TIDMJUST
RNS Number : 2889J
Just Group PLC
15 August 2023
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NEWS RELEASE www.justgroupplc.co.uk
15 August 2023
JUST GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2023
STRONG GROWTH, CONTINUED MOMENTUM
Just Group plc (the "Group", "Just") announces its results for
the six months ended 30 June 2023.
Profitable and sustainable growth(1)
-- Underlying operating profit(2) is up 154% to GBP173m (H1 22: GBP68m),
driven by significantly higher new business profits.
-- Retirement Income sales(2) have more than doubled to GBP1.9bn
(H1 22: GBP0.9bn), which has driven a 112% increase in new business
profits to GBP161m (H1 22: GBP76m), with a consistently strong
new business margin of 8.5% (H1 22: 8.6%) .
-- Momentum continues into H2 23. Both the DB and retail markets
remain buoyant, with a record pipeline of DB business.
Strong Solvency II and IFRS(1)
-- Capital coverage ratio has further strengthened to 204%(3) (31
December 2022: 199%(3) ). The interest rate sensitivity has been
significantly reduced, by largely locking-in interest rate gains,
while the property sensitivity has further reduced.
-- New business strain(2) of 1.6% (H1 22: 1.3%) is well within our
target of below 2.5%. Positive underlying capital generation of
GBP18m (H1 22: GBP33m) after GBP30m of new business strain. Capital
generation before new business strain improved to GBP48m (H1 22:
GBP44m).
-- Adjusted profit before tax (2) was GBP246m (H1 22: adjusted loss
before tax GBP185m), driven by strong growth in underlying operating
profit, and investment and economic profits. Of this GBP246m, GBP129m
of profit is deferred to CSM (4) in the balance sheet, leaving an
IFRS profit before tax of GBP117m (H1 22: IFRS loss before tax of
GBP237m).
-- Improved return on equity (2) to annualised 13.0% and tangible net
assets per share(2) to 204p (H1 22: 5.4% and 31 December 2022: 190p
respectively).
Rewarding shareholders
-- Interim dividend of 0.58p per share - 15% growth and one third
of 2022 full year dividend, in line with stated policy.
-- Given the very strong profit growth in the first half of 2023,
we are highly confident of comfortably exceeding 15% growth in
underlying operating profits(2) for the full year. Our delivery
so far in 2023 and positive outlook further supports our confidence
in Just's ability to deliver 15% growth in underlying operating
profit per annum, on average over the medium term.
David Richardson, Group Chief Executive Officer, said:
"We have delivered another impressive set of results and we are
highly confident that we will comfortably exceed our 15% profit
growth pledge this year.
Our DB business is going from strength to strength and I am
delighted that our retail business has returned to growth. We are
growing sustainably and are exceptionally well positioned to
continue benefiting from the positive drivers and favourable
demographics supporting both of our principal markets.
We have a growth mindset and we've developed a winning formula -
one which will ensure we fulfil our purpose, to help people achieve
a better later life, while building substantial value for
shareholders.
Over the last four years, our performance has consistently
exceeded the commitments we have made and we're more optimistic
than ever about the future for Just."
Notes
(1) All comparatives throughout the document are restated under
IFRS 17 and IFRS 9.
(2) Alternative performance measure ("APM") - In addition to
statutory IFRS performance measures, the Group has presented a
number of non-statutory alternative performance measures. The Board
believes that the APMs used give a more representative view of the
underlying performance of the Group. APMs are identified in the
glossary at the end of this announcement. Adjusted operating profit
is reconciled to IFRS profit before tax in the Business Review.
(3) These figures include the estimated impact of a TMTP
recalculation for 30 June 2023. At 31 December 2022 the Solvency II
figures include a formal TMTP recalculation.
(4) Contractual Service Margin.
Enquiries
Media
Investors / Analysts
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
Paul Kelly, Investor Relations press.office@wearejust.co.uk
Telephone: +44 (0) 20 7444 8127
paul.kelly@wearejust.co.uk Temple Bar Advisory
Alex Child-Villiers
William Barker
Telephone: +44 (0) 20 7183 1190
For those analysts who have registered, a presentation will take
place today at 1 Angel Lane, London, EC4R 3AB, commencing at 08:30
am. The presentation will also be available via a live webcast.
FINANCIAL CALAR DATE
Ex-dividend date for interim dividend 24 August 2023
===============
Record date for interim dividend 25 August 2023
===============
Payment of interim dividend 4 October 2023
===============
A copy of this announcement, the presentation slides and the
transcript will be available on the Group's website
www.justgroupplc.co.uk
JUST GROUP PLC
GROUP COMMUNICATIONS
Enterprise House
Bancroft Road
Reigate
Surrey RH2 7RP
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;
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
Delivering sustainable growth
I am very pleased to present my Chief Executive Officer's
Statement for the first six months of 2023, during which we have
further demonstrated the strength and potential of our business
model. We are growing sustainably and are exceptionally well
positioned to continue benefiting from the positive drivers and
favourable demographics supporting both of our principal
markets.
Retirement sales growth
The rise in interest rates during 2022 and 2023 has a positive
effect on both the Defined Benefit ("DB") and retail Guaranteed
Income for Life ("GIfL") markets.
Sales have more than doubled in the first six months of 2023 to
GBP1.9bn with DB sales, up 149% to GBP1.4bn (H1 2022: GBP0.6bn) and
retail sales, up 54% to GBP0.5bn (H1 22: GBP0.3bn). This positive
momentum has continued into the second half and we expect another
very busy period.
Defined Benefit business
Our DB business is going from strength to strength. During the
first six months of the year, we completed 35 transactions of which
32 were less than GBP100m (of these, 22 were less than GBP10m). We
have written our largest (GBP513m) and smallest (GBP0.6m) deals to
date, and have a sizeable ongoing pipeline of new business
opportunities for the second half. Our bulk quotation service
continues to grow in popularity, with over 200 schemes from 19
EBCs(1) onboarded. The service is providing a steady source of
smaller deal completions as EBCs and trustees increasingly benefit
from regular insurer price monitoring and a streamlined transaction
process.
As well as expanding our leadership position in the smaller
transaction size segment, we will also drive growth by securing a
greater number of larger transactions. We have written almost 350
DB transactions since entering the market in 2013 and through
these, have gained significant pricing and deal experience to now
regularly quote on larger transactions. Our participation in the
larger transaction segment is supported by the flexibility provided
by our stronger capital position and our expanded panel of
reinsurance partners. Combined with the strong outlook for the
market in 2023, we expect our participation in the larger deal
segment to increase further.
In DB, LCP(2) estimate that c.1,000 DB pension schemes are
already fully funded on an insurer buyout basis. As a result, 2023
and 2024 industry volumes are expected to significantly exceed the
record GBP44bn written in 2019. We welcome the Chancellor's
confirmation, in his recent speech, of the important role played by
insurers offering buy- outs.
Retail business
I am delighted that the GIfL market has returned to strong
growth and has had its busiest six month period since Pensions
Freedoms were announced in 2014. The open market, where Just
competes, has achieved particularly strong growth, and is providing
us with increased opportunity to utilise our medical underwriting
expertise to risk select.
Higher interest rates have stimulated both customer and adviser
demand. The findings from the FCA's thematic review into retirement
income advice, are likely to increase the importance of considering
guaranteed solutions to help customers achieve their objectives. We
believe this will be supported further by the expectations created
by Consumer Duty, which came into effect on 31st July.
