ ======
Cost or valuation
=================================== ========== ========== ============= ============ ======
At 1 January 2020 17.9 7.7 6.2 11.9 43.7
=================================== ========== ========== ============= ============ ======
Acquired during the year - 2.2 0.1 - 2.3
=================================== ========== ========== ============= ============ ======
Revaluations (3.6) - - - (3.6)
=================================== ========== ========== ============= ============ ======
Disposal cost - - - (5.8) (5.8)
=================================== ========== ========== ============= ============ ======
At 31 December 2020 14.3 9.9 6.3 6.1 36.6
=================================== ========== ========== ============= ============ ======
Depreciation and impairment
=================================== ========== ========== ============= ============ ======
At 1 January 2020 (0.7) (6.2) (5.7) (4.3) (16.9)
=================================== ========== ========== ============= ============ ======
Eliminated on revaluation 1.2 - - - 1.2
=================================== ========== ========== ============= ============ ======
Disposal - - - 3.5 3.5
=================================== ========== ========== ============= ============ ======
Depreciation charge for the year (0.6) (1.0) (0.2) (2.1) (3.9)
=================================== ========== ========== ============= ============ ======
At 31 December 2020 (0.1) (7.2) (5.9) (2.9) (16.1)
=================================== ========== ========== ============= ============ ======
Net book value at 31 December 2020 14.2 2.7 0.4 3.2 20.5
=================================== ========== ========== ============= ============ ======
Net book value at 31 December 2019 17.2 1.5 0.5 7.6 26.8
=================================== ========== ========== ============= ============ ======
Included in freehold land and buildings is land of value GBP2.8m
(2020: GBP4.0m).
The Company's freehold land and buildings are stated at their
revalued amounts, being the fair value at the date of revaluation
less any subsequent accumulated depreciation and subsequent
accumulated impairment losses. The fair value measurements of the
Company's freehold land and buildings as at 5 October 2020 were
performed by Hurst Warne & Partners Surveyors Ltd, independent
valuers not related to the Company. Hurst Warne & Partners
Surveyors Ltd is registered for regulation by the Royal Institution
of Chartered Surveyors ("RICS"). The valuation process relies on
expert judgement which is heightened due to the macroeconomic
related COVID-19 uncertainty. The valuer has sufficient current
local knowledge of the particular market, and the knowledge, skills
and understanding to undertake the valuation competently. The fair
value of the freehold land was undertaken using a residual
valuation assuming a new build office on each site to an exact
equivalent size as currently and disregarding the possibility of
developing any alternative uses or possible enhancements. The fair
value of the buildings was determined based on open market
comparable evidence of market rent. The fair value measurement of
revalued land and buildings has been categorised as Level 3 within
the fair value hierarchy based on the non-observable inputs to the
valuation technique used.
Revaluations during 2020 comprise a loss of GBP1.2m recognised
in profit or loss, a loss of GBP1.2m recognised in other
comprehensive income (gross of tax of GBP0.1m) partially reversing
previously recognised gains of GBP5.3m (gross of tax of GBP0.9m),
and the elimination of depreciation on the revaluations of
GBP1.2m.
If freehold land and buildings were stated on the historical
cost basis, the carrying values would be land of GBP3.6m (2020:
GBP4.3m) and buildings of GBP6.1m (2020: GBP10.2m).
Right-of-use assets are property assets leased by the Group (see
note 26).
15 Investment property
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
====================================================== ============ ============
At 1 January - -
====================================================== ============ ============
Recognised on acquisition of the Jersey Property Unit
Trust (see note 35) 70.6 -
====================================================== ============ ============
Net loss from fair value adjustment (1.0) -
====================================================== ============ ============
At 31 December 69.6 -
====================================================== ============ ============
Investment properties are leased to tenants under operating
leases. Minimum lease payments receivable on leases of investment
properties are as follows:
2021 2020
GBPm GBPm
====================== ===== =====
Within 1 year 1.1 -
====================== ===== =====
Between 1 and 2 years 1.1 -
====================== ===== =====
Between 2 and 3 years 1.1 -
====================== ===== =====
Between 3 and 4 years 1.1 -
====================== ===== =====
Between 4 and 5 years 1.1 -
====================== ===== =====
Later than 5 years 128.8 -
====================== ===== =====
Total 134.3 -
====================== ===== =====
16 Financial investments
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
======================================= ================== ==================
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
======================================= ======== ======== ======== ========
Units in liquidity funds 1,310.5 1,128.5 1,310.5 1,128.5
======================================= ======== ======== ======== ========
Investment funds 301.8 176.1 290.5 175.2
======================================= ======== ======== ======== ========
Debt securities and other fixed income
securities 12,924.0 11,061.4 12,141.7 10,001.9
======================================= ======== ======== ======== ========
Deposits with credit institutions 52.9 99.7 52.9 99.7
======================================= ======== ======== ======== ========
Derivative financial assets 691.2 800.0 - -
======================================= ======== ======== ======== ========
Loans secured by residential mortgages 7,422.8 8,261.1 4,328.7 4,535.7
======================================= ======== ======== ======== ========
Loans secured by commercial mortgages 677.8 592.1 686.3 566.9
======================================= ======== ======== ======== ========
Loans secured by ground rents 189.7 114.9 185.9 113.2
======================================= ======== ======== ======== ========
Infrastructure loans 993.1 945.0 858.0 796.6
======================================= ======== ======== ======== ========
Other loans 117.9 91.0 115.0 88.9
======================================= ======== ======== ======== ========
Total 24,681.7 23,269.8 19,969.5 17,506.6
======================================= ======== ======== ======== ========
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 very short dated liquid assets.
Deposits with credit institutions with a carrying value of
GBP50.3m (2020: GBP97.8m) have been pledged as collateral in
respect of the Group's derivative financial instruments. Amounts
pledged as collateral are deposited with the derivative
counterparty.
17 FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
This note explains the methodology for valuing the Group's
financial assets and liabilities measured at fair value, including
financial investments, and provides disclosures in accordance with
IFRS 13, Fair value measurement, including an analysis of such
assets and liabilities categorised in a fair value hierarchy based
on market observability of valuation inputs.
(a) Determination of fair value and fair value hierarchy
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the
fair value hierarchy described as follows, based on the lowest
level input that is significant to the fair value measurement as a
whole.
All Level 1 and 2 assets continue to have pricing available from
actively quoted prices or observable market data.
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 cannot be used to
validate broker/asset manager prices as the observability of inputs
used by brokers/asset managers is unavailable, the investment is
classified as Level 3.
Debt securities held at fair value and financial derivatives are
valued using independent pricing services or third party broker
quotes are classified as Level 2.
Level 3
Inputs to Level 3 fair values are unobservable inputs for the
asset or liability. Unobservable inputs are used to measure fair
value to the extent that observable inputs are not available,
thereby allowing for situations in which there is little, if any,
market activity for the asset or liability at the measurement date.
However, the fair value measurement objective remains the same,
i.e. an exit price at the measurement date from the perspective of
a market participant that holds the asset or owes the liability.
Unobservable inputs reflect the same assumptions as those that the
market participant would use in pricing the asset or liability.
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, infrastructure loans, private placement
debt securities, investment funds, investment contract liabilities,
and deposits received from reinsurers. Other than freehold land and
buildings included in note 14, there are no non-recurring fair
value measurements as at 31 December 2021 (2020: nil).
(b) Analysis of assets and liabilities held at fair value
according to fair value hierarchy
2021 2020
================================== ==================================== ====================================
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======= ======= ======== ======== ======= ======= ======== ========
Assets held at fair value
through profit or loss
================================== ======= ======= ======== ======== ======= ======= ======== ========
Investment property - - 69.6 69.6 - - - -
================================== ======= ======= ======== ======== ======= ======= ======== ========
Units in liquidity funds 1,304.9 5.6 - 1,310.5 1,123.2 5.3 - 1,128.5
================================== ======= ======= ======== ======== ======= ======= ======== ========
Investment funds - 68.5 233.3 301.8 - 37.1 139.0 176.1
================================== ======= ======= ======== ======== ======= ======= ======== ========
Debt securities and other
fixed income securities 4,302.5 7,172.0 1,449.5 12,924.0 809.3 8,995.3 1,256.8 11,061.4
================================== ======= ======= ======== ======== ======= ======= ======== ========
Deposits with credit institutions 50.3 2.6 - 52.9 97.7 2.0 - 99.7
================================== ======= ======= ======== ======== ======= ======= ======== ========
Derivative financial assets - 682.7 8.5 691.2 - 796.4 3.6 800.0
================================== ======= ======= ======== ======== ======= ======= ======== ========
Loans secured by residential
mortgages - - 7,422.8 7,422.8 - - 8,261.1 8,261.1
================================== ======= ======= ======== ======== ======= ======= ======== ========
Loans secured by commercial
mortgages - - 677.8 677.8 - - 592.1 592.1
================================== ======= ======= ======== ======== ======= ======= ======== ========
Loans secured by ground
rents - - 189.7 189.7 - - 114.9 114.9
================================== ======= ======= ======== ======== ======= ======= ======== ========
Infrastructure loans - - 993.1 993.1 - - 945.0 945.0
================================== ======= ======= ======== ======== ======= ======= ======== ========
Other loans 15.6 12.6 89.7 117.9 13.1 11.8 66.1 91.0
================================== ======= ======= ======== ======== ======= ======= ======== ========
Assets classified as held
for sale - - 3.1 3.1 - - - -
================================== ======= ======= ======== ======== ======= ======= ======== ========
Total financial assets 5,673.3 7,944.0 11,137.1 24,754.4 2,043.3 9,847.9 11,378.6 23,269.8
================================== ======= ======= ======== ======== ======= ======= ======== ========
Liabilities held at fair
value through profit of
loss
================================== ======= ======= ======== ======== ======= ======= ======== ========
Investment contract liabilities - - 33.6 33.6 - - 42.8 42.8
================================== ======= ======= ======== ======== ======= ======= ======== ========
Derivative financial liabilities - 386.1 8.6 394.7 - 509.4 3.3 512.7
================================== ======= ======= ======== ======== ======= ======= ======== ========
Obligations for repayment
of cash collateral received 311.7 14.5 - 326.2 351.3 26.1 - 377.4
================================== ======= ======= ======== ======== ======= ======= ======== ========
Deposits received from reinsurers - - 2,144.7 2,144.7 - - 2,415.0 2,415.0
================================== ======= ======= ======== ======== ======= ======= ======== ========
Other financial liabilities
================================== ======= ======= ======== ======== ======= ======= ======== ========
Fair value of loans and
borrowings at amortised
cost(1) - 936.8 - 936.8 - 894.3 - 894.3
================================== ======= ======= ======== ======== ======= ======= ======== ========
Total financial liabilities 311.7 1,337.4 2,186.9 3,836.0 351.3 1,429.8 2,461.1 4,242.2
================================== ======= ======= ======== ======== ======= ======= ======== ========
1 The fair value disclosed for loans and borrowings for 2020 has
been restated to correct the basis on which the fair value was
determined - see note 25.
(c) Transfers between levels
The Group's policy is to assess pricing source changes and
determine transfers between levels as of the end of each
half-yearly reporting period. During the year the Group enhanced
its methodology over the levelling of financial instruments,
resulting in transfers of GBP2,820.8m from Level 2 to Level 1
(2020: nil), and GBP13.3m from Level 1 to Level 2 (2020: nil).
Transfers from Level 2 to Level 3 in 2021 of GBP49.9m (2020:
GBP62.2m) include debt securities which no longer had observable
prices.
(d) Level 3 assets and liabilities measured at fair value
Reconciliation of the opening and closing recorded amount of
Level 3 assets and liabilities held at fair value.
Debt
securities Loans Loans Loans
and other secured secured secured Deposits
fixed Derivative by by by Infra- Investment Derivative received
Year ended Investment income financial residential commercial ground structure Other contract financial from
31 December funds securities assets mortgages mortgages rents loans loans liabilities liabilities reinsurers
2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
At 1 January
2021 139.0 1,256.8 3.6 8,261.1 592.1 114.9 945.0 66.1 (42.8) (3.3) (2,415.0)
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Purchases/advances/
deposits 84.9 281.4 - 528.2 169.0 72.4 79.1 46.1 (1.1) - (1.2)
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Transfers from
Level 2 - 49.9 - - - - - - - - -
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Sales/redemptions/
payments - (87.9) - (508.9) (49.4) - (17.7) - 11.1 - 202.9
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Disposal of
a portfolio
of LTMs1 - - - (508.8) - - - - - - -
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Realised gains
and losses
recognised
in profit or
loss within
net investment
income - - - 169.1 - - - - - - -
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Unrealised gains
and losses
recognised
in profit or
loss within
net investment
income 9.4 (37.6) 4.9 (722.8) (34.6) 2.4 (13.4) (22.5) - (5.3) 147.3
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Interest accrued - (13.1) - 204.9 0.7 - 0.1 - - - (78.7)
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Change in fair
value of
liabilities
recognised in
profit or loss - - - - - - - - (0.8) - -
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
At 31 December
2021 233.3 1,449.5 8.5 7,422.8 677.8 189.7 993.1 89.7 (33.6) (8.6) (2,144.7)
==================== ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
1 In August 2021 the Group disposed of a portfolio of loans
secured by residential mortgages with a fair value of GBP508.8m.
The transaction is part of the Group's strategy to reduce exposure
and sensitivity of the balance sheet to the UK property market
following changes in the regulatory environment in 2018.
Debt
securities
and Loans Loans Loans
other secured secured secured Deposits
fixed Derivative by by by Infra- Investment Derivative received
Investment income financial residential commercial ground structure Other contract financial from
Year ended 31 December funds securities assets mortgages mortgages rents loans loans liabilities liabilities reinsurers
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
At 1 January 2020 111.8 729.2 4.0 7,980.5 494.5 - 787.3 48.6 (54.0) - (2,417.7)
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Purchases/advances/deposits 27.1 418.9 - 511.7 97.9 113.2 104.3 68.7 (1.0) 5.0 (1.4)
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Transfers from Level
2 - 62.2 - - - - - - - - -
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Sales/redemptions/payments - (29.4) - (380.9) (8.7) - (15.9) (52.3) 14.0 - 212.2
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Disposal of a portfolio
of LTMs1 - - - (600.8) - - - - - - -
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Realised gains and
losses recognised
in profit or loss
within net investment
income (0.2) (0.2) - 111.6 - - - - - - -
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Unrealised gains
and losses recognised
in profit or loss
within net investment
income 0.3 80.6 (0.4) 356.3 7.6 1.7 68.0 1.1 - (8.3) (125.3)
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Interest accrued - (4.5) - 282.7 0.8 - 1.3 - - - (82.8)
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
Change in fair value
of liabilities recognised
in profit or loss - - - - - - - - (1.8) - -
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
At 31 December 2020 139.0 1,256.8 3.6 8,261.1 592.1 114.9 945.0 66.1 (42.8) (3.3) (2,415.0)
============================ ========== ========== ========== =========== ========== ======= ========= ====== =========== =========== ==========
1 In December 2020 the Group disposed of a portfolio of loans
secured by residential mortgages with a fair value of
GBP600.8m.
For Level 1 and Level 2 assets and liabilities measured at fair
value, unrealised losses during the year were GBP32.1m and
GBP131.4m respectively (2020: gains of GBP23.2m and GBP241.1m
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. There have not been
any significant impacts to these investments in relation to
COVID-19.