Expanding our investments in tandem
In order to take advantage of these growth opportunities, we are
continuing to expand our investment capabilities to support new
business pricing and deliver reliable and secure returns for our
shareholders. Our "manager of managers" model approach gives us the
flexibility to source assets providing attractive risk reward
characteristics across a range of asset classes, sectors and
geographies. I am pleased to note that we have sourced GBP0.8bn of
other illiquid investments(3) in the first six months of the year
and that we continue to find opportunities to support the UK
economy.
As the government's Solvency UK agenda takes shape over the next
two years, we expect this will unlock additional opportunities to
grow our investment in illiquid assets.
Customers and our purpose
The volatility in investment markets witnessed by our customers
during the final quarter of 2022 and the current unpredictable
economic outlook in the UK creates uncertainty and worry for many
who have investments in equities and fixed interest bonds. We
provide a guaranteed income for life to customers, and as interest
rates have risen, the amount of retirement income we are able to
pay customers has increased significantly. This secure income is
often purchased to cover the essential expenditure of the household
and in these uncertain times, our solutions provide much sought
reassurance to customers.
As the retirement specialist we are focussed on helping people
in later life. When we provide financial advice, we help people to
discover whether they are entitled to State Benefits and often
uncover many missed benefits that when secured, can make a profound
impact on their lives. We provide a range of professional advice
and guidance to help people, and are continuing to invest in these
services to make them more valuable to a wider range of potential
customers. We can't resolve all the challenges faced by our
customers, but we are helping where we are able to do so and remain
focused on living up to the purpose we set out many years ago: we
help people achieve a better later life.
Sustainability
We achieve our goals responsibly and are committed to a
sustainable strategy that protects our communities and the planet
we live on. I am very proud that over the last three years we have
reduced our operational carbon intensity per employee by 81%.
However, the most material impact we can make to reduce carbon
emissions will be achieved through the decisions we take with our
GBP21bn investments portfolio.
Last year we completed our full GBP575m green and sustainability
bond investment commitments well ahead of schedule. In the first
six months of 2023 we have continued to invest in environmental,
social, and corporate governance ("ESG") related assets with over
GBP300m invested in social housing, the renewable energy industry
and facilities at NHS University Hospital Southampton.
Our people
Our Just culture is underpinned by our people who are passionate
and committed to making a difference to the lives of those around
them. A key business priority is that all of our colleagues feel
proud to work at Just. The combination of our strong purpose and
having highly engaged teams working the 'Just way', is a
competitive advantage which is helping us to drive high performance
and achieve our ambitious growth targets.
I would like to thank my colleagues for their continued focus in
providing outstanding support for our customers when they needed it
most and for helping to deliver an excellent set of results.
We are investing to develop the skills of our colleagues,
attract new talent into Just and build high performing teams. We
have continued to maintain excellent levels of colleague
engagement, with a key priority to build a diverse and inclusive
workforce.
Financial performance
In the first six months of 2023, underlying operating profit,
now measured under IFRS 17, is up 154% to GBP173m, driven by the
strong sales performance. We expect sales activity in the second
half of the year to be in line with or above the first half of the
year. Our first half performance has led to a return on equity of
13%.
Investment and economic profits were GBP71m, and combined with a
number of smaller non-operating items lead to an adjusted profit
before tax(4) of GBP246m for the first six months of 2023 (first
six months of 2022: adjusted loss before tax GBP185m). Of this
GBP246m, GBP129m of profit is deferred to the CSM reserve in the
balance sheet, leaving a profit before tax of GBP117m.
The strength and resilience of our capital position and our
disciplined pricing and risk selection ensures we are, and will
continue to be capital self-sufficient. This means we can fund our
growth ambitions, reward shareholders with a growing dividend and
maintain a strong buffer of capital in what are uncertain
times.
We will pay an interim dividend of 0.58 pence per share, in line
with our stated policy, which represents 15% growth over last
year's interim dividend.
In conclusion
We expect the current macro-economic and political concerns to
have a negligible effect on the Group's business model, with
sustained higher long term interest rates continuing to drive
demand for our products. We are exceptionally well positioned to
continue benefiting from the positive structural growth drivers and
demographics supporting both of our principal markets. Our ability
to take advantage of these trends have further increased our
confidence in Just's ability to deliver 15% growth in underlying
operating profit per annum, on average over the medium term.
We have never been stronger. We have the capability and
opportunities to achieve our ambitious growth plans so that we
build substantial value for shareholders and fulfil our purpose to
help more people achieve a better later life.
David Richardson
Group Chief Executive Officer
1 Employee benefit consultant ("EBC")
2 Lane, Clark, Peacock ("LCP"), an employee benefit consultant.
3 In addition to GBP789m of other illiquid assets originated
during the first six months of 2023, Just also originated GBP75m of
internally funded lifetime mortgage assets.
4 Alternative performance measure (APM), see glossary for
definition. See the business review for explanation of the use of
APM's and reconciliation to statutory results.
Business Review
STRONG GROWTH, CONTINUED MOMENTUM
The Group is well positioned in attractive markets with strong
and structural growth drivers. This enables us to benefit from the
significant boost in demand for our products due to the significant
rise in long term interest rates over the past 18 months. We
innovate, risk select and price with discipline, ensuring our
business model delivers long-term value for customers and
shareholders.
The Business Review presents the results of the Group for the
six months ended 30 June 2023, including unaudited IFRS and
Solvency II information. These are the first reported results under
IFRS 17, which has prompted some modification of the Group's key
performance indicators, as set out below.
The growth and success of the business during the first half of
2023 is built on the foundation of a transformed, low capital
intensity new business model, supported by our strong and resilient
capital base. We continue to maintain cost control across the
business whilst specifically targeting our investment in
proposition development, and to enable the business to scale
efficiently. We continue to diversify the asset portfolio by
originating a greater proportion of illiquid assets to back the new
business in line with our investment strategy.
We entered 2023 with very strong momentum in the DB business, as
rising interest rates over the past 18 months have accelerated the
closure of scheme funding gaps. During the first six months of
2023, we wrote a record amount of DB new business for a first half,
GBP1.4bn from 35 transactions (H1 22: GBP0.6bn, 14 transactions) in
a buoyant market estimated by Hymans Robertson at GBP25bn (H1 22:
GBP12bn). LCP forecast that up to GBP60bn of DB buy-in/buy-out
transactions could occur in 2023, and therefore the DB market is
well on track to substantially exceed the previous record of
GBP44bn in 2019. Just enters the second half of 2023 with a record
pipeline of active quotations, and we expect to maintain sales in
line with, or above our first half level. Strong pricing discipline
is contributing to further optimising returns from our new business
capital budget. We expect the positive trend to persist as schemes
continue their preparatory work to be transaction ready for 2024.
We estimate that less than 15% of the GBP1.4tn DB market
opportunity has executed thus far, with LCP forecasting c.GBP600bn
of DB buy-in/buy-out transactions over the decade to 2032, of which
over GBP200bn could transact over the next three years. Around one
in five, (c.1,000) of all DB schemes are already fully funded on an
insurer buyout basis, with the remaining c.4,000 progressively
working towards full funding over the next decade and beyond.
Our GIfL business is also buoyant, boosted by strong growth in
the Open Market, where Just operates. Higher interest rates
directly increase the customer rate on offer, increasing the
attractiveness of a guaranteed income. The customer rate can be
further improved through individual medical underwriting, in which
Just is a market leader, with a substantial uplift, especially for
those customers with medical conditions. Quote activity remains
elevated, following the rise in rates post September 2022's
mini-budget. During the six months to 30 June 2023, we wrote
GBP470m of GIfL business, up 54% year on year (H1 22: GBP305m). The
introduction of the FCA's Consumer Duty in July and findings later
this year from the thematic review into retirement income advice
are likely to lead to increased advisor conversations on the
importance of considering guaranteed solutions to help customers
achieve their objectives.
For the first six months of the year, underlying operating
profit was up 154% at GBP173m (H1 22: GBP68m), a position that
leads us to being very confident of meeting or exceeding our target
to deliver 15% growth in underlying operating profit per annum, on
average over the medium term . Retirement Income (2) sales of
GBP1,899m were more than double the H1 22 level (GBP879m), as both
DB and GIfL sales markedly increased, which led to a new business
profit of GBP161m (H1 22: GBP76m). New business margin was pleasing
at 8.5% (H1 22: 8.6%) as buoyant markets supported active risk
selection, whilst maintaining pricing and cost discipline. In-force
profit at GBP92m (H1 22: GBP72m) reflected an increased return on
surplus assets in addition to a growing book of in-force business.
Finance costs have reduced following the November 2022 tender offer
and subsequent cancellation of GBP76m tier 2 debt.
Total investment and economic variances of GBP71m combined with
other items to drive an adjusted profit before tax for the first
six months of GBP246m. Of this GBP246m, GBP129m of profit is
deferred to the CSM reserve in the balance sheet, leaving a profit
before tax of GBP117m.
Long dated cashflows from assets and liabilities on the balance
sheet are closely cashflow matched and not exposed to movements in
long term interest rates. Historically, hedges to protect interest
rate exposure in our Solvency II position have created volatility
in IFRS profit before tax as interest rates moved. However, a
revised hedging strategy during 2022 and H1 23, including the
purchase of GBP2bn of long dated gilts held at amortised cost under
IFRS has removed(1) the IFRS exposure whilst significantly
containing our Solvency II sensitivity to future interest rate
movements. The key sensitivities of the Group's capital and
financial position to future economic and demographic factors are
set out below and in notes 11 and 14 of these financial
statements.
The Group's Solvency II capital position(1) has further
strengthened to 204% (2) (31 December 2022: 199%) helped in part by
a continued rise in long term interest rates. Underlying organic
capital generation for the first half of 2023 was healthy at GBP18m
(H1 22: GBP33m) with the GBP30m capital strain from writing the
increased volume of new business maintained at a low 1.6% of
premium (H1 22: GBP11m and 1.3% of premium). This low new business
strain, materially inside our 2.5% target, reflects strong pricing
discipline, risk selection, and business mix. Lower finance costs
also contributed. We continue to closely monitor and prudently
manage our risks, including interest rates, inflation, currency,
residential property and credit. The Solvency II sensitivities are
set out below.
The recent Financial Services and Markets Act contains new
powers to set the direction for financial services following the
UK's exit from the European Union, including reforms to the
Solvency II capital regime. As part of the proposed new Solvency UK
regime, in June, HM Treasury and the PRA set out their proposals to
implement the more straightforward items, including simplification
measures and a 65% reduction in risk margin for life insurance
business by the end of 2023. The risk margin reduction is estimated
to improve our current solvency ratio by over 5 percentage points.
A consultation paper on the more complex changes to matching
adjustment ("MA") rules and the associated investment flexibility
is expected to be launched in September, with reforms to take
effect in 2024. We expect these MA changes to support the role HM
Treasury is expecting from the industry, whereby appropriate
reforms could increase investment by tens of billions of pounds in
long-term finance to the broader economy, including infrastructure,
decarbonisation, social housing and increased investment in science
and technology.
At this time, the outlook for the economy continues to evolve,
reflecting macro-economic and political concerns including the
trajectory of central bank rates to reduce and control inflation,
and a UK election by the end of 2024. The interest rate increases
are predicted to lead to a possible shallow recession later in
2023, followed by a gradual recovery in 2024. We expect these macro
forces to have a negligible effect on the Group's business model,
with sustained higher long term interest rates continuing to drive
demand for our products. We have a strong and resilient capital
base, with a low strain business model that is generating
sufficient capital on an underlying basis to fund our ambitious
growth plans, whilst also paying a shareholder dividend that is
expected to grow over time.
(1) See note 14 for interest rate sensitivities, with a 100 bps
increase in interest rates resulting in an increase in pretax
profit of GBP4.1m and a 100 bps decrease in interest rates
resulting in an increase in pretax profit of GBP8.3m.
(2) Solvency II capital coverage ratios as at 30 June 2023
includes a notional recalculation of TMTP. and 31 December 2022
includes a formal recalculation of TMTP.
(3) Alternative performance measure, see glossary for
definition.
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.
Just Group has been growing strongly for a number of years and
regards the writing of profitable new business contracts as a key
objective for management. As a result, in management's view, the
use of an alternative performance measure which includes the value
of profits deferred for recognition in future periods is a more
meaningful measure than IFRS profits excluding the value of new
business sales.
The APMs used by the Group are: return on equity, underlying
operating profit, new business profit, Retirement Income sales,
underlying organic capital generation, organic capital generation,
new business strain, in-force operating profit, adjusted profit
before tax, adjusted earnings, adjusted earnings per share and
tangible net asset value per share. The Directors have concluded
that the principles used as a basis for the calculation of the APMs
remain appropriate, although due to the adoption of new accounting
standards the reconciliation from APMs' to IFRS reported results
has changed. Further information on our APMs can be found in the
glossary, together with a reference to where the APM has been
reconciled to the nearest statutory equivalent.
KPIs are regularly reviewed against the Group's strategic
objectives, which have remained unchanged following the adoption of
IFRS 17, which has also not impacted the Group dividend policy. The
Group's KPIs are discussed in more detail on the following
pages.
The Group's KPIs are shown below:
Six months ended
Six months ended 30 June 2022
30 June 2023 GBPm Change
GBPm (restated) %
========================================= ================= ================= =======
Return on equity(1) 13.0% 5.4% 7.6pp
========================================= ================= ================= =======
Underlying operating profit(1) 173 68 154
========================================= ================= ================= =======
New business profit(1) 161 76 112
========================================= ================= ================= =======
Retirement Income sales(1) 1,899 879 116
========================================= ================= ================= =======
IFRS profit/(loss) before tax 117 (237) 149
========================================= ================= ================= =======
Underlying organic capital generation(1) 18 33 (45)
========================================= ================= ================= =======
New business strain (1) 1.6% 1.3% 0.3pp
========================================= ================= ================= =======
30 June 2023 31 December 2022 Change
====================================== ============= ================= =======
Solvency II capital coverage ratio(2) 204% 199% 5pp
====================================== ============= ================= =======
Tangible net asset value per share(1) 204p 190p(3) -
====================================== ============= ================= =======
(1) Alternative performance measure, see glossary for
definition.
(2) Solvency II capital coverage ratios as at 30 June 23
includes a notional recalculation of TMTP and 31 December 2022
includes a formal recalculation of TMTP.