Principal assumptions underlying the calculation of investment
funds classified as Level 3
Discount rate
Discount rates are the most significant assumption applied in
calculating the fair value of investment funds. The average
discount rate used is 7.0% (2020: 7.0%).
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
assets. The sensitivity of the valuation of investment funds is
determined by reference to the movement in credit spreads. The
Group has estimated the impact on fair value to changes to these
inputs as follows:
Credit
Investment funds spreads
net increase/(decrease) in fair value (GBPm) +100bps
============================================== ========
2021 (8.9)
============================================== ========
2020 (4.9)
============================================== ========
Debt securities and other fixed income securities
Debt securities classified as Level 3 are private placement
bonds and asset-backed securities. Such securities are valued using
discounted cash flow analyses. The impact of COVID-19 has been
taken into account in the assessment of the future cash flows
default risk at 31 December 2021. Due to the nature of these assets
and the sectors in which they operate, the Group has assessed that
there is not any significant impact from COVID-19 on the valuation
at 31 December 2021.
Principal assumptions underlying the calculation of the debt
securities and other fixed income securities classified as Level
3
Credit spreads
The valuation model discounts the expected future cash flows
using a discount rate which includes a credit spread allowance
associated with that asset.
Redemption and defaults
The redemption and default assumptions used in the valuation of
private placement bonds are similar to the rest of the Group's bond
portfolio.
Sensitivity analysis
Reasonably possible alternative assumptions for upon observable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
assets. The sensitivity of the valuation of bonds is determined by
reference to movement in credit spreads. The Group has estimated
the impact on fair value to changes to these inputs as follows:
Credit
Debt securities and other fixed income securities spreads
net increase/(decrease) in fair value (GBPm) +100bps
================================================== ========
2021 (124.6)
================================================== ========
2020 (109.2)
================================================== ========
Derivative financial assets and liabilities
Derivative financial assets and liabilities classified as Level
3 are the put options on property index (also referred to as NNEG
hedges). The value of each NNEG hedge is made up of premiums
payable to the counterparty less expected claims back from the
option where losses are made. The expected claims are calculated
through the Black-Scholes framework, with parameters set such that
at outset the fair value of the NNEG hedge is zero.
Principal assumptions underlying the calculation of the
derivative financial assets and liabilities classified as Level
3
Property prices and interest rates are the most significant
assumption applied in calculating the fair value of the derivative
financial assets and liabilities. As described above, these
assumptions are set at outset such that the fair value of the NNEG
hedge is zero. The Group has assessed the possible impact of
COVID-19 and economic uncertainty on current property assumptions.
Details of the matters considered in relation to property
assumptions at 31 December 2021 are noted in the section on Loans
secured by residential mortgages further below. The future property
price volatility assumption used in the fair value calculation of
derivative financial assets and liabilities has been updated to 11%
(2020: 9%). This assumption is based on upon property price index
volatility only, consistent with protection provided by the
underlying derivatives. Property growth assumptions used in the
fair value calculation of derivative financial assets and
liabilities have remained unchanged from 31 December 2020,
consistent with the equivalent assumptions on loans secured by
residential mortgages as noted below. The impact on derivative
financial assets and liabilities from changes to property
assumptions are noted in the sensitivity analysis below.
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 and liabilities. The Group
has estimated the impact on fair value to changes to these inputs
as follows:
Immediate Future Future
property property property
Interest price fall price growth price volatility
Net increase/(decrease) in fair value (GBPm) rates +100bps -10% -0.5% +1%
============================================== ============== =========== ============= =================
Derivative financial assets
============================================== ============== =========== ============= =================
2021 (4.6) 10.4 10.6 4.4
============================================== ============== =========== ============= =================
2020 (6.5) 24.0 24.1 10.2
============================================== ============== =========== ============= =================
Derivative financial liabilities
============================================== ============== =========== ============= =================
2021 (4.1) 13.4 12.5 6.2
============================================== ============== =========== ============= =================
2020 (1.8) 6.3 6.8 2.8
============================================== ============== =========== ============= =================
Loans secured by residential mortgages
Methodology and judgement underlying the calculation of loans
secured by residential mortgages
The valuation of loans secured by residential mortgages is
determined using internal models which project future cash flows
expected to arise from each loan. Future cash flows allow for
assumptions relating to future expenses, future mortality
experience, voluntary redemptions and repayment shortfalls on
redemption of the mortgages due to the NNEG. The fair value is
calculated by discounting the future cash flows at a swap rate plus
a liquidity premium.
Under the NNEG, the amount recoverable by the Group on eligible
termination of mortgages is generally capped at the net sale
proceeds of the property. A key judgement is with regard to the
calculation approach used. We have used the Black 76 variant of the
Black-Scholes option pricing model in conjunction with an approach
using best estimate future house price growth assumptions. There
has been significant academic and market debate concerning the
valuation of no-negative equity guarantees in recent years,
including proposals to use risk-free based methods rather than best
estimate assumptions to project future house price growth. We
continue to actively monitor this debate. In the absence of any
widely supported alternative approach, we have continued in line
with the common industry practice to value no-negative equity
guarantees using best estimate assumptions.
The best estimate assumptions used include future property
growth and future property price volatility.
Cash flow models are used in the absence of a deep and liquid
market for loans secured by residential mortgages. The sales of the
portfolios of Just LTMs in 2020, 2021 and 2022 represented market
prices specific to the characteristics of the underlying portfolios
of loans sold. In particular, loan rates, loan-to-value and
customer age. This was considered insufficient to affect the
judgement of the methodology and assumptions underlying the
discounted cash flow approach used to value individual loans in the
remaining portfolio. The methodology and assumptions used would be
reconsidered if any information is obtained from future portfolio
sales that is relevant and applicable to the remaining
portfolio.
Principal assumptions underlying the calculation of loans
secured by residential mortgages
All gains and losses arising from loans secured by mortgages are
largely dependent on the term of the mortgage, which in turn is
determined by the longevity of the customer. Principal assumptions
underlying the calculation of loans secured by mortgages include
the items set out below. These assumptions are also used to provide
the expected cash flows from the loans secured by residential
mortgages which determines the yield on this asset. This yield is
used for the purpose of setting valuation discount rates on the
liabilities supported, as described in note 23(b).
Maintenance expenses
Assumptions for future policy expense levels are based on the
Group's recent expense analyses. The assumed future expense levels
incorporate an annual inflation rate allowance of 4.2% (2020:
3.6%).
Mortality
Mortality assumptions have been derived with reference to
England & Wales population mortality using the CMI 2019 model
for mortality improvements for 2020 onwards, and have been applied
by the Group since 2020. These base mortality and improvement
tables have been adjusted to reflect the expected future mortality
experience of mortgage contract holders, taking into account the
medical and lifestyle evidence collected during the sales process
and the Group's assessment of how this experience will develop in
the future. This assessment takes into consideration relevant
industry and population studies, published research materials and
management's own experience. The Group has considered the possible
impact of the COVID-19 pandemic on its long-term mortality
assumptions, but has kept these unchanged at 31 December 2021.
Further details of the matters considered in relation to mortality
assumptions at 31 December 2021 are set out in note 23(b).
Property prices
The approach in place at 31 December 2021 is to calculate the
value of a property by taking the latest Automated Valuation Model
"AVM" result, or latest surveyor value if more recent, indexing
this to the balance sheet date using Nationwide UK house price
indices and then making a further allowance for property
dilapidation since the last revaluation date. This represents a
change in approach since the previous period - which was based upon
the latest valuation, indexed to the balance sheet date using the
Office for National Statistics ("ONS") monthly index for the
property's location, together with a separate allowance for
potential underperformance of individual properties relative to the
indexed valuation. Allowing for the change in approach used to
calculate property values as at 31 December 2021, the value of the
properties underlying the Group's LTM portfolio grew by 6% over the
year which is 3% lower than had the Group not changed the basis of
determining property values at the valuation date.
Although the COVID-19 pandemic has had a very significant impact
on the UK economy during 2020 and 2021, the UK property market has
exhibited strong growth over the period. The current level of price
indices has been driven by high demand and a shortage of supply.
While this imbalance may reduce, our view is that current market
prices are sustainable and appropriate for valuation of the
properties.
The appropriateness of this valuation basis is regularly tested
on the event of redemption of mortgages. The sensitivity of loans
secured by mortgages to a fall in property prices is included in
the table of sensitivities below.
Future property price
In the absence of a reliable long-term forward curve for UK
residential property price inflation, the Group has made an
assumption about future residential property price inflation based
upon available market and industry data. These assumptions have
been derived with reference to the long-term expectation of the UK
consumer price inflation, "CPI", plus an allowance for the
expectation of house price growth above CPI (property risk premium)
less a margin for a combination of risks including property
dilapidation and basis risk. An additional allowance is made for
the volatility of future property prices. This results in a single
rate of future house price growth of 3.3% (2020: 3.3%), with a
volatility assumption of 13% per annum (2020: 13%). The setting of
these assumptions includes consideration of future long and
short-term forecasts, the Group's historical experience,
benchmarking data, and future uncertainties including the possible
impact of Brexit on the UK property market. As noted above, the
Group has considered the uncertainties in relation to the property
market as a result of the COVID-19 pandemic. House price growth
over 2021 has been strong, and there has been an increase in
market-implied RPI and CPI inflation expectations too. However, the
impact of the pandemic on long-term property prices is uncertain at
the current time without consensus that the pandemic will alter the
long-term prospects of the housing market. In light of this the
future house price growth and property volatility assumptions have
been maintained at the same level as assumed at 31 December 2020.
The sensitivity of loans secured by mortgages to changes in future
property price growth, and to future property price volatility, are
included in the table of sensitivities below.
Voluntary redemptions
Assumptions for future voluntary redemption levels are based on
the Group's recent experience analyses and external benchmarking.
The assumed redemption rate varies by duration and product line
between 0.5% and 4.1% for loans in JRL (2020: 0.5% and 4.1%) and
between 0.6% and 6.8% for loans in PLACL (2020: 0.6% and 6.8%). No
changes are assumed with regard to the COVID-19 experience.
Compared to the prior period, a separate provision for potential
higher short-term experience arising from additional remortgaging
activity is also allowed for.
Liquidity premium
The liquidity premium at initial recognition is set such that
the fair value of each loan is equal to the face value of the loan.
The liquidity premium partly reflects the illiquidity of the loan
and also spreads the recognition of profit over the lifetime of the
loan. Once calculated, the liquidity premium remains unchanged at
future valuations except when further advances are taken out. In
this situation, the single liquidity premium to apply to that loan
is recalculated allowing for all advances. Historically the
liquidity premium has been set relative to LIBOR swap rates.
Following the discontinuance of LIBOR from the end of 2021 SONIA
has been adopted as the risk free index. The liquidity premium at
31 December 2021 has been adjusted such that the fair value of the
loan is unchanged before and after this change in index. The
average liquidity premium for loans held within JRL is 3.04% (2020:
2.87%) and for loans held within PLACL is 3.51% (2020: 3.20%).
These average rates are relative to the risk free index used in
each period. The movement over the period observed in both JRL and
PLACL is therefore the effect of rebasing the liquidity premiums
for the change in risk free rates, and a function of the liquidity
premiums on new loan originations compared to the liquidity
premiums on those policies which have redeemed or have been
included in a portfolio sale over the period, both in reference to
the average spread on the back book of business.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model could give rise to significant
changes in the fair value of the assets. The Group has estimated
the impact on fair value to changes to these inputs as follows:
Loans secured by
residential Future Future
mortgages Immediate property property
net Maintenance Base Mortality property price price Voluntary Liquidity
increase/(decrease) expenses mortality improvement price fall growth volatility redemptions premium
in fair value (GBPm) +10% -5% +0.25% -10% -0.5% +1% +10% +10bps
==================== =========== ========== =========== ========== ========= =========== =========== =========
2021 (6.5) 22.7 10.5 (114.6) (82.3) (53.2) (5.2) (78.0)
==================== =========== ========== =========== ========== ========= =========== =========== =========
2020 (5.9) 34.3 15.6 (136.1) (103.7) (64.5) (13.2) (93.1)
==================== =========== ========== =========== ========== ========= =========== =========== =========
The sensitivity factors are applied via financial models either
as at the valuation date or from a suitable recent reporting period
where appropriate to do so. The analysis has been prepared for a
change in each variable with other assumptions remaining constant.
In reality such an occurrence is unlikely due to correlation
between the assumptions and other factors. It should be noted that
some of these sensitivities are non-linear and larger or smaller
impacts should not be simply interpolated or extrapolated from
these results. For example, the impact from a 5% fall in property
prices would be slightly less than half of that disclosed in the
table above.
The sensitivities above only consider the impact of the change
in these assumptions on the fair value of the asset. Some of these
sensitivities would also impact the yield on this asset and hence
the valuation discount rate used to determine liabilities. For some
of these sensitivities, the impact on the value of insurance
liabilities and hence profit before tax is included in note
23(e).
Other limitations in the above sensitivity analysis include the
use of hypothetical market movements to demonstrate potential risk
that only represents the Group's view of reasonably possible
near-term market changes that cannot be predicted with any
certainty.
Loans secured by commercial mortgages
Loans secured by commercial mortgages are valued using
discounted cash flow analysis using assumptions based on the
repayment of the underlying loan.
Principal assumption underlying the calculation of loans secured
by commercial mortgages
Credit spreads
The valuation model discounts the expected future cash flows
using a discount rate which includes a credit spread allowance
associated with that asset.
Redemption and defaults
The redemption and default assumptions used in the valuation of
loans secured by commercial mortgages are derived from the
assumptions for the Group's bond portfolio. The impact of COVID-19
on the timing of future cash flows, and on expected defaults, has
been taken into account in the calculation of fair value at 31
December 2021, with no significant impacts noted to fair
values.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
assets. The sensitivity of the valuation of commercial mortgages is
determined by reference to movement in credit spreads. The Group
has estimated the impact on fair value to changes to these inputs
as follows:
Credit
Loans secured by commercial mortgages spreads
net increase/(decrease) in fair value (GBPm) +100bps
============================================== ========
2021 (25.0)
============================================== ========
2020 (25.2)
============================================== ========
Loans secured by ground rents
Loans secured by ground rents are valued using discounted cash
flow analysis using assumptions based on the repayment of the
underlying loan.
Principal assumption underlying the calculation of loans secured
by ground rents
Credit spreads
The valuation model discounts the expected future cash flows
using a discount rate which includes a credit spread allowance
associated with that asset.
Redemption and defaults
The redemption and default assumptions used in the valuation of
loans secured by ground rents are derived from the assumptions for
the Group's bond portfolio. The impact of COVID-19 on the timing of
future cash flows, and on expected defaults, has been taken into
account in the calculation of fair value at 31 December 2021, with
no significant impacts noted to fair values.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
assets. The sensitivity of the valuation of ground rents is
determined by reference to movement in credit spreads. The Group
has estimated the impact on fair value to changes to these inputs
as follows:
Credit
Loans secured by ground rents spreads
net increase/(decrease) in fair value (GBPm) +100bps
============================================== ========
2021 (59.2)
============================================== ========
2020 (27.7)
============================================== ========
Infrastructure loans
Infrastructure loans classified as Level 3 are valued using
discounted cash flow analyses.
Principal assumptions underlying the calculation of
infrastructure loans classified as Level 3
Credit spreads
The valuation model discounts the expected future cash flows
using a discount rate which includes a credit spread allowance
associated with that asset.