Tangible net assets / Return on equity
The return on equity in the six months to 30 June 2023 was 13.0%
(30 June 2022: 5.4%), using annualised underlying operating profit
after attributed tax of GBP132m (30 June 2022: GBP55m) arising on
average tangible net assets of GBP2,033m (30 June 2022: GBP2,020m).
The 7.6pp movement was driven by increased underlying operating
profit, driven by new business volumes that more than doubled
during the period. Tangible net assets are reconciled to IFRS total
equity as follows:
30 June 2022
30 June 2023 GBPm
GBPm (restated)
======================================================== ============ ============
IFRS total equity attributable to ordinary shareholders 850 979
======================================================== ============ ============
Less intangible assets (45) (46)
======================================================== ============ ============
Tax on amortised intangible assets 3 3
======================================================== ============ ============
Add back contractual service margin 1,740 1,336
======================================================== ============ ============
Adjust for tax on contractual service margin (432) (331)
======================================================== ============ ============
Tangible net assets 2,116 1,941
======================================================== ============ ============
Tangible net assets per share 204p 187p
======================================================== ============ ============
Return on equity % (underlying) 13.0% 5.4%
======================================================== ============ ============
Underlying operating profit
Underlying operating profit is the core performance metric on
which we have based our 15% growth target, per annum, on average,
over the medium term. Underlying operating profit captures the
performance and running costs of the business including interest on
the capital structure, but excludes operating experience and
assumption changes, which by their nature are unpredictable and can
vary substantially from period to period. For the first six months
of 2023, underlying operating profit grew by 154% to GBP173m, which
is a strong foundation, and provides strong confidence in achieving
our full year ambitions .
Six months ended
Six months ended 30 June 2022
30 June 2023 GBPm Change
GBPm (restated) %
========================================= ================= ================= =======
New business profit 161 76 112
========================================= ================= ================= =======
CSM amortisation (29) (26) 12
========================================= ================= ================= =======
Net underlying CSM increase 132 50 164
========================================= ================= ================= =======
In-force operating profit 92 72 28
========================================= ================= ================= =======
Other Group companies' operating results (8) (7) 14
========================================= ================= ================= =======
Development expenditure (10) (9) 11
========================================= ================= ================= =======
Finance costs (33) (38) (13)
========================================= ================= ================= =======
Underlying operating profit(1) 173 68 154
========================================= ================= ================= =======
(1) See reconciliation to IFRS profit before tax further in this
Business Review.
New business profit
New business profit more than doubled during the six months to
GBP161m (H1 22: GBP76m) driven by a 116% increase in Retirement
Income sales to GBP1.9bn (H1 22: GBP0.9bn). The new business margin
was maintained at 8.5% (H1 22: 8.6%) reflecting continued pricing
discipline and risk selection in buoyant markets.
CSM amortisation
IFRS 17 introduces two new concepts, the Contractual Service
Margin and the Risk Adjustment to the statement of financial
position. CSM amortisation represents the release from the CSM
reserve into profit as services are provided, net of accretion
(unwind of discount) on the CSM reserve balance (see below). GBP29m
of net CSM amortisation represents a GBP56m release of CSM into
profit, offset by GBP27m of interest accreted to the CSM.
The CSM release into profit was GBP56m (H1 22: GBP42m), which
represents an annualised 6.2% (H1 22: 6.3%) of the CSM balance
immediately prior to release. The increase during the period
represents growth in the CSM reserve from an additional year of
deferred new business profit and the longevity assumption change at
31 December 2022 which was also deferred to CSM.
Accretion on the CSM balance amounted to GBP27m (H1 22: GBP16m)
represents an annualised 3.1% (H1 22: 2.3%) of the opening plus new
business CSM balance. CSM accretion is calculated using locked-in
discount rates. The increase during the period reflects the higher
interest rates applicable through the forward rates locked in at 31
December 2021 for new business written pre 2022 as well as higher
interest rates applicable to the new business written since the end
of 2021 and the increase in the CSM balance following the FY22
longevity assumption change.
Net Underlying CSM increase
This represents the net underlying increase in deferred profit
in CSM over the period before allowing for transfers to CSM in
respect of operating experience and assumption changes recognised
in the current year. The new business profit to CSM in-force
release multiple of 3 times reflects the strong growth of the
insurance portfolio.
In-force operating profit
In-force operating profit represents investment returns earned
on surplus assets, the release of allowances for credit default,
CSM amortisation, release of risk adjustment allowance for
non-financial risk and other. Taken together, these are the key
elements of the IFRS 17 basis operating profit from insurance
activities.
Six months ended
Six months ended 30 June 2022
30 June 2023 GBPm Change
GBPm (restated) %
========================================================== ================= ================= =======
Investment return earned on surplus assets 45 28 61
========================================================== ================= ================= =======
Release of allowances for credit default 14 14 -
========================================================== ================= ================= =======
CSM amortisation 29 26 12
========================================================== ================= ================= =======
Release of risk adjustment for non-financial risk / Other 4 4 -
========================================================== ================= ================= =======
In-force operating profit(1) 92 72 28
========================================================== ================= ================= =======
The in-force operating profit increased by 28% to GBP92m (H1 22:
GBP72m), driven by a significant increase in investment return, as
a result of higher interest rates, on a higher amount of surplus
assets.
other group companies' operating results
The operating result for other Group companies was a loss of
GBP8m in the six months ended 30 June 2023
(six months ended 30 June 2022: loss of GBP7m). These costs
arise from the holding company, Just Group plc, and the HUB group
of businesses.
Development expenditure
Development expenditure of GBP10m for the six months ended 30
June 2023 (six months ended 30 June 2022 GBP9m), relates mainly to
product development, proposition enhancement and new initiatives.
It also includes investment in distribution improvements such as
online capability and digital access.
finance costs
Finance costs have decreased by 13% to GBP33m for the six months
ended 30 June 2023 (six months ended 30 June 2022: GBP38m). These
include the coupon on the Group's Restricted Tier 1 notes, as well
as the interest payable on the Group's Tier 2 and Tier 3 notes.
Finance costs have reduced following the November 2022 tender offer
and subsequent cancellation of GBP76m tier 2 debt.
Today, we are launching an open market repurchase facility (the
"OMR Facility") under which Just Group plc may from time to time,
seek to repurchase on a first come first serve basis, a limited
amount up to and not exceeding GBP24.027m in aggregate nominal
amount of its outstanding 2026 tier 2 subordinated notes (ISIN
XS1504958817) (the "Notes"). The price paid for the Notes will be
subject to market pricing and conditions at the time, and at the
sole discretion of Just Group plc. The rationale for the OMR
Facility is to optimise the capital structure and debt profile of
the Group, while offering to holders of the Notes the opportunity
to sell them to Just Group plc. Morgan Stanley & Co
International plc have been appointed as sole agent to execute the
OMR Facility. The OMR Facility will expire on 31 October 2023. Any
Notes purchased by Just Group plc will subsequently be
cancelled.
Retirement income Sales
Six months
ended Six months Change
30 June ended %
2023 30 June 2022
GBPm GBPm
===================================== =========== ============== =========
Defined Benefit De-risking Solutions
("DB") 1,429 574 149
===================================== =========== ============== =========
Guaranteed Income for Life Solutions
("GIfL")(1) 470 305 54
===================================== =========== ============== =========
Retirement Income sales 1,899 879 116
===================================== =========== ============== =========
(1) GIfL includes UK GIfL, South Africa GIfL and Care Plans.
The structural drivers and trends in our markets underpin our
confidence that we can continue to deliver attractive returns and
growth rates over the long term. Higher interest rates stimulate
further demand for our products, and we are well positioned to take
advantage of the growth opportunities available in our chosen
markets. Over the past 18 months, rising interest rates have
accelerated the closure of DB scheme funding gaps, and therefore
more schemes are able to begin the process to be 'transaction
ready', accelerating business into our short/medium term pipeline
that previously would have been expected to transact in the second
half of the decade. The retail GIfL business had its busiest six
month period since 2014, with the Open market, where Just competes
showing particularly strong growth. Higher interest rates directly
increase the customer rate we can offer, further improved through
individual medical underwriting. This increases the value of the
guarantee to customers, relative to other forms of retirement
income.
DB sales at GBP1,429m (H1 22: GBP574m) were up 149%, reflecting
heightened activity, during the first six months of the year. In
February, we closed our largest DB transaction to date at GBP513m.
In total, we completed 35 deals, of which 32 were below GBP100m in
size, as we maintained our leadership presence in the <GBP100m
segment. These activity levels are well ahead of the 56
transactions for the whole of 2022, when Just wrote over a quarter
of all transactions in the market, representing 10% share by market
value. Our bulk quotation service continues to grow in popularity
with over 200 DB schemes from 19 EBCs onboarded, and is providing a
steady source of completions as EBCs and trustees increasingly
benefit from price monitoring and a streamlined transaction
process. Recent examples include our smallest DB transaction to
date at GBP0.6m, and a GBP2m scheme that had been price monitored
since 2019. We continue to develop the service to allow us to
significantly increase our onboarding capacity. As part of our
proposition to EBCs, trustees, and scheme sponsors, we are always
available to quote for any size transaction. We expect less
seasonality in 2023 new business levels than in previous years.
GIfL sales for the six months to 30 June 2023 were GBP470m (six
months to 30 June 2022: GBP305m), 54% higher year on year. This
strong foundation provides us with opportunity to utilise our
market leading medical underwriting to risk select more profitable
and niche segments of the market in the second half. Furthermore,
we estimate that since 2014, more than GBP130bn of cumulative
retirement savings have moved to drawdown on platform, often
without a decumulation strategy. Due to the higher customer rates
now on offer, we expect that advisers and customers will re-examine
the role of guaranteed income in retirement. The introduction of
the FCA's Consumer Duty in July and the findings later this year
from the thematic review into retirement income advice are also
likely to increase the importance of considering guaranteed
solutions to help customers achieve their objectives.
Adjusted Earnings per share
Adjusted EPS (based on underlying operating profit after
attributed tax) has increased to 12.9 pence for the current period
from 5.3 pence for the 6 months ended 30 June 2022.
Six months
ended
Six months 30 June
ended 2022
30 June
2023 (restated)
============================================ ========== ============
Adjusted earnings (GBPm) 132 55
============================================ ========== ============
Weighted average number of shares (million) 1,029 1,036
============================================ ========== ============
Adjusted EPS(1) (pence) 12.9 5.3
============================================ ========== ============
(1) Alternative performance measure, see glossary for
definition.
Earnings per share
Six months
ended
Six months 30 June
ended 2022
30 June
2023 (restated)
============================================ ========== ============
Earnings (GBPm) 76 (187)
============================================ ========== ============
Weighted average number of shares (million) 1,029 1,036
============================================ ========== ============
EPS (pence) 7.3 (18.1)
============================================ ========== ============
Earnings per share has increased to 7.3 pence for the current
period from (18.1) pence for the six months ended 30 June 2022.
Reconciliation of Underlying operating profit and Adjusted
operating profit
Six months ended
Six months ended 30 June 2022
30 June 2023 GBPm
GBPm (restated)
=========================================================================== ================= =================
Underlying operating profit (1) 173 68
=========================================================================== ================= =================
Operating experience and assumption changes 1 (4)
=========================================================================== ================= =================
Adjusted operating profit before tax 174 64
=========================================================================== ================= =================
Investment and economic movements 71 (255)
=========================================================================== ================= =================
Strategic expenditure (7) (3)
=========================================================================== ================= =================
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity 8 9
=========================================================================== ================= =================
Adjusted profit before tax (1) 246 (185)
=========================================================================== ================= =================
Deferral of profit in CSM (129) (52)
=========================================================================== ================= =================
Profit/(loss) before tax 117 (237)
=========================================================================== ================= =================
(1) Alternative performance measure, see glossary for
definition.
Operating experience and assumption changes
Operating experience and assumption changes represent continued
positive mortality experience, partially offset by some minor data
and modelling refinements.
STRategic expenditure
Strategic expenditure was GBP7m for the six months ended 30 June
2023 (six months ended 30 June 2022: GBP3m). This included the
transformation to IFRS 17, in addition to a greater investment in
the development of our robo-advice Destination Retirement
proposition.
Investment and economic movements
Six months ended
Six months ended 30 June 2022
30 June 2023 GBPm
GBPm (restated)
================================== ================= =================
Change in interest rates (6) (257)
================================== ================= =================
(Wider)/narrower credit spreads 7 (32)
================================== ================= =================
Property growth experience 38 38
================================== ================= =================
Asset timing variance 10 4
================================== ================= =================
Other 22 (8)
================================== ================= =================
Investment and economic movements 71 (255)
================================== ================= =================
Investment and economic movements for the six months ended 30
June 2023 were positive at GBP71m (six months ended 30 June 2022:
GBP255m loss). The Group takes an active approach to hedging its
interest rate exposure. In the second half of 2021 and across 2022,
as rates rose and the solvency position strengthened, we gradually
reduced the interest rate hedging to a broadly economically neutral
position, albeit still incurred GBP257m of losses in relation to
interest rate hedging in the first half of 2022 (GBP536m loss for
FY 2022, due to rising interest rates). In 2023, the continued
increase in risk free rates has a negligible effect following the
implementation of a revised interest rate hedging strategy during
2022 and the first half of 2023, including the purchase of GBP2bn
of long dated gilts held at amortised cost under IFRS. This
approach has removed(1) the IFRS exposure whilst significantly
containing our Solvency II sensitivity to future interest rate
movements (see estimated Group Solvency II sensitivities
below).
Furthermore, during the first six months of 2023, credit spreads
have narrowed, leading to a GBP7m positive movement (H1 22: credit
spreads widened leading to a negative movement of GBP32m). The LTM
portfolio property growth was c.4% during the first six months of
2023, with our diversified portfolio outperforming the long-term
property growth assumption of 1.65% for the six months (3.3% annual
property growth assumption). Other includes positives from
corporate bond default experience and inflation.
(1) See note 14 for interest rate sensitivities, with a 100 bps
increase in interest rates resulting in an increase in pretax
profit of GBP4.1m and a 100 bps decrease in interest rates
resulting in an increase in pretax profit of GBP8.3m.
Capital management
The Group's capital coverage ratio was estimated to be 204% at
30 June 2023, including a notional recalculation of transitional
measures on technical provisions ("TMTP") (31 December 2022: 199%
including a formal recalculation of TMTP). The Solvency II capital
coverage ratio is a key metric and is considered to be one of the
Group's KPIs.