Redemption and defaults
The redemption and default assumptions used in the valuation of
Level 3 infrastructure loans are derived from the assumptions for
the Group's bond portfolio. Due to the nature of these assets and
the sectors in which they operate, being primarily local
authorities, renewable energy generation and housing associations
sectors, the Group has assessed that there is no significant impact
from COVID-19 on the valuation at 31 December 2021.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
assets. The sensitivity of the valuation of infrastructure loans is
determined by reference to movement in credit spreads. The Group
has estimated the impact on fair value to changes to these inputs
as follows:
Credit
Infrastructure loans spreads
net increase/(decrease) in fair value (GBPm) +100bps
============================================== ========
2021 (96.6)
============================================== ========
2020 (90.7)
============================================== ========
Other loans
Other loans classified as Level 3 are mainly commodity trade
finance loans. These are valued using discounted cash flow
analyses.
Principal assumptions underlying the calculation of other loans
classified as Level 3
Credit spreads
The valuation model discounts the expected future cash flows
using a discount rate which includes a credit spread allowance
associated with that asset.
Redemption and defaults
The redemption and default assumptions used in the valuation of
Level 3 loans are derived from the assumptions for the Group's bond
portfolio. The impact of COVID-19 on expected defaults has been
taken into account in the calculation of fair value at 31 December
2021, with no significant impacts noted to fair values.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
assets. The sensitivity of the valuation of other loans 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:
Credit
Other loans spreads
net increase/(decrease) in fair value (GBPm) +100bps
============================================== ========
2021 (0.9)
============================================== ========
2020 (0.8)
============================================== ========
Investment contract liabilities
Investment contracts are valued using an internal model and
determined on a policy-by-policy basis using a prospective
valuation of future retirement income benefit and expense cash
flows.
Principal assumptions underlying the calculation of investment
contract liabilities
Valuation discount rates
The valuation model discounts the expected future cash flows
using a contractual discount rate derived from the assets
hypothecated to back the liabilities. The discount rate used for
the fixed term annuity product treated as investment business is
2.73% (2020: 2.34%).
Sensitivity analysis
The sensitivity of fair value to changes in the discount rate
assumptions in respect of investment contract liabilities is not
material.
Deposits received from reinsurers
Deposits from reinsurers which have been unbundled from their
reinsurance contract and recognised at fair value through profit or
loss 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.
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 2.87% and 1.03% respectively (2020: 2.21% and 0.06%
respectively).
Credit spreads
The valuation of deposits received from reinsurers includes a
credit spread derived from the assets hypothecated to back these
liabilities. A credit spread of 219bps (2020: 205bps) was applied
in respect of the most significant reinsurance contract.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
liabilities (see note 27(b)). The Group has estimated the impact on
fair value to changes to these inputs as follows:
Credit
Deposits received from reinsurers spreads Interest
net increase/(decrease) in fair value (GBPm) +100bps rates +100bps
============================================== ======== ==============
2021 (72.4) (196.1)
============================================== ======== ==============
2020 (80.1) (218.6)
============================================== ======== ==============
18 Deferred tax
2021 2020
=================== ======================== ========================
Asset Liability Total Asset Liability Total
GBPm GBPm GBPm GBPm GBPm GBPm
=================== ===== ========= ====== ===== ========= ======
Transitional tax - (1.5) (1.5) - (4.2) (4.2)
=================== ===== ========= ====== ===== ========= ======
Intangible assets - (17.0) (17.0) - (17.8) (17.8)
=================== ===== ========= ====== ===== ========= ======
Land and buildings - (0.8) (0.8) - (0.8) (0.8)
=================== ===== ========= ====== ===== ========= ======
Other provisions - 14.0 14.0 11.5 - 11.5
=================== ===== ========= ====== ===== ========= ======
Total deferred tax - (5.3) (5.3) 11.5 (22.8) (11.3)
=================== ===== ========= ====== ===== ========= ======
The transitional tax liability of GBP1.5m (2020: GBP4.2m)
represents the adjustment arising from the change in the tax rules
for life insurance companies which is amortised over ten years from
1 January 2013 and the transitional adjustments for tax purposes in
adopting IFRS which is amortised over ten years from 1 January
2016.
Other provisions principally relate to temporary differences
between the IFRS financial statements and tax deductions for
statutory insurance liabilities.
The movement in the net deferred tax balance was as follows:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
========================================= ============ ============
Net balance at 1 January (11.3) (14.8)
========================================= ============ ============
Recognised in profit or loss 6.0 3.4
========================================= ============ ============
Recognised in other comprehensive income - 0.1
========================================= ============ ============
Net balance at 31 December (5.3) (11.3)
========================================= ============ ============
The Group has unrecognised deferred tax assets of GBP6.2m (2020:
GBP5.3m).
19 Insurance and other receivables
2021 2020
GBPm GBPm
============================================================= ===== =====
Receivables arising from insurance and reinsurance contracts 20.0 21.0
============================================================= ===== =====
Finance lease receivables 2.3 3.8
============================================================= ===== =====
Other receivables 13.1 7.2
============================================================= ===== =====
Total insurance and other receivables 35.4 32.0
============================================================= ===== =====
Receivables arising from insurance and reinsurance contracts,
and also Other receivables are accounted for at amortised cost,
which approximates fair value. These balances are considered to
have contractual terms which are solely payments of principal and
interest ("SPPI"). There has been no change in fair value
recognised in the Consolidated statement of comprehensive income in
the period (2020: nil). The credit rating of these balances is
disclosed in note 33.
Other than finance lease receivables of GBP0.7m (2020: GBP2.2m),
insurance and other receivables of GBPnil (2020: GBPnil) are
expected to be recovered more than one year after the Consolidated
statement of financial position date.
20 Cash and cash equivalents
2021 2020
GBPm GBPm
======================================================== ======= =======
Cash available on demand 510.2 1,496.3
======================================================== ======= =======
Units in liquidity funds(1) 1,310.5 1,128.5
======================================================== ======= =======
Cash and cash equivalents in the Consolidated statement
of cash flows 1,820.7 2,624.8
======================================================== ======= =======
1 Units in liquidity funds are presented as a financial investment in note 16.
21 Share capital
The allotted, issued and fully paid ordinary share capital of
Just Group plc at 31 December 2021 is detailed below:
Number of Share Share Merger
GBP0.10 ordinary capital premium reserve Total
shares GBPm GBPm GBPm GBPm
===================================== ================= ======== ======== ======== =====
At 1 January 2021 1,038,128,556 103.8 94.5 597.1 795.4
===================================== ================= ======== ======== ======== =====
Shares issued in respect of employee
share schemes 408,488 0.1 0.1 - 0.2
===================================== ================= ======== ======== ======== =====
At 31 December 2021 1,038,537,044 103.9 94.6 597.1 795.6
===================================== ================= ======== ======== ======== =====
At 1 January 2020 1,035,081,664 103.5 94.5 597.1 795.1
===================================== ================= ======== ======== ======== =====
Shares issued in respect of employee
share schemes 3,046,892 0.3 - - 0.3
===================================== ================= ======== ======== ======== =====
At 31 December 2020 1,038,128,556 103.8 94.5 597.1 795.4
===================================== ================= ======== ======== ======== =====
The merger reserve is the result of a placing of 94,012,782
ordinary shares in 2019 and the acquisition of 100% of the equity
of Partnership Assurance Group plc in 2016.
The placing in 2019 was achieved by the Company acquiring 100%
of the equity of a limited company for consideration of the new
ordinary shares issued. Accordingly, merger relief under Section
612 of the Companies Act 2006 applies, and share premium has not
been recognised in respect of this issue of shares. The merger
reserve recognised represents the premium over the nominal value of
the shares issued.
Consideration for the acquisition in 2016 of the equity shares
of Partnership Assurance Group plc consisted of a new issue of
shares in the Company. Accordingly, merger relief under Section 612
of the Companies Act 2006 applies, and share premium has not been
recognised in respect of this issue of shares. The merger reserve
recognised represents the difference between the nominal value of
the shares issued and the net assets of Partnership Assurance Group
plc acquired.
22 Tier 1 notes
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
======================== ============ ============
At 1 January 294.0 294.0
======================== ============ ============
Issued in the year 325.0 -
======================== ============ ============
Issue costs, net of tax (2.6) -
======================== ============ ============
Redeemed in the year (294.0) -
======================== ============ ============
At 31 December 322.4 294.0
======================== ============ ============
On 16 September 2021 the Group issued GBP325m 5.0% perpetual
restricted Tier 1 contingent convertible notes, incurring issue
costs of GBP2.6m, net of tax, and concurrently redeemed its GBP300m
9.375% perpetual restricted Tier 1 contingent convertible notes
issued in 2019 (GBP294.0m net of issue costs, net of tax) at a cost
of GBP341.0m, net of tax. The loss on redemption of the 2019 notes
of GBP47.0m (net of tax) has been recognised directly in
equity.
During the year, interest of GBP25.2m (2020: GBP28.1m) was paid
to holders of the 2019 notes. The 2021 notes bear interest on the
principal amount up to 30 September 2031 (the first reset date) at
the rate of 5.0% per annum, and thereafter at a fixed rate of
interest reset on the first call date and on each fifth anniversary
thereafter. Interest is payable on the notes semi-annually in
arrears on 30 March and 30 September each year commencing on 30
March 2022.
The Group has the option to cancel the coupon payment at its
discretion and cancellation of the coupon payment becomes mandatory
upon non-compliance with the solvency capital requirement or
minimum capital requirement or where the Group has insufficient
distributable items. Cancelled coupon payments do not accumulate or
become payable at a later date and do not constitute a default. In
the event of non-compliance with specific solvency requirements,
the conversion of the Tier 1 notes into ordinary shares could be
triggered.
The Tier 1 notes are treated as a separate category within
equity and the coupon payments are recognised outside of the profit
after tax result and directly in shareholders' equity.
23 Insurance contracts and related reinsurance
Insurance liabilities
2021 2020
GBPm GBPm
============================ ========= =========
Gross insurance liabilities 21,812.9 21,118.4
============================ ========= =========
Net reinsurance assets (2,533.5) (2,865.5)
============================ ========= =========
Net insurance liabilities 19,279.4 18,252.9
============================ ========= =========
Reinsurance in the table above includes reinsurance assets net
of reinsurance liability positions that can arise on longevity
swaps which are presented as liabilities in the Consolidated
statement of financial position.
(a) Terms and conditions of insurance contracts
The Group's long-term insurance contracts, written by the
Group's life companies, Just Retirement Limited ("JRL") and
Partnership Life Assurance Company Limited ("PLACL"), include
Retirement Income (Guaranteed Income for Life ("GIfL"), Defined
Benefit ("DB"), and Care Plans), and whole of life and term
protection insurance.
The valuation of insurance liabilities are agreed by the Board
using recognised actuarial valuation methods proposed by the
Group's Actuarial Reporting function. In particular, a prospective
gross premium valuation method has been adopted for major classes
of business.
Although the process for the establishment of insurance
liabilities follows specified rules and guidelines, the liabilities
that result from the process remain uncertain. As a consequence of
this uncertainty, the eventual value of claims could vary from the
amounts provided to cover future claims. The Group seeks to provide
for appropriate levels of contract liabilities taking known facts
and experiences into account but nevertheless such liabilities
remain uncertain.
The estimation process used in determining insurance liabilities
involves projecting future annuity payments and the cost of
maintaining the contracts. For non-annuity contracts, the liability
is determined as the sum of the discounted value of future benefit
payments and future administration expenses less the expected value
of premiums payable under the contract.
(b) Principal assumptions underlying the calculation of
insurance contracts
The principal assumptions underlying the calculation of
insurance contracts are explained below. This includes any areas
sensitive to COVID-19 effects or other economic downturn.
Mortality assumptions
The COVID-19 pandemic has had a significant effect on mortality
rates. There were particularly high rates in the spring of 2020,
and the early part of 2021, which contributed significantly to
positive mortality experience variances in the respective reporting
periods.
Over the second half of 2021 there was a more modest but
sustained elevation of mortality rates, relative to expected
levels, for the UK population overall. However, the extent to which
mortality rates will continue to be elevated is subject to
considerable uncertainty.
The Group considers that it is still too early to judge the
longer-term impact of COVID-19 on mortality and therefore no
explicit allowance for the pandemic has been included in future
mortality assumptions at 31 December 2021. Moreover, mortality
assumptions for each future year have been maintained at the same
level as assumed at 31 December 2020. The Group will continue to
follow closely the actual and potential future impact of COVID-19
on mortality as further information becomes available, and will
review its mortality assumptions should credible evidence emerge.
In particular, the Group continues to analyse potential direct and
indirect impacts of the pandemic, including the possibility there
will be enduring influences on the longevity of customers.
Mortality assumptions have been set by reference to appropriate
standard mortality tables. These tables have been adjusted to
reflect the future mortality experience of the policyholders,
taking into account the medical and lifestyle evidence collected
during the underwriting process, premium size, gender and the
Group's assessment of how this experience will develop in the
future. The assessment takes into consideration relevant industry
and population studies, published research materials, and
management's own industry experience.
The standard tables which underpin the mortality assumptions are
summarised in the table below.
2021 2020
========================= =================== ==================================
Individually underwritten Unchanged from 2020 Modified E&W Population mortality,
Guaranteed Income with CMI 2019 model mortality
for Life Solutions improvements
(JRL)
========================= =================== ==================================
Individually underwritten Unchanged from 2020 Modified E&W Population mortality,
Guaranteed Income with CMI 2019 model mortality
for Life Solutions improvements
(PLACL)
========================= =================== ==================================
Defined Benefit (JRL) Unchanged from 2020 Modified E&W Population mortality,
with CMI 2019 model mortality
improvements for standard
underwritten business; Reinsurer
supplied tables underpinned
by the Self-Administered
Pension Scheme ("SAPS") S1
tables, with modified CMI
2009 model mortality improvements
for medically underwritten
business
========================= =================== ==================================
Defined Benefit (PLACL) Unchanged from 2020 Modified E&W Population mortality,
with CMI 2019 model mortality
improvements
========================= =================== ==================================
Care Plans and other Unchanged from 2020 Modified PCMA/PCFA and with
annuity products (PLACL) CMI 2019 model mortality
improvements for Care Plans;
Modified PCMA/PCFA or modified
E&W Population mortality
with CMI 2019 model mortality
improvements for other annuity
products
========================= =================== ==================================
Protection (PLACL) Unchanged from 2020 TM/TF00 Select
========================= =================== ==================================
All references to the use of the CMI 2019 model relate to
improvements for calendar year 2020 onwards.
The long-term improvement rates in the CMI 2019 model are 2.0%
for males and 1.75% for females (2020: 2.0% for males and 1.75% for
females). The period smoothing parameter in the modified CMI 2019
model has been set to 7.00 (2020: 7.00). The addition to initial
rates ("A") parameter in the model varies between 0% and 0.25%
depending on product (2020: between 0% and 0.25% depending on
product). All other CMI model parameters are the defaults (2020:
other parameters set to defaults).
Valuation discount rates
Valuation discount rate assumptions are set by considering the
yields on the assets allocated to back the liabilities. The yields
on lifetime mortgage assets are derived using the assumptions
described in note 17 with allowance for risk through the deductions
related to the NNEG. An explicit allowance for credit risk is
included by making an explicit deduction from the yields on debt
and other fixed income securities, loans secured by commercial
mortgages, and other loans based on an expectation of default
experience of each asset class and application of a prudent
loading. Allowances vary by asset category and by rating. Economic
uncertainty surrounding COVID-19 increases the risk of credit
defaults. Our underlying default methodology allows for the impact
of credit rating downgrades and spread widening and hence we have
maintained the same methodology at 31 December 2021. The
considerations around COVID-19 for property prices affecting the
NNEG are as described in note 17.