30 June 31 December
2023(1) 2022(2)
GBPm GBPm
============================= ========= ============
Own funds 2,698 2,757
============================== ========= ============
Solvency Capital Requirement (1,323) (1,387)
============================== ========= ============
Excess own funds 1,375 1,370
============================== ========= ============
Solvency coverage ratio(1) 204% 199%
============================== ========= ============
(1) Solvency II capital coverage ratios as at 30 June 23
includes a notional recalculation of TMTP and 31 December 2022
includes a formal recalculation of TMTP.
(2) This is the reported regulatory position as included in the
Group's Solvency and Financial Condition Report as at 31 December
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 six months to 30 June 2023.
At At
30 30
June June
2023(2) 2022
GBPm
(Not covered by PwC's independent review opinion) GBPm (restated)
==================================================== ========= ============
Excess own funds at 1 January 1,370 1,168
==================================================== ========= ============
Operating
==================================================== ========= ============
In-force surplus net of TMTP amortisation 84 87
==================================================== ========= ============
New business strain(2) (30) (11)
==================================================== ========= ============
Finance cost (24) (32)
==================================================== ========= ============
Group and other costs (12) (11)
==================================================== ========= ============
Underlying organic capital generation 18 33
==================================================== ========= ============
Management actions and other items (4) 3
==================================================== ========= ============
Total organic capital generation(3) 14 36
==================================================== ========= ============
Non-operating
==================================================== ========= ============
Strategic expenditure (5) (2)
==================================================== ========= ============
Dividend (13) (10)
==================================================== ========= ============
Economic movements 9 57
==================================================== ========= ============
Excess own funds 1,375 1,249
==================================================== ========= ============
(1) All figures are net of tax, and include a notional
recalculation of TMTP where applicable.
(2) New business strain calculated based on pricing
assumptions.
(3) Organic capital generation includes surplus from in-force,
new business strain, overrun and other expenses, interest and other
operating items. It excludes economic variances, regulatory
changes, dividends and capital issuance.
underlying Organic capital generation and New business
STRAIN
In the first six months of 2023, we have delivered GBP18m of
underlying organic capital generation (six months ended 30 June
2022: GBP33m).
The business is delivering sufficient ongoing capital generation
to support deployment of capital to capture the profitable growth
opportunity available in our chosen markets, provide returns to our
capital providers and further investment in the strategic growth of
the business.
Underlying organic capital generation ("UOCG") has benefitted
from the ongoing focus across the business on minimising new
business capital strain. In the first six months of 2023, due to
writing GBP1.9bn of new business
(H1 22: GBP0.9bn), new business strain increased by GBP19m to
GBP30m, which represents 1.6% of new business premium (six months
ended 30 June 2022: 1.3% of premium), well within our target of
below 2.5% of premium. This continued outperformance is driven by
continued pricing discipline and risk selection, together with a
high proportion of small and medium transactions within the DB
sales mix as part of our origination strategy. UOCG before new
business strain improved by 9% to GBP48m (H1 22: GBP44m).
In-force surplus after TMTP amortisation was down 3% to GBP84m,
primarily due to higher interest rates which reduces the amount of
capital available (via lower SCR and risk margin) to release. Group
and other costs including development and non-life costs were
GBP12m (six months ended 30 June 2022: GBP11m). Finance costs at
GBP24m were lower, which reflected the interest savings following a
tender offer and subsequent cancellation of GBP76m tier 2 debt in
November 2022. Management actions and other items reduced the
capital surplus by GBP4m, leading to a total of GBP14m from organic
capital generation.
NON-OPERATING items
Other economic movements summed to GBP9m in the capital surplus.
The effect from higher interest rates (10 year gilts rose by rose
by 55bps during the period) was negligible at GBP(3)m in the
surplus as Own Funds and SCR both reduced, although this provided a
boost to the ratio. Property price growth, supported by our regular
individual property valuation refresh, of c.4% (compared to our six
monthly 1.65% long term growth assumption) led to an GBP18m
increase in capital surplus, offset by GBP6m of Other. Payment of
the 2022 final dividend in May cost GBP13m and strategic expenses
reduced the capital surplus by a further GBP5m.
Estimated group Solvency II sensitivities (1,5)
The property sensitivity has remained stable at 11% (31 December
2022: 12%). We expect that reduced LTM origination and backing
ratio on new business will contain the Solvency II sensitivity to
house prices to at or below this level over time. The credit
quality step downgrade sensitivity has slightly reduced due to
credit spreads narrowing during the period, which decreases the
cost of trading the 10% of our credit portfolio assumed to be
downgraded back to their original credit rating.
Sensitivities to economic and other key metrics are shown in the
table below.
At 30 June At 30 June
2023 2023
% GBPm
Solvency coverage ratio/excess own funds at 30 June
2023(2) 204 1,375
============================================================ ============ ===========
-50bps fall in interest rates (with TMTP recalculation) (6) 22
============================================================ ============ ===========
+50bps increase in interest rates (with TMTP recalculation) 5 (28)
============================================================ ============ ===========
+100bps credit spreads (with TMTP recalculation) 12 74
============================================================ ============ ===========
Credit quality step downgrade(3) (8) (106)
============================================================ ============ ===========
+10% LTM early redemption 1 15
============================================================ ============ ===========
-10% property values (with TMTP recalculation)(4) (11) (123)
============================================================ ============ ===========
-5% mortality (10) (132)
============================================================ ============ ===========
1 In all sensitivities the Effective Value Test ("EVT")
deferment rate is allowed to change subject to the minimum
deferment rate floor of 3% as at 30 June 2023 (2.0% as at 31
December 2022) except for the property sensitivity where the
deferment rate is maintained at the level consistent with base
balance sheet.
2 Sensitivities are applied to the reported capital position
which includes a notional TMTP recalculation.
3 Credit migration stress covers the cost of an immediate big
letter downgrade (e.g. AAA to AA or A to BBB) on 10% of all assets
where the capital treatment depends on a credit rating (including
corporate bonds, ground rents/income strips; but lifetime mortgage
senior notes are excluded). Downgraded assets are assumed to be
traded to their original credit rating, so the impact is primarily
a reduction in Own Funds from the loss of value on downgrade. The
impact of the sensitivity will depend upon the market levels of
spreads at the balance sheet.
4 After application of NNEG hedges.
5 The results do not include the impact of capital tiering restriction.
Reconciliation of IFRS equity to Solvency II own funds
30
June
31 December
2023 2022
GBPm
GBPm (restated)
=================================================== ========= ============
Shareholders' net equity on IFRS basis 1,169 1,103
=================================================== ========= ============
CSM 1,740 1,611
=================================================== ========= ============
Goodwill (34) (34)
=================================================== ========= ============
Intangibles (11) (13)
=================================================== ========= ============
Solvency II risk margin (440) (456)
=================================================== ========= ============
Solvency II TMTP(1) 731 874
=================================================== ========= ============
Other valuation differences and impact on deferred
tax (977) (884)
=================================================== ========= ============
Ineligible items (65) (50)
=================================================== ========= ============
Subordinated debt 600 619
=================================================== ========= ============
Group adjustments (15) (13)
=================================================== ========= ============
Solvency II own funds(1) 2,698 2,757
=================================================== ========= ============
Solvency II SCR(1) (1,323) (1,387)
=================================================== ========= ============
Solvency II excess own funds(1) 1,375 1,370
=================================================== ========= ============
(1) Solvency II capital coverage ratios as at 30 June 2023
include a notional recalculation of TMTP and 31 December 2022
includes a formal recalculation of TMTP.
Highlights from condensed consolidated statement of
comprehensive income
The table below presents the Condensed consolidated statement of
comprehensive income for the Group.
Six months
Six months ended
ended 30 June
30 June 2022
2023 GBPm
GBPm (restated)
============================================================ =========== ============
Insurance revenue 753 639
============================================================ =========== ============
Insurance service expenses (682) (583)
============================================================ =========== ============
Net expenses from reinsurance contracts (17) (9)
============================================================ =========== ============
Insurance service result 54 47
============================================================ =========== ============
Net investment return - (3,408)
============================================================ =========== ============
Net finance income/(expense) from insurance and reinsurance
contracts 144 3,197
============================================================ =========== ============
Net change in investment contract liabilities (1) -
============================================================ =========== ============
Net investment result 143 (211)
============================================================ =========== ============
Other income 12 6
============================================================ =========== ============
Other operating expenses (51) (50)
============================================================ =========== ============
Other finance costs (39) (29)
============================================================ =========== ============
Share of results of associates (2) -
============================================================ =========== ============
Profit/(loss) before tax 117 (237)
============================================================ =========== ============
Income tax (35) 56
============================================================ =========== ============
Profit/(loss) after tax 81 (181)
============================================================ =========== ============
Insurance revenue
Insurance revenue includes the recognition of revenue earned
associated with the expected value of claims and expenses of both
new and in-force business. Insurance revenue also includes the
release of risk adjustment as contracts run off, and the value of
release into profit of contractual service margin. In the six
months to 30 June 2023, insurance revenue increased by GBP114m
(18%) to GBP753m (six months to 30 June 2022: GBP639m) as the
premiums during the period further increases the number of
annuitants the Group serves.
The origination of GBP1,899m of Retirement Income new business
sales written during the first six months of 2023 is initially
recognised in the contractual service margin and will be released
to insurance revenue over the term of the associated insurance
contracts.
Insurance service expenses
Insurance service expenses represents the actual value of claims
and expenses of both new and in-force business. During the first
six months of 2023, insurance service expenses increased by 17% to
GBP682m (H1 22: GBP583m) due to the increased volume of
business.
Net expenses from reinsurance contracts
Net expenses from reinsurance contracts represent the difference
between the values of expected and actual reinsurance claims and
expenses, together with the release of reinsurance risk adjustment
as contracts run off, and the release of reinsurance contractual
service margin. The reinsurance contractual service margin
represents the cost of reinsurance which is spread over the
duration of the reinsurance contracts. During the six months to 30
June 2023, net expenses from reinsurance contracts increased by
GBP8m to GBP17m reflecting a higher release of reinsurance CSM
(cost) following an increase to the CSM balance attributable to the
mortality basis change at FY22.
Net investment return
The main components of net investment return are interest earned
and changes in fair value of the Group's corporate bond, mortgage
and other fixed income assets. Although there has been an increase
in risk-free rates during the period, a revised hedging strategy
during 2022 and H1 23 has removed(1) the IFRS exposure whilst
significantly containing our Solvency II sensitivity to future
interest rate movements. We closely match our assets and
liabilities, hence fluctuations in interest rates will cause
similar movements on both sides of the IFRS balance sheet. During
the first half of 2023, the Group purchased long term-gilts held on
an amortised cost basis in IFRS, fair value basis in Solvency II to
reduce the Group's Solvency II capital exposure to interest rate
movements.
Net finance income/(expense) from insurance and reinsurance
contracts
Finance costs from insurance and reinsurance contracts represent
the net cost of the unwind of the discounting of reserves, and the
net gain or loss from changes in discount rates. The net income in
the current period reflected a benefit from the increase in
discount rates on the value of best estimate and risk adjustment
reserves, partly offset by the net cost of unwind of reserves. Long
dated cashflows from assets and liabilities on the balance sheet
are closely cashflow matched and not exposed to movements in long
term interest rates, particularly since the change in the interest
rate hedging strategy explained above.
(1) See note 14 for interest rate sensitivities, with a 100 bps
increase in interest rates resulting in an increase in pretax
profit of GBP4.1m and a 100 bps decrease in interest rates
resulting in an increase in pretax profit of GBP8.3m.
Other operating expenses
Other operating expenses are broadly stable at GBP51m in the
current period and are in line with GBP50m for the six months ended
30 June 2022, as we maintained strong cost control in the business,
despite an inflationary environment.
Other finance costs
The Group's overall finance costs increased to GBP39m (six
months to 30 June 2022: GBP29m). Finance costs have increased due
to interest charged on repurchase agreements used to fund the new
gilts investment portfolio in relation to the new interest rate
hedging strategy, which was implemented in the first half of 2023.
Within the KPIs, interest on repurchase agreements is excluded from
finance costs as it is included within the return on surplus within
in-force operating profit alongside the gilt income.
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 period ended 30 June 2023 was GBP35m (six
months ended 2022: credit of GBP56m). The effective tax rate of 30%
(2022: 24%) is higher than the standard 23.5% corporation tax rate.
This is principally due to tax on a prior year adjustment.
Highlights from condensed consolidated statement of financial
position
The table below presents selected items from the Condensed
consolidated statement of financial position. The information below
is extracted from the statutory consolidated statement of financial
position.
31 December
2022
30 June 2023 GBPm
GBPm (restated)
=================================================== ============= ============
Assets
=================================================== ============= ============
Financial investments 26,161 23,351
=================================================== ============= ============
Reinsurance contract assets 719 776
=================================================== ============= ============
of which CSM 80 107
=================================================== ============= ============
Other assets 1,323 1,285
=================================================== ============= ============
Total assets 28,203 25,412
=================================================== ============= ============
Share capital and share premium 199 199
=================================================== ============= ============
Other reserves 945 938
=================================================== ============= ============
Accumulated profit and other adjustments (294) (354)
=================================================== ============= ============
Total equity attributable to ordinary shareholders
of Just Group plc 850 783
=================================================== ============= ============
Tier 1 notes 322 322
=================================================== ============= ============
Non-controlling interest (3) (2)
=================================================== ============= ============
Total equity 1,169 1,103
=================================================== ============= ============
Liabilities
=================================================== ============= ============
Insurance contract liabilities 20,606 19,648
=================================================== ============= ============
of which CSM 2,047 1,943
=================================================== ============= ============
Reinsurance contract liabilities 103 121
=================================================== ============= ============
of which CSM (227) (225)
=================================================== ============= ============
Other financial liabilities 5,354 3,669
=================================================== ============= ============
Other liabilities 971 871
=================================================== ============= ============
Total liabilities 27,034 24,309
=================================================== ============= ============
Total equity and liabilities 28,203 25,412
=================================================== ============= ============
Total Net Contractual Service Margin included
above 1,740 1,611
=================================================== ============= ============
Net Contractual Service Margin net of deferred
tax 1,308 1,212
=================================================== ============= ============
Financial investments
During the period, financial investments increased by GBP2.8bn
to GBP26.2bn (2022: GBP23.4bn). Excluding the derivatives and
collateral, and gilts purchased in relation to the interest rate
hedging, during the first half of 2023, the core Investments
portfolio increased by 5% to GBP21.3bn. Over the past 18 months,
central banks and governments are withdrawing accommodative
stimulus in response to the pandemic, while at the same time,
central banks are rapidly raising base rates from their historical
low levels to counteract the effect of inflation and prevent it
becoming embedded in the economy. Increases in risk-free rates
during the period reduce the value of the assets (and matched
liabilities), but this was more than offset by investment of the
Group's GBP1.9bn of new business premiums. Credit spreads also
tightened during the period. The credit quality of the corporate
bond portfolio remains resilient, with 51% of the Group's corporate
bond and gilts portfolio rated A or above
(31 December 2022: 52%), with a reduction due to a slightly
lower weighting to Government investments. Our diversified
portfolio continues to grow and is well balanced across a range of
industry sectors and geographies.