2021 2020
Valuation discount rates - gross liabilities % %
=============================================================== ==== ====
Individually underwritten Guaranteed Income for Life Solutions
(JRL) 2.73 2.34
=============================================================== ==== ====
Individually underwritten Guaranteed Income for Life Solutions
(PLACL) 2.87 2.21
=============================================================== ==== ====
Defined Benefit (JRL) 2.73 2.34
=============================================================== ==== ====
Defined Benefit (PLACL) 2.87 2.21
=============================================================== ==== ====
Other annuity products (PLACL) 1.03 0.06
=============================================================== ==== ====
Term and whole of life products (PLACL) 1.03 0.28
=============================================================== ==== ====
The overall reduction in yield to allow for the risk of defaults
from all non-LTM assets (including gilts, corporate bonds,
infrastructure loans, private placements and commercial mortgages)
and the NNEG from LTMs was 64bps in JRL and 63bps in PLACL (2020:
69bps and 65bps respectively).
Future expenses
Assumptions for future policy expense levels, expressed as a per
plan charge for GIfL and a per scheme member charge for DB, are
determined from the Group's recent expense analyses. The assumed
future policy expense levels incorporate an annual inflation rate
allowance of 4.45% (2020: 3.85%) derived from the expected retail
price and consumer price indices implied by inflation swap rates
and an additional allowance for earnings inflation.
Inflation
Assumptions for annuity escalation are required for RPI and CPI
index linked liabilities, the majority of which are within the
Defined Benefit business. The inflation curve assumed in each case
is that which is implied by market swap rates, taking into account
any escalation caps and/or floors applicable. This methodology is
unchanged compared to the previous period.
(c) Movements
The following movements have occurred in the insurance contract
balances during the year.
Gross Reinsurance Net
Year ended 31 December 2021 GBPm GBPm GBPm
==================================== ========= =========== =========
At 1 January 2021 21,118.4 (2,865.5) 18,252.9
==================================== ========= =========== =========
Change due to new premiums 2,298.1 33.8 2,331.9
==================================== ========= =========== =========
Change due to new claims (1,478.1) 239.0 (1,239.1)
==================================== ========= =========== =========
Unwinding of discount 488.8 (62.1) 426.7
==================================== ========= =========== =========
Changes in economic assumptions (595.1) 135.4 (459.7)
==================================== ========= =========== =========
Changes in non-economic assumptions (9.8) - (9.8)
==================================== ========= =========== =========
Other movements (9.4) (14.1) (23.5)
==================================== ========= =========== =========
At 31 December 2021 21,812.9 (2,533.5) 19,279.4
==================================== ========= =========== =========
Gross Reinsurance Net
Year ended 31 December 2020 GBPm GBPm GBPm
==================================== ========= =========== =========
At 1 January 2020 19,003.7 (3,732.0) 15,271.7
==================================== ========= =========== =========
Change due to new premiums 1,803.0 14.1 1,817.1
==================================== ========= =========== =========
Change due to new claims (1,397.5) 323.9 (1,073.6)
==================================== ========= =========== =========
Unwinding of discount 565.6 (103.0) 462.6
==================================== ========= =========== =========
Changes in economic assumptions 1,360.3 (252.8) 1,107.5
==================================== ========= =========== =========
Changes in non-economic assumptions (142.2) 96.9 (45.3)
==================================== ========= =========== =========
Other movements1 (74.5) 787.4 712.9
==================================== ========= =========== =========
At 31 December 2020 21,118.4 (2,865.5) 18,252.9
==================================== ========= =========== =========
1 Includes the impact of reinsurance recapture in 2020 (see note 29).
Reinsurance in the table above includes reinsurance assets net
of reinsurance liability positions that can arise on longevity
swaps which are presented as liabilities in the Consolidated
statement of financial position.
Effect of changes in assumptions and estimates during the
year
Economic assumption changes
The principal economic assumption changes impacting the movement
in insurance liabilities during the year relates to discount rates
and inflation.
Discount rates
The movement in the valuation interest rate captures the impact
of underlying changes in risk-free curves and spreads and cash
flows arising on backing assets held over the course of the year.
The movement of the discount rate includes purchases to support new
business and trading for risk management purposes. For the year to
31 December 2021, changes in discount rates resulted in a net
reduction of insurance liabilities of GBP813m (2020: GBP1,189m)
which was largely due to increases in the risk-free rate and
changes to the backing asset portfolio, in particular as a
consequence of the LTM portfolio sale.
Inflation
Insurance liabilities for inflation-linked products, most
notably Defined Benefit business and expenses on all products are
impacted by changes in future expectations of RPI, CPI and earnings
inflation. For the year to 31 December 2021, changes in inflation,
driven by a rise in market-implied expectations of future RPI and
CPI inflation, resulted in a net increase of insurance liabilities
of GBP348m (2020: GBP(81)m).
Non-economic assumption changes
The principal non-economic assumption changes impacting the
movement in insurance liabilities during the year relate to
maintenance expense assumptions for both JRL and PLACL products.
Note that impacts quoted below relate specifically to the liability
cash flow impact of these changes; any resulting change to the
discount rate is captured above.
Maintenance expenses
This item primarily reflects a decrease in maintenance expense
assumptions, most notably for Defined Benefit business. For the
year to 31 December 2021 this resulted in a net reduction in
insurance liabilities of GBP10m (2020: GBP(19)m).
(d) Estimated timing of net cash outflows from insurance
contract liabilities
The following table shows the insurance contract balances
analysed by duration. The total balances are split by duration of
payments in proportion to the policy cash flows estimated to arise
during the year.
Expected cash flows (undiscounted)
============ ==================================================== ===================
Within Over Carrying
1 year 1-5 years 5-10 years 10 years Total value (discounted)
2021 GBPm GBPm GBPm GBPm GBPm GBPm
============ ======= ========= ========== ========= ========= ===================
Gross 1,435.4 5,465.3 6,356.3 16,893.6 30,150.6 21,812.9
============ ======= ========= ========== ========= ========= ===================
Reinsurance (201.7) (733.5) (786.3) (1,650.8) (3,372.3) (2,533.5)
============ ======= ========= ========== ========= ========= ===================
Net 1,233.7 4,731.8 5,570.0 15,242.8 26,778.3 19,279.4
============ ======= ========= ========== ========= ========= ===================
Expected cash flows (undiscounted)
============ ==================================================== ===================
Within Over Carrying
1 year 1-5 years 5-10 years 10 years Total value (discounted)
2020 GBPm GBPm GBPm GBPm GBPm GBPm
============ ======= ========= ========== ========= ========= ===================
Gross 1,356.5 5,139.3 5,893.8 15,250.4 27,640.0 21,118.4
============ ======= ========= ========== ========= ========= ===================
Reinsurance (211.6) (766.6) (818.8) (1,815.6) (3,612.6) (2,865.5)
============ ======= ========= ========== ========= ========= ===================
Net 1,144.9 4,372.7 5,075.0 13,434.8 24,027.4 18,252.9
============ ======= ========= ========== ========= ========= ===================
Reinsurance in the table above includes reinsurance assets net
of reinsurance liability positions that can arise on longevity
swaps which are presented as liabilities in the Consolidated
statement of financial position.
(e) Sensitivity analysis
The Group has estimated the impact on profit before tax for the
year in relation to insurance contracts and related reinsurance
from reasonably possible changes in key assumptions relating to
financial assets and to liabilities. The sensitivities capture the
liability impacts arising from the impact on the yields of the
assets backing liabilities in each sensitivity. The impact of
changes in the value of assets and liabilities has been shown
separately to aid the comparison with the change in value of assets
for the relevant sensitivities in note 17. To further assist with
this comparison, any impact on reinsurance assets has also been
included within the liabilities line item.
The sensitivity factors are applied via financial models either
as at the valuation date or from a suitable recent reporting period
where appropriate to do so. The analysis has been prepared for a
change in each variable with other assumptions remaining constant.
In reality, such an occurrence is unlikely, due to correlation
between the assumptions and other factors. It should also be noted
that these sensitivities are non-linear, and larger or smaller
impacts cannot necessarily be interpolated or extrapolated from
these results. The extent of non-linearity grows as the severity of
any sensitivity is increased. For example, in the specific scenario
of property price falls, the impact on IFRS profit before tax from
a 5% fall in property prices would be slightly less than half of
that disclosed in the table below. Furthermore, in the specific
scenario of a mortality reduction, a smaller fall than disclosed in
the table below or a similar increase in mortality may be expected
to result in broadly linear impacts. However, it becomes less
appropriate to extrapolate the expected impact for more severe
scenarios. The sensitivity factors take into consideration that the
Group's assets and liabilities are actively managed and may vary at
the time that any actual market movement occurs. The sensitivities
below cover the changes on all assets and liabilities from the
given stress. The impact on liabilities includes the net effect of
the impact on reinsurance assets and liabilities. The impact of
these sensitivities on IFRS net equity is the impact on profit
before tax as set out in the table below less tax at the current
tax rate.
Sensitivity factor Description of sensitivity factor applied
===================== ==============================================================
Interest rate and The impact of a change in the market interest rates by
investment return +/- 1% (e.g. if a current interest rate is 5%, the impact
of an immediate change to 4% and 6% respectively). The
test consistently allows for similar changes to both assets
and liabilities
===================== ==============================================================
Expenses The impact of an increase in maintenance expenses by 10%
===================== ==============================================================
Base mortality The impact of a decrease in base table mortality rates
rates by 5% applied to both Retirement Income liabilities and
loans secured by residential mortgages
===================== ==============================================================
Mortality improvement The impact of a level increase in mortality improvement
rates rates of 0.25% for both Retirement Income liabilities
and loans secured by residential mortgages
===================== ==============================================================
Immediate property The impact of an immediate decrease in the value of properties
price fall by 10%
===================== ==============================================================
Future property The impact of a reduction in future property price growth
price growth by 0.5%
===================== ==============================================================
Future property The impact of an increase in future property price volatility
price volatility by 1%
===================== ==============================================================
Voluntary redemptions The impact of an increase in voluntary redemption rates
on loans secured by residential mortgages by 10%
===================== ==============================================================
Credit defaults The impact of an increase in the credit default assumption
of 10bps
===================== ==============================================================
Impact on profit before tax (GBPm)
Immediate Future Future
property property property
Interest Interest Maintenance Base Mortality price price price Voluntary Credit
rates rates expenses mortality improvement fall growth volatility redemptions defaults
+1% -1% +10% -5% +0.25% -10% -0.5% +1% +10% +10bps
===== ============ ========= ========= =========== ========= =========== ========= ======== ========== =========== ========
2021 Assets (2,602.0) 3,118.9 (6.5) 23.8 7.5 (90.8) (59.2) (41.2) (6.2) (0.0)
===== ============ ========= ========= =========== ========= =========== ========= ======== ========== =========== ========
Liabilities 2,076.3 (2,492.5) (33.7) (140.6) (104.4) (67.7) (67.7) (22.5) (64.2) (151.6)
================== ========= ========= =========== ========= =========== ========= ======== ========== =========== ========
Total (525.7) 626.4 (40.2) (116.8) (96.9) (158.5) (126.9) (63.7) (70.4) (151.6)
================== ========= ========= =========== ========= =========== ========= ======== ========== =========== ========
2020 Assets (2,471.3) 2,955.9 (5.9) 35.3 15.6 (105.8) (72.8) (51.5) (14.5) -
===== ============ ========= ========= =========== ========= =========== ========= ======== ========== =========== ========
Liabilities 1,974.6 (2,369.9) (50.5) (149.6) (109.4) (88.0) (83.8) (43.9) (83.8) (150.6)
================== ========= ========= =========== ========= =========== ========= ======== ========== =========== ========
Total (496.7) 586.0 (56.4) (114.3) (93.8) (193.8) (156.6) (95.4) (98.3) (150.6)
================== ========= ========= =========== ========= =========== ========= ======== ========== =========== ========
24 Investment contract liabilities
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
======================================================= ============ ============
At 1 January 42.8 54.0
======================================================= ============ ============
Deposits received from policyholders 1.1 1.0
======================================================= ============ ============
Payments made to policyholders (11.1) (14.0)
======================================================= ============ ============
Change in contract liabilities recognised in profit or
loss 0.8 1.8
======================================================= ============ ============
At 31 December 33.6 42.8
======================================================= ============ ============
(a) Terms and conditions of investment contracts
The Group has written Capped Drawdown products for the
at-retirement market. These products are no longer available to new
customers. In return for a single premium, these contracts pay a
guaranteed lump sum on survival to the end of the fixed term. There
is an option at outset to select a lower sum at maturity and
regular income until the earlier of death or maturity. Upon death
of the policyholder and subject to the option selected at the
outset, there may be a return of premium less income received or
income payable to a dependant until the death of that
dependant.
(b) Principal assumptions underlying the calculation of
investment contracts
Valuation discount rates
Valuation discount rate assumptions for investment contracts are
set with regard to yields on supporting assets. The yields on
lifetime mortgage assets are derived using the assumptions
described in note 17 with allowance for risk through the deductions
related to the NNEG. An explicit allowance for credit risk is
included by making an explicit deduction from the yields on debt
and other fixed income securities, loans secured by commercial
mortgages, and other loans based on an expectation of default
experience of each asset class and application of a prudent
loading. Allowances vary by asset category and by rating. Economic
uncertainty surrounding COVID-19 increases the risk of credit
defaults. Our underlying default methodology allows for the impact
of credit rating downgrades and spread widening and hence we have
maintained the same methodology at 31 December 2021. The
considerations around COVID-19 for property prices affecting the
NNEG are as described in note 17.
2021 2020
Valuation discount rates % %
========================= ==== ====
Investment contracts 2.73 2.34
========================= ==== ====
25 Loans and borrowings
Carrying value Fair value
=========================================================== ================ ==============
2021 2020 2021 2020(1)
GBPm GBPm GBPm GBPm
=========================================================== ======= ======= ===== =======
GBP250m 9.0% 10 year subordinated debt 2026 (Tier
2) issued by Just Group plc 249.2 249.1 323.5 316.7
=========================================================== ======= ======= ===== =======
GBP125m 8.125% 10 year subordinated debt 2029 (Tier
2) issued by Just Group plc 122.2 121.8 165.6 144.2
=========================================================== ======= ======= ===== =======
GBP250m 7.0% 10.5 year subordinated debt 2013 non-callable
5.5 years (Green Tier 2) issued by Just Group plc 248.4 248.2 287.2 277.5
=========================================================== ======= ======= ===== =======
GBP230m 3.5% 7 year subordinated debt 2025 (Tier
3) issued by Just Group plc 154.5 154.4 160.5 155.9
=========================================================== ======= ======= ===== =======
Total loans and borrowings 774.3 773.5 936.8 894.3
=========================================================== ======= ======= ===== =======
1 The fair value disclosed for loans and borrowings for 2020 has
been restated to correct the basis on which the fair value was
determined. This resulted in a change across all loans from
GBP802.0m to GBP894.3m.
On 15 October 2020, the Group completed the issue of GBP250m
Green Tier 2 capital via a 7.0% sterling denominated BBB rated 10.5
year, non-callable 5.5 year bonds issue, interest payable
semi-annually in arrears. The bonds have a reset date of 15 April
2026 with optional redemption any time from 15 October 2025 up to
the reset date. The proceeds of the issue have been used in part to
finance the purchase of GBP75m of the GBP230m 3.5% 7 year
subordinated debt 2025 (Tier 3) issued by the Group in 2018.
The Group also has an undrawn revolving credit facility of up to
GBP200m for general corporate and working capital purposes
available until 15 May 2022. Interest is payable on any drawdown
loans at a rate of SONIA plus a margin of between 1.50% and 2.75%
per annum depending on the Group's ratio of net debt to net
assets.
Movements in borrowings during the year were as follows:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
========================================================== ============ ============
At 1 January 773.5 660.0
========================================================== ============ ============
Proceeds from issue of Just Group plc Tier 2 subordinated
debt - 250.0
========================================================== ============ ============
Issue costs - (1.9)
========================================================== ============ ============
Repayment of Partnership Life Assurance Company Limited
Tier 2 subordinated debt - (62.5)
========================================================== ============ ============
Repayment of Just Group plc Tier 3 subordinated debt - (75.0)
========================================================== ============ ============
Financing cash flows - 110.6
========================================================== ============ ============
Amortisation of issue costs 0.8 2.9
========================================================== ============ ============
Non-cash movements 0.8 2.9
========================================================== ============ ============
At 31 December 774.3 773.5
========================================================== ============ ============
26 Lease liabilities
Lease liabilities are in respect of property assets leased by
the Group recognised as right-of-use assets within Property, plant
and equipment on the Consolidated statement of financial position.
The Group has elected not to recognise right-of-use assets and
lease liabilities for short-term leases of less than 12 months and
leases of low value assets.
Movements in lease liabilities during the year were as
follows:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
===================== ============ ============
At 1 January 6.9 12.4
===================== ============ ============
Lease payments (3.7) (4.3)
===================== ============ ============
Financing cash flows (3.7) (4.3)
===================== ============ ============
Rent increase 0.6 -
===================== ============ ============
Disposal - (1.5)
===================== ============ ============
Interest 0.1 0.2
===================== ============ ============
Non-cash movements 0.7 (1.3)
===================== ============ ============
At 31 December 3.9 6.8
===================== ============ ============
Lease liabilities are payable as follows:
2021 2020
GBPm GBPm
=========================== ===== =====
At 31 December 2021
=========================== ===== =====
Less than one year 3.0 3.4
=========================== ===== =====
Between one and five years 1.0 3.6
=========================== ===== =====
4.0 7.0
=========================== ===== =====
Interest (0.1) (0.2)
=========================== ===== =====
Total lease liability 3.9 6.8
=========================== ===== =====
27 Other financial liabilities
The Group has the following other financial liabilities which
are measured at fair value through profit or loss:
2021 2020
Note GBPm GBPm
====================================================== ===== ======= =======
Derivative financial liabilities (a) 394.7 512.7
====================================================== ===== ======= =======
Obligations for repayment of cash collateral received (a) 326.2 377.4
====================================================== ===== ======= =======
Deposits received from reinsurers (b) 2,144.7 2,415.0
====================================================== ===== ======= =======
Total other liabilities 2,865.6 3,305.1
============================================================= ======= =======
The amount of deposits received from reinsurers and reinsurance
funds withheld that is expected to be settled more than one year
after the Consolidated statement of financial position date is
GBP1,952.7m (2020: GBP2,213.4m).
(a) Derivative financial liabilities and obligations for
repayment of cash collateral received
Derivative financial liabilities and obligations for repayment
of cash collateral received 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 unbundled from their
reinsurance contract and recognised at fair value through profit or
loss in accordance with IAS 39, Financial instruments: measurement
and recognition. 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.
28 Derivative financial instruments
The Group uses various derivative financial instruments to
manage its exposure to interest rates, counterparty credit risk,
property risk, inflation and foreign exchange risk.
2021 2020
============================= ================================== ==================================
Asset Liability Notional Asset Liability Notional
fair value fair value amount fair value fair value amount
Derivatives GBPm GBPm GBPm GBPm GBPm GBPm
============================= =========== =========== ======== =========== =========== ========
Foreign currency swaps 243.4 247.2 8,069.4 267.7 194.5 4,557.5
============================= =========== =========== ======== =========== =========== ========
Interest rate swaps 169.9 44.9 9,117.7 484.3 76.8 6,798.5
============================= =========== =========== ======== =========== =========== ========
Inflation swaps 261.8 92.5 4,580.0 25.6 228.2 3,238.4
============================= =========== =========== ======== =========== =========== ========
Forward swaps 1.8 3.4 213.9 8.9 0.1 93.8
============================= =========== =========== ======== =========== =========== ========
Total return swaps 5.8 5.8 - 9.9 9.8 -
============================= =========== =========== ======== =========== =========== ========
Put option on property index
(NNEG hedge) 8.5 0.9 705.0 3.6 3.3 730.0
============================= =========== =========== ======== =========== =========== ========
Total 691.2 394.7 22,686.0 800.0 512.7 15,418.2
============================= =========== =========== ======== =========== =========== ========
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.
master agreements, and the Group has collateral agreements between
the individual Group entities and relevant counterparties in place
under each of these market master agreements.
As at 31 December 2021, the Group had pledged collateral of
GBP61.3m (2020: GBP97.8m) in respect of derivative financial
instruments, of which GBP11.0m were gilts (2020: GBPnil) and had
received cash collateral of GBP326.2m (2020: GBP377.4m).
Amounts recognised in profit or loss in respect of derivative
financial instruments are as follows:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
================================================= ============ ============
Movement in fair value of derivative instruments 9.2 298.7
================================================= ============ ============
Realised losses on interest rate swaps closed 120.5 29.0
================================================= ============ ============
Total amounts recognised in profit or loss 129.7 327.7
================================================= ============ ============
29 Reinsurance
The Group uses reinsurance as an integral part of its risk and
capital management activities.
New business is reinsured via longevity swap arrangements for DB
and GIfL business and quota share for DB partnering business, as
follows:
-- DB was reinsured at 90% for non-underwritten schemes.
-- DB Partnering was reinsured at 100% for the first scheme completed in 2020.
-- GIfL was reinsured at 90% during 2021 and 2020.
-- Care new business was not reinsured in 2021 or 2020.
In-force business is reinsured under longevity swap and quota
share treaties. The quota share reinsurance treaties have deposit
back or other collateral arrangements to remove the majority of the
reinsurer credit risk, as described below. The majority of
longevity swaps also have collateral arrangements, for the same
purpose.
During 2020 the Group increased the reinsurance on JRL GIfL
business written between 1 January 2016 and 31 December 2019 from
75% to 100%. The increased cover was effective from 30 June 2020.
Reinsurance on JRL DB in-force business is 100% for all schemes
written between 1 January 2016 and 30 June 2019. Within JRL there
were a number of quota share treaties with financing arrangements,
which were originally entered into for the capital benefits under
the old Solvency I regime (the financing formed part of available
capital). The repayment of this financing was contingent upon the
emergence of surplus under the Solvency I or IFRS valuation rules.
These treaties also allowed JRL to recapture business once the
financing loan from the reinsurer has been fully repaid. During
2020 the Group made additional repayments so as to fully repay all
financing loans and trigger the recapture of all remaining
financing treaties. In aggregate, recaptures during 2020 (including
those occurring as a result of these additional repayments)
resulted in a decrease of reinsurance assets of GBP940.0m and a
reduction of equal amount in the deposits received from reinsurers
recognised within other financial liabilities.
In addition to the deposits received from reinsurers recognised
within other financial liabilities (see note 27(b)), certain
reinsurance arrangements give rise to deposits from reinsurers that
are not included in the Consolidated statement of financial
position of the Group as described below:
-- The Group has an agreement with two reinsurers whereby
financial assets arising from the payment of reinsurance premiums,
less the repayment of claims, in relation to specific treaties, are
legally and physically deposited back with the Group. Although the
funds are controlled by the Group, no future benefits accrue to the
Group as any returns on the deposits are paid to reinsurers.
Consequently, the deposits are not recognised as assets of the
Group and the investment income they produce does not accrue to the
Group.
-- The Group has an agreement with one reinsurer whereby assets
equal to the reinsurer's full obligation under the treaty are
deposited into a ringfenced collateral account. The Group has first
claim over these assets should the reinsurer default, but as the
Group has no control over these funds and does not accrue any
future benefit, this fund is not recognised as an asset of the
Group.
-- The Group has an agreement with one reinsurer whereby assets
equal to the reinsurer's full obligation under the treaty are
either deposited into a ringfenced collateral account of corporate
bonds, or held under a funds withheld structure of Lifetime
Mortgages. The latter are legally and physically held by the Group.
Although the funds are managed by the Group (as the Group controls
the investment of the asset), no future benefits accrue to the
Group as returns on the assets are paid to reinsurers.
Consequently, the lifetime mortgages are not recognised as assets
of the Group and the investment income they produce does not accrue
to the Group. The reinsurer also deposits cash into a bank account
held legally by the Group to fund future lifetime mortgages but as
this cash is ringfenced for issued lifetime mortgage quotes agreed
by the reinsurer, it is also not recognised as an asset by the
Group.
2021 2020
GBPm GBPm
======================= ===== =====
Deposits held in trust 491.7 492.0
======================= ===== =====
The Group is exposed to a minimal amount of reinsurance
counterparty default risk in respect of the above arrangements and
calculates a counterparty default reserve accordingly. At 31
December 2021, this reserve totalled GBP3.4m (2020: GBP3.6m).
30 Insurance and other payables
2021 2020
GBPm GBPm
========================================================== ===== =====
Payables arising from insurance and reinsurance contracts 22.0 24.6
========================================================== ===== =====
Other payables 71.3 67.0
========================================================== ===== =====
Total insurance and other payables 93.3 91.6
========================================================== ===== =====
Other payables includes unsettled investment purchases.
Insurance and other payables due in more than one year are GBPnil
(2020: GBPnil).
31 Commitments
Capital commitments
The Group had no capital commitments as at 31 December 2021
(2020: GBPnil).
32 Contingent liabilities
There are no contingent liabilities as at 31 December 2021
(2020: GBPnil).
33 Financial and insurance risk management
This note presents information about the major financial and
insurance risks to which the Group is exposed, and its objectives,
policies and processes for their measurement and management.
Financial risk comprises exposure to market, credit and liquidity
risk.
(a) Insurance risk
The writing of long-term insurance contracts exposes the Group
to insurance risk. The Group's main insurance risk arises from
adverse experience compared with the assumptions used in pricing
products and valuing insurance liabilities, and in addition its
reinsurance treaties may be terminated, not renewed, or renewed on
terms less favourable than those under existing treaties.
Insurance risk arises through exposure to longevity, mortality
and morbidity and exposure to factors such as withdrawal levels and
management and administration expenses.
Individually underwritten GIfL are priced using assumptions
about future longevity that are based on historic experience
information, lifestyle and medical factors relevant to individual
customers, and judgements about the future development of longevity
improvements. In the event of an increase in longevity, the
actuarial reserve required to make future payments to customers may
increase.
Loans secured by mortgages are used to match some of the
liabilities arising from the sale of GIfL and DB business. In the
event that early repayments in a given period are higher than
anticipated, less interest will have accrued on the mortgages and
the amount repayable will be less than assumed at the time of sale.
In the event of an increase in longevity, although more interest
will have accrued and the amount repayable will be greater than
assumed at the time of the sale, the associated cash flows will be
received later than had originally been anticipated. In addition, a
general increase in longevity would have the effect of increasing
the total amount repayable, which would increase the LTV ratio and
could increase the risk of failing to be repaid in full as a
consequence of the no-negative equity guarantee. There is also
morbidity risk exposure as the contract ends when the customer
moves into long-term care.
Management of insurance risk
Underpinning the management of insurance risk are:
-- the development and use of medical information including
PrognoSys(TM) for both pricing and reserving to provide detailed
insight into longevity risk;
-- adherence to approved underwriting requirements;
-- controls around the development of suitable products and their pricing;
-- review and approval of assumptions used by the Board;
-- regular monitoring and analysis of actual experience;
-- use of reinsurance to minimise volatility of capital requirement and profit; and
-- monitoring of expense levels.
Concentrations of insurance risk
Concentration of insurance risk comes from improving longevity.
Improved longevity arises from enhanced medical treatment and
improved life circumstances. Concentration risk is managed by
writing business across a wide range of different medical and
lifestyle conditions to avoid excessive exposure.
(b) Market risk
Market risk is the risk of loss or of adverse change in the
financial situation resulting, directly or indirectly, from
fluctuations in the level and in the volatility of market prices of
assets, liabilities and financial instruments, together with the
impact of changes in interest rates. Significant market risk is
implicit in the insurance business and arises from exposure to
interest rate risk, property risk, inflation risk and currency
risk. The Group is not exposed to any equity risk. Market risk
represents both upside and downside impacts but the Group's policy
to manage market risk is to limit downside risk. Falls in the
financial markets can reduce the value of pension funds available
to purchase Retirement Income products and changes in interest
rates can affect the relative attractiveness of Retirement Income
products. Changes in the value of the Group's investment portfolio
will also affect the Group's financial position.
In mitigation, Retirement Income product monies are invested to
match the asset and liability cash flows as closely as practicable.
In practice, it is not possible to eliminate market risk fully as
there are inherent uncertainties surrounding many of the
assumptions underlying the projected asset and liability cash
flows.
For each of the material components of market risk, described in
more detail below, the market risk policy sets out the risk
appetite and management processes governing how each risk should be
measured, managed, monitored and reported.
(i) Interest rate risk
The Group is exposed to interest rate risk through its impact on
the value of, or income from, specific assets, liabilities or both.
It seeks to limit its exposure through appropriate asset and
liability matching and hedging strategies. The Group's strategy is
to actively hedge the interest rate risk to which its Solvency II
balance sheet is exposed; some exposure remains on an IFRS
basis.
The Group's exposure to changes in interest rates is
concentrated in the investment portfolio, loans secured by
mortgages and its insurance obligations. Changes in investment and
loan values attributable to interest rate changes are mitigated by
corresponding and partially offsetting changes in the value of
insurance liabilities. The Group monitors this exposure through
regular reviews of the asset and liability position, capital
modelling, sensitivity testing and scenario analyses. Interest rate
risk is also managed using derivative instruments e.g. swaps.
The following table indicates the earlier of contractual
repricing or maturity dates for the Group's significant financial
assets.
Less than One to Five to Over ten No fixed
one year five years ten years years term Total
2021 GBPm GBPm GBPm GBPm GBPm GBPm
================================== ========= =========== ========== ======== ======== ========
Investment property - - - 69.6 - 69.6
================================== ========= =========== ========== ======== ======== ========
Units in liquidity funds 1,310.5 - - - - 1,310.5
================================== ========= =========== ========== ======== ======== ========
Investment funds 68.4 233.4 - - - 301.8
================================== ========= =========== ========== ======== ======== ========
Debt securities and other
fixed income securities 733.5 1,920.0 2,345.9 7,924.6 - 12,924.0
================================== ========= =========== ========== ======== ======== ========
Deposits with credit institutions 52.9 - - - - 52.9
================================== ========= =========== ========== ======== ======== ========
Derivative financial assets 8.0 62.7 96.4 524.1 - 691.2
================================== ========= =========== ========== ======== ======== ========
Loans secured by residential
mortgages - - - - 7,422.8 7,422.8
================================== ========= =========== ========== ======== ======== ========
Loans secured by commercial
mortgages 43.4 395.0 189.8 49.6 - 677.8
================================== ========= =========== ========== ======== ======== ========
Loans secured by ground
rents - - - 189.7 - 189.7
================================== ========= =========== ========== ======== ======== ========
Infrastructure loans - 25.3 123.5 844.3 - 993.1
================================== ========= =========== ========== ======== ======== ========
Other loans 0.9 108.3 3.2 5.5 - 117.9
================================== ========= =========== ========== ======== ======== ========
Total 2,217.6 2,744.7 2,758.8 9,607.4 7,422.8 24,751.3
================================== ========= =========== ========== ======== ======== ========
Less than One to Five to Over No fixed
one year five years ten years ten years term Total
2020 GBPm GBPm GBPm GBPm GBPm GBPm
================================== ========= =========== ========== ========== ======== ========
Units in liquidity funds 1,128.5 - - - - 1,128.5
================================== ========= =========== ========== ========== ======== ========
Investment funds 37.0 139.1 - - - 176.1
================================== ========= =========== ========== ========== ======== ========
Debt securities and other
fixed income securities 789.3 1,823.4 2,322.7 6,126.0 - 11,061.4
================================== ========= =========== ========== ========== ======== ========
Deposits with credit institutions 99.7 - - - - 99.7
================================== ========= =========== ========== ========== ======== ========
Derivative financial assets 11.1 35.0 84.9 669.0 - 800.0
================================== ========= =========== ========== ========== ======== ========
Loans secured by residential
mortgages - - - - 8,261.1 8,261.1
================================== ========= =========== ========== ========== ======== ========
Loans secured by commercial
mortgages 36.0 270.5 221.2 64.4 - 592.1
================================== ========= =========== ========== ========== ======== ========
Loans secured by ground
rents - - - 114.9 - 114.9
================================== ========= =========== ========== ========== ======== ========
Infrastructure loans - - 153.9 791.1 - 945.0
================================== ========= =========== ========== ========== ======== ========
Other loans 0.4 81.7 3.2 5.7 - 91.0
================================== ========= =========== ========== ========== ======== ========
Total 2,102.0 2,349.7 2,785.9 7,771.1 8,261.1 23,269.8
================================== ========= =========== ========== ========== ======== ========
A sensitivity analysis of the impact of interest rate movements
on profit before tax is included in note 23(e).
(ii) Property risk
The Group's exposure to property risk arises from indirect
exposure to the UK residential property market through the
provision of lifetime mortgages. A substantial decline or sustained
underperformance in UK residential property prices, against which
the Group's lifetime mortgages are secured, could result in
proceeds on sale being exceeded by the mortgage debt at the date of
redemption. Demand may also reduce for lifetime mortgage products
through reducing consumers' propensity to borrow and by reducing
the amount they are able to borrow due to reductions in property
values and the impact on loan-to-value limits.
The risk is mitigated by ensuring that the advance represents a
low proportion of the property's value at outset and independent
third party valuations are undertaken on each property before
initial mortgages are advanced. Lifetime mortgage contracts are
also monitored through dilapidation reviews. House prices are
monitored and the impact of exposure to adverse house prices (both
regionally and nationally) is regularly reviewed. Further
mitigation is through management of the volume of lifetime
mortgages, including disposals, in the portfolio in line with the
Group's LTM backing ratio target, and the establishment of the NNEG
hedges. The Group has managed its property risk exposure in the
year via a reduction in the LTM backing ratio, additional LTM
portfolio sales and further NNEG hedging.
A sensitivity analysis of the impact of property price movements
is included in note 17 and note 23(e). These notes also discuss the
Group's consideration of the impact of COVID-19 on property
assumptions at 31 December 2021.
(iii) Inflation risk
Inflation risk is the risk of fluctuations in the value of, or
income from, specific assets or liabilities or both in combination,
arising from relative or absolute changes in inflation or in the
volatility of inflation.
Exposure to inflation occurs in relation to the Group's own
management expenses and its matching of index-linked Retirement
Income products. Its impact is managed through the application of
disciplined cost control over its management expenses and through
matching its index-linked assets and index-linked liabilities for
the inflation risk associated with its index-linked Retirement
Income products.
(iv) Currency risk
Currency risk arises from fluctuations in the value of, or
income from, assets denominated in foreign currencies, from
relative or absolute changes in foreign exchange rates or in the
volatility of exchange rates.
Exposure to currency risk could arise from the Group's
investment in non-sterling denominated assets. The Group invests in
fixed income securities denominated in US dollars or other foreign
currencies for its financial asset portfolio. All material Group
liabilities are in sterling. As the Group does not wish to
introduce foreign exchange risk into its investment portfolio,
derivative or quasi-derivative contracts are entered into to
eliminate the foreign exchange exposure as far as possible.
(c) Credit risk
Credit risk arises if another party fails to perform its
financial obligations to the Group, including failing to perform
them in a timely manner.
Credit risk exposures arise from:
-- Holding fixed income investments where the main risks are
default and market risk. The risk of default (where the
counterparty fails to pay back the capital and/or interest on a
corporate bond) is mitigated by investing only in higher quality or
investment grade assets. Market risk is the risk of bond prices
falling as a result of concerns over the counterparty, or over the
market or economy in which the issuing company operates. This leads
to wider spreads (the difference between redemption yields and a
risk-free return), the impact of which is mitigated through the use
of a "hold to maturity" strategy. Concentration of credit risk
exposures is managed by placing limits on exposures to individual
counterparties and limits on exposures to credit rating levels.
-- The Group also manages credit risk on its corporate bond
portfolio through the appointment of specialist fund managers, who
execute a diversified investment strategy, investing in investment
grade assets and imposing individual counterparty limits. Current
economic and market conditions are closely monitored, as are
spreads on the bond portfolio in comparison with benchmark
data.
-- Counterparties in derivative contracts - the Group uses
financial instruments to mitigate interest rate and currency risk
exposures. It therefore has credit exposure to various
counterparties through which it transacts these instruments,
although this is usually mitigated by collateral arrangements (see
note 28).
-- Reinsurance - reinsurance is used to manage longevity risk
and to fund new business but, as a consequence, credit risk
exposure arises should a reinsurer fail to meet its claim repayment
obligations. Credit risk on reinsurance balances is mitigated by
the reinsurer depositing back more than 100% of premiums ceded
under the reinsurance agreement and/or through robust collateral
engagements or recapture plans.
-- Cash balances - credit risk on cash assets is managed by
imposing restrictions over the credit ratings of third parties with
whom cash is deposited.
-- Credit risk for loans secured by mortgages has been
considered within "property risk" above.
The following table provides information regarding the credit
risk exposure for financial assets of the Group, which are neither
past due nor impaired at 31 December:
BB or
UK gilts AAA AA A BBB below Unrated Total
2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======== ======= ======= ======= ======= ====== ======= ========
Investment property - - - 69.6 - - - 69.6
================================== ======== ======= ======= ======= ======= ====== ======= ========
Units in liquidity funds - 1,304.9 - - - 5.6 - 1,310.5
================================== ======== ======= ======= ======= ======= ====== ======= ========
Investment funds - - - - - - 301.8 301.8
================================== ======== ======= ======= ======= ======= ====== ======= ========
Debt securities and other
fixed income securities 741.8 894.0 2,132.3 3,279.7 5,554.2 322.0 - 12,924.0
================================== ======== ======= ======= ======= ======= ====== ======= ========
Deposits with credit institutions - - - 11.1 39.2 2.6 - 52.9
================================== ======== ======= ======= ======= ======= ====== ======= ========
Derivative financial assets - - 0.3 519.3 171.6 - - 691.2
================================== ======== ======= ======= ======= ======= ====== ======= ========
Loans secured by residential
mortgages - - - - - - 7,422.8 7,422.8
================================== ======== ======= ======= ======= ======= ====== ======= ========
Loans secured by commercial
mortgages - - - - - - 677.8 677.8
================================== ======== ======= ======= ======= ======= ====== ======= ========
Loans secured by ground
rents - - - - - - 189.7 189.7
================================== ======== ======= ======= ======= ======= ====== ======= ========
Infrastructure loans - 82.4 116.6 180.9 567.5 45.7 - 993.1
================================== ======== ======= ======= ======= ======= ====== ======= ========
Other loans - - - - - 12.5 105.4 117.9
================================== ======== ======= ======= ======= ======= ====== ======= ========
Reinsurance - - 214.7 277.0 5.1 - 0.5 497.3
================================== ======== ======= ======= ======= ======= ====== ======= ========
Insurance and other receivables - - - - - - 35.4 35.4
================================== ======== ======= ======= ======= ======= ====== ======= ========
Total 741.8 2,281.3 2,463.9 4,337.6 6,337.6 388.4 8,733.4 25,284.0
================================== ======== ======= ======= ======= ======= ====== ======= ========
BB or
UK gilts AAA AA A BBB below Unrated Total
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======== ======= ======= ======= ======= ====== ======= ========
Units in liquidity funds - 1,123.2 - - - 5.3 - 1,128.5
================================== ======== ======= ======= ======= ======= ====== ======= ========
Investment funds - - - - - - 176.1 176.1
================================== ======== ======= ======= ======= ======= ====== ======= ========
Debt securities and other
fixed income securities 205.6 838.8 1,519.3 3,030.5 5,124.4 342.8 - 11,061.4
================================== ======== ======= ======= ======= ======= ====== ======= ========
Deposits with credit institutions - - - 58.6 39.2 1.9 - 99.7
================================== ======== ======= ======= ======= ======= ====== ======= ========
Derivative financial assets - - - 594.2 205.8 - - 800.0
================================== ======== ======= ======= ======= ======= ====== ======= ========
Loans secured by residential
mortgages - - - - - - 8,261.1 8,261.1
================================== ======== ======= ======= ======= ======= ====== ======= ========
Loans secured by commercial
mortgages - - - - - - 592.1 592.1
================================== ======== ======= ======= ======= ======= ====== ======= ========
Loans secured by ground
rents - - - - - - 114.9 114.9
================================== ======== ======= ======= ======= ======= ====== ======= ========
Infrastructure loans - 87.2 125.8 176.0 509.4 46.6 - 945.0
================================== ======== ======= ======= ======= ======= ====== ======= ========
Other loans - - - - - 11.8 79.2 91.0
================================== ======== ======= ======= ======= ======= ====== ======= ========
Reinsurance - - 273.0 309.1 6.2 - 0.5 588.8
================================== ======== ======= ======= ======= ======= ====== ======= ========
Insurance and other receivables - - - - - - 32.0 32.0
================================== ======== ======= ======= ======= ======= ====== ======= ========
Total 205.6 2,049.2 1,918.1 4,168.4 5,885.0 408.4 9,255.9 23,890.6
================================== ======== ======= ======= ======= ======= ====== ======= ========
There are no financial assets that are either past due or
impaired.
The credit rating for Cash available on demand at 31 December
2021 was between a range of AA and BB (2020: between a range of AA
and BB).
The carrying amount of those assets subject to credit risk
represents the maximum credit risk exposure.
(d) Liquidity risk
The investment of cash received from Retirement Income sales in
corporate bonds, gilts and lifetime mortgages, and commitments to
pay policyholders and other obligations, requires liquidity risks
to be taken.
Liquidity risk is the risk of loss because the Group, although
solvent, either does not have sufficient financial resources
available to it in order to meet its obligations as they fall due,
or can secure them only at excessive cost.
Exposure to liquidity risk arises from:
-- deterioration in the external environment caused by economic
shocks, regulatory changes, reputational damage, or an economic
shock resulting from the COVID-19 pandemic or from Brexit;
-- needing to realise assets to meet liabilities during stressed market conditions;
-- increasing cash flow volatility in the short-term giving rise
to mismatches between cash flows from assets and requirements from
liabilities;
-- needing to support liquidity requirements for day-to-day operations;
-- ensuring financial support can be provided across the Group; and
-- maintaining and servicing collateral requirements arising
from the changes in market value of financial derivatives used by
the Group.
Liquidity risk is managed by ensuring that assets of a suitable
maturity and marketability are held to meet liabilities as they
fall due. The Group's short-term liquidity requirements are
predominantly funded by advance Retirement Income premium payments,
investment coupon receipts, and bond principal repayments out of
which contractual payments need to be made. There are significant
barriers for policyholders to withdraw funds that have already been
paid to the Group in the form of premiums. Cash outflows associated
with Retirement Income liabilities can be reasonably estimated and
liquidity can be arranged to meet this expected outflow through
asset-liability matching and new business premiums.
The cash flow characteristics of the lifetime mortgages are
reversed when compared with Retirement Income products, with cash
flows effectively representing an advance payment, which is
eventually funded by repayment of principal plus accrued interest.
Policyholders are able to redeem mortgages, albeit at a cost. The
mortgage assets are considered illiquid, as they are not readily
saleable due to the uncertainty about their value and the lack of a
market in which to trade them individually.
Cash flow forecasts over the short, medium and long term are
regularly prepared to predict and monitor liquidity levels in line
with limits set on the minimum amount of liquid assets required.
Cash flow forecasts include an assessment of the impact of a
1-in-200 year event on the Group's liquidity and increasing the
minimum cash and cash equivalent levels to cover enhanced stresses.
Derivative stresses have been revised to take into account the
market volatility caused by COVID-19, and focus on the worst
observed movements over the last 40 years, in shorter periods up to
and including one month.
The table below summarises the maturity profile of the financial
liabilities, including both principal and interest payments, of the
Group based on remaining undiscounted contractual obligations:
Within
one
year or
payable
on One to More than
demand five years five years
2021 GBPm GBPm GBPm
====================================================== ======== =========== ===========
Investment contract liabilities 10.2 21.1 1.5
====================================================== ======== =========== ===========
Subordinated debt 71.8 684.2 899.2
====================================================== ======== =========== ===========
Derivative financial liabilities 7.3 41.9 344.6
====================================================== ======== =========== ===========
Obligations for repayment of cash collateral received 326.2 - -
====================================================== ======== =========== ===========
Deposits received from reinsurers 192.0 679.8 1,924.0
====================================================== ======== =========== ===========
Within
one
year or
payable
on One to More than
demand five years five years
2020 GBPm GBPm GBPm
====================================================== ======== =========== ===========
Investment contract liabilities 9.8 31.1 2.8
====================================================== ======== =========== ===========
Subordinated debt 66.2 674.9 595.8
====================================================== ======== =========== ===========
Derivative financial liabilities 53.3 189.0 1,408.6
====================================================== ======== =========== ===========
Obligations for repayment of cash collateral received 377.4 - -
====================================================== ======== =========== ===========
Deposits received from reinsurers 201.7 712.0 2,073.3
====================================================== ======== =========== ===========
34 Capital
Group capital position
The Group's estimated capital surplus position at 31 December
2021 was as follows:
Solvency Minimum Group Solvency
Capital Requirement Capital Requirement
============================= ====================== ========================
2021 1 20202 2021 2020
GBPm GBPm GBPm GBPm
============================= ========== ========== ============= =========
Eligible Own Funds 3,004 3,009 2,279 2,262
============================= ========== ========== ============= =========
(1,836)
Solvency Capital Requirement 3 (1,938) (482) 3 (476)
============================= ========== ========== ============= =========
Excess Own Funds 1,168 3 1,071 1,797 3 1,786
============================= ========== ========== ============= =========
Solvency coverage ratio 164% 3 155% 472% 3 475%
============================= ========== ========== ============= =========
1 Estimated regulatory position. These figures reflect the
estimated impact of a TMTP recalculation as at 31 December 2021.
The LTMs that have been sold on 22 February 2022 were originally
written to back the liabilities written pre the Solvency II regime
and hence has contributed to the TMTP in the past. However, given
the biennial reset of the TMTP as at 31 December 2021 and sale of
these LTMs shortly after the valuation date, these LTMs have been
excluded from the determination of the TMTP as at 31 December
2021.
2 This is the reported regulatory position as included in the
Group's Solvency and Financial Condition Report as at 31 December
2020.
3 Unaudited.
Further information on the Group's Solvency II position,
including a reconciliation between the regulatory capital position
to the reported capital surplus, is included in the Business
Review. This information is estimated and therefore subject to
change. It is also unaudited.
The Group and its regulated insurance subsidiaries are required
to comply with the requirements established by the Solvency II
Framework directive as adopted by the Prudential Regulation
Authority ("PRA") in the UK, and to measure and monitor its capital
resources on this basis. The overriding objective of the Solvency
II capital framework is to ensure there is sufficient capital
within the insurance company to protect policyholders and meet
their payments when due. They are required to maintain eligible
capital, or "Own Funds", in excess of the value of their Solvency
Capital Requirements ("SCR"). The SCR represents the risk capital
required to be set aside to absorb 1-in-200 year stress tests over
the next one year time horizon of each risk type that the Group is
exposed to, including longevity risk, property risk, credit risk
and interest rate risk. These risks are all aggregated with
appropriate allowance for diversification benefits.
The capital requirement for Just Group plc is calculated using a
partial internal model. Just Retirement Limited ("JRL") uses a full
internal model and Partnership Life Assurance Company Limited
("PLACL") capital is calculated using the standard formula.
Group entities that are under supervisory regulation and are
required to maintain a minimum level of regulatory capital
include:
-- JRL and PLACL - authorised by the PRA, and regulated by the PRA and FCA.
-- HUB Financial Solutions Limited, Just Retirement Money
Limited and Partnership Home Loans Limited - authorised and
regulated by the FCA.
The Group and its regulated subsidiaries complied with their
regulatory capital requirements throughout the year.
Capital management
The Group's objectives when managing capital for all
subsidiaries are:
-- to comply with the insurance capital requirements required by
the regulators of the insurance markets where the Group operates.
The Group's policy is to manage its capital in line with its risk
appetite and in accordance with regulatory expectations;
-- to safeguard the Group's ability to continue as a going
concern, and to continue to write new business;
-- to ensure that in all reasonable foreseeable circumstances,
the Group is able to fulfil its commitment over the short-term and
long term to pay policyholders' benefits;
-- to continue to provide returns for shareholders and benefits for other stakeholders; and
-- to provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk.
-- to generate capital from in-force business, excluding
economic variances, management actions, and dividends, that is
c.GBP36m greater than new business strain.
The Group regularly assesses a wide range of actions to improve
the capital position and resilience of the business.
To improve resilience, we have significantly reduced the
property risk exposure related to LTMs by selling two blocks of
LTMs and transacting three no-negative equity guarantee ("NNEG")
hedges. A third LTM sale completed subsequent to the year end as
referred to in note 37. The Group will continue to assess options
to reduce our balance sheet exposure to UK residential property,
including, but not limited to increasing the level of NNEG
hedges.
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 and
the on-going impact of COVID-19 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.
Regulatory developments
The PRA approved the Group's major model change application on 1
December 2021. The updated model ensures that the model remains
appropriate for the risk profile of the business and meets
regulatory expectations in respect of the Effective Value Test
("EVT"), a diagnostic validation test, relating to the matching
adjustment for liabilities that are matched with LTMs, and the
requirement for it to be used in stress to validate the SCR from 31
December 2021. We are planning to apply to the PRA to approve
further developments to our internal model to refine our credit
risk model and to bring PLACL onto the internal model.
At 31 December 2021, Just passed the PRA EVT with a buffer of
0.75% (unaudited) over the current minimum deferment rate of 0.5%
(allowing for volatility of 13%, in line with the requirement for
the EVT). At 31 December 2020, the buffer was 0.63% (unaudited)
compared to the minimum buffer for the phase-in period of 0%.
In June 2020, the government announced that it would review
certain features of Solvency II. The PRA launched a Quantitative
Impact Study ("QIS") in H2 2021 which the Group participated in.
The key features for the Group that were considered in the QIS are
the risk margin and the matching adjustment. We plan to engage with
the PRA consultation, expected in 2022, on the potential changes to
Solvency II.
35 Group entities
The Group holds investment in the ordinary shares (unless
otherwise stated) of the following subsidiary undertakings and
associate undertakings, which are all consolidated in these Group
accounts. All subsidiary undertakings have a financial year end at
31 December (unless otherwise stated).
Principal activity Registered Percentage
office of nominal
share capital
and voting
rights
held
======================================= ====================== ============= ==============
Direct subsidiary
======================================= ====================== ============= ==============
Just Retirement Group Holdings
Limited5 Holding company Reigate 100%
======================================= ====================== ============= ==============
Partnership Assurance Group Limited5 Holding company Reigate 100%
======================================= ====================== ============= ==============
Indirect subsidiary
======================================= ====================== ============= ==============
HUB Acquisitions Limited1,5 Holding company Reigate 100%
======================================= ====================== ============= ==============
HUB Financial Solutions Limited Distribution Reigate 100%
======================================= ====================== ============= ==============
HUB Pension Solutions Limited5 Software development Reigate 100%
======================================= ====================== ============= ==============
Just Re 1 Limited5 Investment activity Reigate 100%
======================================= ====================== ============= ==============
Just Re 2 Limited5 Investment activity Reigate 100%
======================================= ====================== ============= ==============
Just Retirement (Holdings) Limited5 Holding company Reigate 100%
======================================= ====================== ============= ==============
Just Retirement (South Africa)
Holdings (Pty) Limited Holding company South Africa 100%
======================================= ====================== ============= ==============
Just Retirement Life (South Africa)
Limited Life assurance South Africa 100%
======================================= ====================== ============= ==============
Just Retirement Limited Life assurance Reigate 100%
======================================= ====================== ============= ==============
Just Retirement Management Services
Limited5 Management services Reigate 100%
======================================= ====================== ============= ==============
Provision of lifetime
Just Retirement Money Limited mortgage products Reigate 100%
======================================= ====================== ============= ==============
Partnership Group Holdings Limited5 Holding company Reigate 100%
======================================= ====================== ============= ==============
Partnership Holdings Limited5 Holding company Reigate 100%
======================================= ====================== ============= ==============
Provision of lifetime
Partnership Home Loans Limited mortgage products Reigate 100%
======================================= ====================== ============= ==============
Partnership Life Assurance Company
Limited Life assurance Reigate 100%
======================================= ====================== ============= ==============
Partnership Services Limited5 Management services Reigate 100%
======================================= ====================== ============= ==============
TOMAS Online Development Limited5 Software development Belfast 100%
======================================= ====================== ============= ==============
Enhanced Retirement Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
HUB Digital Solutions Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
Pension Buddy Limited (formerly
HUB Online Development Limited) Dormant Belfast 100%
======================================= ====================== ============= ==============
HUB Transfer Solutions Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
JRP Group Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
JRP Nominees Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
Just Annuities Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
Just Equity Release Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
Just Incorporated Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
Just Management Services (Proprietary)
Limited Dormant South Africa 100%
======================================= ====================== ============= ==============
Just Protection Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
Just Retirement Finance plc Dormant Reigate 100%
======================================= ====================== ============= ==============
Just Retirement Nominees Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
Just Retirement Solutions Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
PAG Finance Limited Dormant Jersey 100%
======================================= ====================== ============= ==============
PAG Holdings Limited Dormant Jersey 100%
======================================= ====================== ============= ==============
PASPV Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
PayingForCare Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
PLACL RE 1 Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
PLACL RE 2 Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
TOMAS Acquisitions Limited Dormant Reigate 100%
======================================= ====================== ============= ==============
The Open Market Annuity Service
Limited5 Dormant Belfast 100%
======================================= ====================== ============= ==============
HUB Pension Consulting (Holdings)
Limited
(formerly Corinthian Group Limited)5 Holding company Reigate 100%
======================================= ====================== ============= ==============
HUB Pension Consulting Limited5 Pension consulting Reigate 100%
======================================= ====================== ============= ==============
Spire Platform Solutions Limited2,3 Software development Portsmouth 33%4
======================================= ====================== ============= ==============
1 Class "A" and Class "B" ordinary shares. 2 Class "B" ordinary
shares. 3 30 June year end. 4 Control is based on Board
representation rather than percentage holding.
5 The financial statements of these subsidiary undertakings have
not been audited for the year ended 31 December 2021. These
subsidiary undertakings are exempt from the requirements of the
Companies Act 2006 relating to the audit of individual financial
statements by virtue of Section 479A of the Companies Act 2006.
Registered offices
Reigate office: Belfast office: South Africa office:
======================= ========================= ==========================
Office G01, Big Bay Office
Enterprise House 3rd Floor, Arena Building Park
======================= ========================= ==========================
16 Beach Estate Boulevard,
Bancroft Road Ormeau Road Big Bay
======================= ========================= ==========================
Reigate, Surrey RH2 7RP Belfast BT7 1SH Western Cape 7441
======================= ========================= ==========================
Jersey office: Portsmouth office:
======================= ========================= ==========================
Building 3000, Lakeside
44 Esplanade North Harbour
======================= ========================= ==========================
St Helier Portsmouth
======================= ========================= ==========================
Jersey JE4 9WG Hampshire PO6 3EN
======================= ========================= ==========================
Consolidated structured entities
In November 2020 the Parent Company invested in a cell of a
Protected Cell Company, White Rock Insurance (Gibraltar) PCC
Limited. Financial support provided by the Group is limited to
amounts required to cover transactions between the cell and the
Group. The Group has provided GBP10m financial support in the form
of a letter of credit.
In December 2021 the Group invested in a controlling interest in
a Jersey Property Unit Trust (JPUT). The Group has determined that
it controls the JPUT as a result of the Group's ability to remove
the Trustees; other than the Group and the Trustees there are no
other parties with decision making rights over the JPUT. The Group
has taken the option within IFRS 3, Business combinations to apply
the concentration test to determine whether the JPUT represents a
business within the scope of IFRS 3. The conclusion of the
concentration test is that the assets of the JPUT are concentrated
in the single identifiable asset of the investment property and as
such the investment by the Group does not represent a business
combination. The Group has consolidated the results of the JPUT;
any excess of investment purchase price over the fair value of the
assets acquired is allocated against the identifiable assets and
liabilities in proportion to their relative fair values; goodwill
is not recognised.
Unconsolidated structured entities
The Group has interests in structured entities which are not
consolidated as the definition of control has not been met based on
the investment proportion held by the Group.
Interests in unconsolidated structured entities include
investment funds and liquidity funds and loans granted to special
purpose vehicles "SPVs" secured by assets held by the SPVs such as
commercial mortgages and ground rents.
As at 31 December 2021 the Group's interest in unconsolidated
structured entities, which are classified as investments held at
fair value through profit or loss, are shown below:
2021 2020
GBPm GBPm
====================================== ======= =======
Loans secured by commercial mortgages 677.8 592.1
====================================== ======= =======
Loans secured by ground rents 189.7 114.9
====================================== ======= =======
Asset backed securities 9.5 10.8
====================================== ======= =======
Investment funds 301.8 176.1
====================================== ======= =======
Liquidity funds 1,310.5 1,128.5
====================================== ======= =======
Total 2,489.3 2,022.4
====================================== ======= =======
The Group's exposure to financial loss from its interest in
unconsolidated structured entities is limited to the amounts shown
above. The Group is not required to provide financial support to
the entities, nor does it sponsor the entities.
Non-controlling interests
On 4 July 2018 the Group subscribed to 33% of the ordinary share
capital of Spire Platform Solutions Limited. The Group has majority
representation on the Board of the company, giving it effective
control, and therefore consolidates the company in full in the
results of the Group.
On 17 August 2018 the Group acquired 75% of the ordinary share
capital of HUB Pension Consulting (Holdings) Limited (formerly
Corinthian Group Limited). On 22 September 2021 the Group acquired
the remaining 25% of the ordinary share capital at a cost of
GBP0.1m.
The non-controlling interests of the minority shareholders of
Spire Platform Solutions Limited of GBP(0.5)m have been recognised
in the year. The non-controlling interests of the minority
shareholders of HUB Pension Consulting (Holdings) Limited of
GBP(0.3)m have been recognised to the date of acquisition by the
Group.
36 Related parties
The Group has related party relationships with its key
management personnel and subsidiary undertakings detailed in note
35.
Key management personnel comprise the Directors of the Company.
There were no material transactions between the Group and its key
management personnel other than those disclosed below.
Key management compensation is as follows:
Year ended Year ended
31 December 31 December
2021 2020
GBPm GBPm
================================== ============ ============
Short-term employee benefits 3.9 3.6
================================== ============ ============
Share-based payments 1.5 1.2
================================== ============ ============
Total key management compensation 5.4 4.8
================================== ============ ============
Loans owed by Directors 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.
37 Ultimate Parent Company and ultimate controlling party
The Company is the ultimate Parent Company of the Group and has
no controlling interest.
38 Post balance sheet events
In February 2022, the Group completed the sale of a third LTM
portfolio, with a current outstanding loan balance of GBP537m and
an IFRS value as at 31 December 2021 of GBP772m. The LTM assets
being sold form part of the investments used to back the insurance
liabilities of the Group. The consideration is GBP687m, payable in
cash. The proceeds received will be reinvested in a mixture of
other fixed interest assets to back the insurance liabilities of
the Group. The sale will result in an IFRS net of tax loss of
c.GBP35m which includes the impact on the insurance liabilities
resulting from the expected new asset mix.
Subsequent to 31 December 2021, the Directors proposed a final
dividend for 2021 of 1.0 pence per ordinary share (2020: nil),
amounting to GBP10m (2020: GBPnil) in total. Subject to approval by
shareholders at the Company's 2022 AGM, the dividend will be paid
on 17 May 2022 to shareholders on the register of members at the
close of business on 22 April 2022, and will be accounted for as an
appropriation of retained earnings in year ending 31 December
2022.
There are no other material post balance sheet events that have
taken place between 31 December 2021 and the date of this
report.
Additional Financial Information
The following additional financial information is unaudited.
Solvency II surplus generation
The table below shows the expected future emergence of Solvency
II surplus from the in-force book in excess of 100% of SCR over the
next 35 years. The amounts are shown undiscounted and exclude
Excess Own Funds at 31 December 2021 of GBP1,168m.
The core surplus generation assumes that future property growth
is in line with the best estimate assumption of 3.3%. The cash flow
amounts shown are before the interest and principal payments on all
debt obligations.
The projection does not allow for the impact of future new
business, and return on surplus assets held or dividends from 31
December 2021.
Core surplus Surplus
generation TMTP amortisation generation
Year GBPm GBPm GBPm
============ ============ ================= ===========
2022 259 (124) 135
============ ============ ================= ===========
2023 239 (124) 115
============ ============ ================= ===========
2024 232 (124) 108
============ ============ ================= ===========
2025 231 (124) 107
============ ============ ================= ===========
2026 234 (124) 110
============ ============ ================= ===========
2027 223 (124) 99
============ ============ ================= ===========
2028 221 (124) 97
============ ============ ================= ===========
2029 223 (124) 99
============ ============ ================= ===========
2030 210 (124) 86
============ ============ ================= ===========
2031 205 (124) 81
============ ============ ================= ===========
2032 192 - 192
============ ============ ================= ===========
2033 185 - 185
============ ============ ================= ===========
2034 181 - 181
============ ============ ================= ===========
2035 167 - 167
============ ============ ================= ===========
2036 169 - 169
============ ============ ================= ===========
2037 147 - 147
============ ============ ================= ===========
2038 143 - 143
============ ============ ================= ===========
2039 133 - 133
============ ============ ================= ===========
2040 124 - 124
============ ============ ================= ===========
2041 113 - 113
============ ============ ================= ===========
2042 - 2046 414 - 414
============ ============ ================= ===========
2047 - 2051 219 - 219
============ ============ ================= ===========
2052 - 2056 78 - 78
============ ============ ================= ===========
New business contribution
The table below shows the expected future emergence of Solvency
II surplus arising from 2021 new business in excess of 100% of SCR
over 35 years from the point of sale. It shows the initial Solvency
II capital strain in 2021. The amounts are shown undiscounted.
Surplus
generation
Year GBPm
=============== ===========
Point of sale (40.0)
=============== ===========
Year 1 11.6
=============== ===========
Year 2 11.3
=============== ===========
Year 3 11.2
=============== ===========
Year 4 11.1
=============== ===========
Year 5 10.9
=============== ===========
Year 6 11.3
=============== ===========
Year 7 11.7
=============== ===========
Year 8 11.8
=============== ===========
Year 9 11.7
=============== ===========
Year 10 11.8
=============== ===========
Year 11 11.7
=============== ===========
Year 12 11.5
=============== ===========
Year 13 11.5
=============== ===========
Year 14 11.1
=============== ===========
Year 15 10.6
=============== ===========
Year 16 10.3
=============== ===========
Year 17 10.0
=============== ===========
Year 18 9.5
=============== ===========
Year 19 9.1
=============== ===========
Year 20 8.8
=============== ===========
Years 21 to 25 36.9
=============== ===========
Years 26 to 30 22.3
=============== ===========
Years 31 to 35 7.4
=============== ===========
Financial investments credit ratings
The sector analysis of the Group's financial investments
portfolio by credit rating is shown below:
BB or
Total AAA AA A BBB below Unrated
GBPm % GBPm GBPm GBPm GBPm GBPm GBPm
============================== ====== ===== ===== ===== ===== ===== ====== =======
Basic materials 264 1.1 - 6 99 154 5 -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Communications and technology 1,430 5.8 122 153 198 920 37 -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Auto manufacturers 319 1.3 - 34 101 184 - -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Consumer (staples including
healthcare) 1,174 4.7 163 276 281 327 39 88
============================== ====== ===== ===== ===== ===== ===== ====== =======
Consumer (cyclical) 187 0.7 - 6 16 139 - 26
============================== ====== ===== ===== ===== ===== ===== ====== =======
Energy 633 2.6 - 219 131 212 71 -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Banks 1,192 4.8 58 91 392 460 152 39
============================== ====== ===== ===== ===== ===== ===== ====== =======
Insurance 845 3.4 6 193 145 501 - -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Financial - other 481 1.9 99 103 102 76 14 87
============================== ====== ===== ===== ===== ===== ===== ====== =======
Real estate including REITs 661 2.7 39 28 230 325 39 -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Government 2,415 9.7 407 1,589 204 215 - -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Industrial 920 3.7 - 88 115 577 22 118
============================== ====== ===== ===== ===== ===== ===== ====== =======
Utilities 2,302 9.3 - 82 1,006 1,204 10 -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Commercial mortgages 678 2.7 33 203 281 161 - -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Ground Rent 263 1.1 134 - 123 6 - -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Infrastructure loans 1,474 6.0 82 124 398 825 45 -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Other 38 0.2 - - 38 - - -
============================== ====== ===== ===== ===== ===== ===== ====== =======
Corporate/government bond
total 15,276 61.7 1,143 3,195 3,860 6,286 434 358
============================== ====== ===== ===== ===== ===== ===== ====== =======
Lifetime mortgages 7,423 30.0
============================== ====== ===== ===== ===== ===== ===== ====== =======
Liquidity funds 1,311 5.3
============================== ====== ===== ===== ===== ===== ===== ====== =======
Derivatives and collateral 741 3.0
============================== ====== ===== ===== ===== ===== ===== ====== =======
Total 24,751 100.0
============================== ====== ===== ===== ===== ===== ===== ====== =======
Glossary
Acquisition costs - comprise the direct costs (such as
commissions) of obtaining new business.
Adjusted earnings per share (adjusted EPS) - 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 dividing adjusted operating profit after
attributed tax by the weighted average number of shares in issue by
the Group for the period. For remuneration purposes (see Directors'
Remuneration Report), the measure is calculated as adjusted
operating profit before tax divided by the weighted average number
of shares in issue by the Group for the period.
Adjusted operating profit after attributed tax - the adjusted
operating profit before tax APM reduced for the standard tax rate
(19% for 2021).
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, operating experience and assumption
changes, other Group companies' operating results, development
expenditure and reinsurance and financing costs. The Board believes
it provides a better view of the longer-term performance of the
business than profit before tax because it excludes the impact of
short-term economic variances and other one-off items. It excludes
the following items that are included in profit before tax:
non-recurring and project expenditure, implementation costs for
cost saving initiatives, investment and economic profits and
amortisation and impairment costs of acquired intangible assets. In
addition, it includes Tier 1 interest (as part of financing costs)
which is not included in profit before tax (because the Tier 1
notes are treated as equity rather than debt in the IFRS financial
statements). Adjusted operating profit is reconciled to IFRS profit
before tax in the Business Review.
Alternative performance measure ("APM") - in addition to
statutory IFRS performance measures, the Group has presented a
number of non-statutory alternative performance measures within the
Annual Report and Accounts. The Board believes that the APMs used
give a more representative view of the underlying performance of
the Group. APMs are identified in this glossary together with a
reference to where the APM has been reconciled to its nearest
statutory equivalent. APMs which are also KPIs are indicated as
such.
Amortisation and impairment of acquired intangibles - relate to
the amortisation of the Group's intangible assets arising on
consolidation, including the amortisation of intangible assets
recognised in relation to the acquisition of Partnership Assurance
Group plc by Just Group plc (formerly 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 ("CP") - a specialist insurance contract contributing
to the costs of long-term care by paying a guaranteed income to a
registered care provider for the remainder of a person's life.
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 deferred ("DB deferred") business - the part of
DB de-risking transactions that relates to deferred members of a
pension scheme. These members have accrued benefits in the pension
scheme but have not retired yet.
Defined benefit de-risking partnering ("DB partnering") - a DB
de-risking transaction in which a reinsurer has provided
reinsurance in respect of the asset and liability side risks
associated with one of our DB Buy-in transactions.
Defined benefit ("DB") pension scheme - a pension scheme,
usually backed or sponsored by an employer, that pays members a
guaranteed level of retirement income based on length of membership
and earnings.
Defined contribution ("DC") pension scheme - a work-based or
personal pension scheme in which contributions are invested to
build up a fund that can be used by the individual member to
provide retirement benefits.
De-risk/de-risking - an action carried out by the trustees of a
pension scheme with the aim of transferring investment, inflation
and longevity risk from the sponsoring employer and scheme to a
third party such as an insurer.
Development expenditure - 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.
Employee benefits consultant - an adviser offering specialist
knowledge to employers on the legal, regulatory and practical
issues of rewarding staff, including non-wage compensation such as
pensions, health and life insurance and profit sharing.
Equity release - products and services enabling homeowners to
generate income or lump sums by accessing some of the value of the
home while continuing to live in it - see Lifetime mortgage.
Finance costs - represent interest payable on reinsurance
deposits and financing and the interest on the Group's Tier 2 and
Tier 3 debt.
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 - 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 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 adjusted operating profit before tax, and adjusted
operating profit before tax is reconciled to IFRS profit before tax
in the Business Review.
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 Return
on equity, Solvency II capital coverage ratio, Underlying organic
capital generation, Retirement Income sales, New business operating
profit, Underlying operating profit, Management expenses, Adjusted
operating profit, IFRS profit before tax and IFRS net assets.
Lifetime mortgage ("LTM") - an equity release product that
allows homeowners to take out a loan secured on the value of their
home, typically with the loan plus interest repaid when the
homeowner has passed away or moved into long-term care.
LTM notes - structured assets issued by a wholly owned special
purpose entity, Just Re1 Ltd. Just Re1 Ltd holds two pools of
lifetime mortgages, each of which provides the collateral for
issuance of senior and mezzanine notes to Just Retirement Ltd,
eligible for inclusion in its matching portfolio.
Management expenses - an APM and one of the Group's KPIs, and
are business as usual costs incurred in running the business,
including all operational overheads. Management expenses are other
operating expenses excluding investment expenses and charges;
reassurance management fees which are largely driven by strategic
decisions; amortisation of acquired intangible assets relating to
merger and acquisition activity; and other costs impacted by
external factors. Management expenses are reconciled to IFRS other
operating expenses in note 4 to the consolidated financial
statements.
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 - represents the total payments due to
policyholders during the accounting period, less the reinsurers'
share of such claims which are payable back to the Group under the
terms of the reinsurance treaties.
Net investment income - comprises interest received on financial
assets and the net gains and losses on financial assets designated
at fair value through profit or loss upon initial recognition and
on financial derivatives.
Net premium revenue - represents the sum of gross premiums
written and reinsurance recapture, less reinsurance premium
ceded.
New business margin - the new business operating profit divided
by Retirement Income sales. It provides a measure of the
profitability of Retirement Income sales.
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 adjusted operating profit before tax, and
adjusted operating profit before tax is reconciled to IFRS profit
before tax in the Business Review.
New business strain - represents the capital strain on new
business written in the year after allowing for acquisition expense
allowances and the establishment of Solvency II technical
provisions and Solvency Capital Requirements.
No-negative equity guarantee ("NNEG") hedge - a derivative
instrument designed to mitigate the impact of changes in property
growth rates on both the regulatory and IFRS balance sheets arising
from the guarantees on lifetime mortgages provided by the Group
which restrict the repayment amounts to the net sales proceeds of
the property on which the loan is secured.
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.
Organic capital generation/(consumption) - an APM and calculated
in the same way as Underlying organic capital
generation/(consumption), but includes economic variances,
regulatory adjustments, capital raising or repayment and impact of
management actions and other operating items.
Other Group companies' operating results - the results of Group
companies including our HUB group of companies, which provides
regulated advice and intermediary services, and professional
services to corporates, and corporate costs incurred by Group
holding companies and the overseas start-ups.
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 & 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.
Retail sales (in reference to Just Group sales or products) -
collective term for GIfL and Care Plan.
Retirement Income sales (in reference to Just Group sales or
products) - an APM and one of the Group's KPIs and a collective
term for GIfL, DB and Care Plan. Retirement Income sales are
reconciled to IFRS gross premiums in note 6 to the consolidated
financial statements.
Return on equity - an APM and one of the Group's KPIs. Return on
equity is adjusted operating profit after attributed tax for the
period divided by the average tangible net asset value for the
period. Tangible net asset value is reconciled to IFRS total equity
in the Business Review.
Secure Lifetime Income ("SLI") - a tax efficient solution for
individuals who want the security of knowing they will receive a
guaranteed income for life and the flexibility to make changes in
the early years of the plan.
Solvency II - an EU Directive that codifies and harmonises the
EU insurance regulation. Primarily this concerns the amount of
capital that EU insurance companies must hold to reduce the risk of
insolvency.
Solvency II capital coverage ratio - one of the Group's KPIs.
Solvency II capital is the regulatory capital measure and is
focused on by the Board in capital planning and business planning
alongside the economic capital measure. It expresses the regulatory
view of the available capital as a percentage of the required
capital.
Tangible net asset value - IFRS total equity excluding goodwill
and other intangible assets, net of tax, and excluding equity
attributable to Tier 1 noteholders.
Trustees - individuals with the legal powers to hold, control
and administer the property of a trust such as a pension scheme for
the purposes specified in the trust deed. Pension scheme trustees
are obliged to act in the best interests of the scheme's
members.
Underlying operating profit - an APM and one of the Group's
KPIs. Underlying profit is calculated in the same way as adjusted
operating profit before tax but excludes operating experience and
assumption changes. Underlying operating profit is reconciled to
adjusted operating profit before tax, and adjusted operating profit
before tax is reconciled to IFRS profit before tax in the Business
Review.
Underlying organic capital generation/(consumption) - an APM and
one of the Group's KPIs. Underlying organic capital
generation/(consumption) is the net increase/(decrease) in Solvency
II excess own funds over the year, generated from on-going business
activities, and includes surplus from in-force, net of new business
strain, cost overruns and other expenses and debt interest. It
excludes economic variances, regulatory adjustments, capital
raising or repayment and impact of management actions and other
operating items. The Board believes that this measure provides good
insight into the on-going capital sustainability of the business.
Underlying organic capital generation/(consumption) is reconciled
to Solvency II excess own funds, and Solvency II excess own funds
is reconciled to shareholders' net equity on an IFRS basis in the
Business Review.
Abbreviations
ABI - Association of British Insurers
AGM - Annual General Meeting
APM - alternative performance measure
Articles - Articles of Association
CMI - Continuous Mortality Investigation
Code - UK Corporate Governance Code
CP - Care Plans
CPI - consumer prices index
DB - Defined Benefit De-risking Solutions
DC - defined contribution
DSBP - deferred share bonus plan
EBT - employee benefit trust
EPS - earnings per share
ERM - equity release mortgage
ESG - environment, social and governance
EVT - effective value test
FCA - Financial Conduct Authority
FPP - Flexible Pension Plan
FRC - Financial Reporting Council
GDPR - General Data Protection Regulation
GHG - greenhouse gas
GIfL - Guaranteed Income for Life
Hannover - Hannover Life Reassurance Bermuda Ltd
IFRS - International Financial Reporting Standards
IP - intellectual property
ISA - International Standards on Auditing
JRL - Just Retirement Limited
KPI - key performance indicator
LCP - Lane Clark & Peacock LLP
LTIP - Long Term Incentive Plan
LTM - lifetime mortgage
MA - matching adjustment
MAR - Market Abuse Regulation
NAV - net asset value
NNEG - no-negative equity guarantee
ORSA - Own Risk and Solvency Assessment
PAG - Partnership Assurance Group
PILON - payment in lieu of notice
PLACL - Partnership Life Assurance Company Limited
PPF - Pension Protection Fund
PRA - Prudential Regulation Authority
PRI - United Nations Principles for Responsible Investment
PVIF - purchased value of in-force
PwC - PricewaterhouseCoopers LLP
REIT - Real Estate Investment Trust
RICS - The Royal Institution of Chartered Surveyors
RPI - retail price inflation
SAPS - Self-Administered Pension Scheme
SAYE - Save As You Earn
SCR - Solvency Capital Requirement
SFCR - Solvency and Financial Condition Report
SID - Senior Independent Director
SIP - Share Incentive Plan
SLI - Secure Lifetime Income
SME - small and medium-sized enterprise
STIP - Short Term Incentive Plan
tCO(2) e - tonnes of carbon dioxide equivalent
TMTP - transitional measures on technical provisions
TSR - total shareholder return
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END
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