We continue to position the portfolio with a defensive bias, and
year to date have experienced positive ratings performance as 9% of
the Group's bond portfolio (excluding gilts) was upgraded, offset
by 4% being downgraded. The Group continues to have very limited
exposure to those sectors that are most sensitive to structural
change or macroeconomic conditions, such as auto manufacturers,
consumer (cyclical) and basic materials. The Group has increased
its ground rent (primarily commercial) investments, and selectively
added to consumer and banks investments. The BBB-rated bonds are
weighted towards the most defensive sectors including utilities,
communications and technology, and infrastructure. We have
broadened the BBB exposure towards ground rents, which offer the
security of a first charge over the asset, with reduced exposure
from the heavier weighted sectors.
The Group continues to have ample liquidity. We prudently manage
the balance sheet by hedging all foreign exchange and inflation
exposure, and have implemented a revised interest rate hedging
strategy during the first half of 2023. This involved the purchase
of GBP2bn of long dated gilts, which are held at amortised cost
under IFRS. The effect is to significantly reduce the Solvency II
sensitivity to future interest rate movements, without the
associated volatility on the IFRS position.
Other illiquid assets and lifetime mortgages
To support new business pricing, optimise back book returns, and
to further diversify the investments, the Group originates other
illiquid assets including infrastructure, real estate investments
and private placements. Income producing real estate investments
such as ground rents and income strips are typically much longer
duration and hence the cashflow profile is very beneficial,
especially to match DB deferred liabilities.
To date, Just has invested GBP3.9bn in other illiquid assets,
representing 18% of the investments portfolio
(31 December 2022: 16%), spread across more than 300
investments, both UK and abroad. We have invested in our in-house
credit team as we have broadened the illiquid asset origination,
and work very closely with our specialist asset managers on
structuring to enhance our security, with a right to veto on each
asset. We anticipate that the upcoming Solvency II reforms, when
implemented, will increase the investment opportunities available
to us through wider matching adjustment eligibility criteria, such
as callable bonds, or assets with a construction phase, where the
commencement of cashflows is not entirely certain. A PRA
consultation paper on the more complex changes to matching
adjustment ("MA") rules and the associated investment flexibility
is expected to be launched in September, with reforms to take
effect in 2024. We expect these MA changes to support the role HM
Treasury is expecting from the industry, whereby appropriate
reforms could increase investment by tens of billions of pounds in
long-term finance that underpins UK economic growth and
productivity.
In the first six months of the year, we funded GBP789m of other
illiquid assets (35 investments), which represented a 42% new
business backing ratio. Other illiquid assets are originated via a
panel of 15 specialist external asset managers, each carefully
selected based on their particular area of expertise. Our "manager
of managers" approach allows us to efficiently scale origination of
new investments, and to flex allocations between sectors depending
on market conditions and risk adjusted returns.
In addition, during the first half of 2023, internally funded
lifetime mortgages were GBP75m (H1 22, GBP274m), primarily due to a
quieter LTM market, which more than halved to GBP1.4bn, and our
ongoing pricing discipline. LTMs remain an attractive asset class,
however, in a higher interest rate environment, the initial
loan-to-value available to customers is reduced. 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. The loan-to-value ratio of the in-force lifetime mortgage
portfolio was 36.5% (31 December 2022: 37.3%), reflecting continued
performance across our geographically diversified portfolio, which
offsets the interest roll-up. Lifetime mortgages at GBP5.2bn
represent 24% of the investments portfolio, which we expect to
drift lower over time as we originate less new LTMs and diversify
the portfolio with other illiquid assets. The 11% Solvency II
capital coverage ratio impact for an immediate 10% fall in UK house
prices remains at a level we are comfortable with.
The following table provides a breakdown by credit rating of
financial investments, including privately rated investments
allocated to the appropriate rating.
31 December 31 December
2022 2022
30
June 30 June
2023 2023 GBPm %
GBPm % (restated) (restated)
=================== ======= ========= ============ ============
AAA(1) 2,235 8 1,939 8
=================== ======= ========= ============ ============
AA(1,3) and gilts 4,140 17 1,993 8
=================== ======= ========= ============ ============
A(1,2,3) 6,398 24 5,989 26
=================== ======= ========= ============ ============
BBB(1,2,3) 6,851 26 6,441 28
=================== ======= ========= ============ ============
BB or below(1, 2) 655 2 793 3
=================== ======= ========= ============ ============
Unrated(1,3) 865 3 930 4
=================== ======= ========= ============ ============
Lifetime mortgages 5,177 20 5,306 23
=================== ======= ========= ============ ============
Total (1,2,3) 26,321 100 23,391 100
=================== ======= ========= ============ ============
1 Includes units held in liquidity funds, derivatives and
collateral and gilts (interest rate hedging).
2 Includes investment in trusts which holds ground rent
generating assets which are included in investment properties and
investments accounted for using the equity method in the IFRS
consolidated statement of financial position.
3 The comparative has been restated to re-allocate ground rents
and certain SME investment and other funds to the appropriate
rating.
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
2022 2022
30 June 30 June
2023 2023 GBPm %
GBPm % (restated) (restated)
======================================== ========= ========= ============ ============
Basic materials 207 1.0 270 1.3
======================================== ========= ========= ============ ============
Communications and technology 1,289 6.1 1,327 6.6
======================================== ========= ========= ============ ============
Auto manufacturers 180 0.8 250 1.2
======================================== ========= ========= ============ ============
Consumer (staples including healthcare) 1,245 5.9 1,012 5.0
======================================== ========= ========= ============ ============
Consumer (cyclical) 245 1.2 125 0.6
======================================== ========= ========= ============ ============
Energy 424 2.0 535 2.7
======================================== ========= ========= ============ ============
Banks 1,374 6.5 1,120 5.5
======================================== ========= ========= ============ ============
Insurance 660 3.1 607 3.0
======================================== ========= ========= ============ ============
Financial - other 1,123 5.3 956 4.7
======================================== ========= ========= ============ ============
Real estate including REITs 510 2.4 437 2.2
======================================== ========= ========= ============ ============
Government 1,412 6.6 1,596 7.9
======================================== ========= ========= ============ ============
Industrial 599 2.8 622 3.1
======================================== ========= ========= ============ ============
Utilities 2,216 10.4 2,266 11.2
======================================== ========= ========= ============ ============
Commercial mortgages 629 3.0 584 2.9
======================================== ========= ========= ============ ============
Ground rents(1) 847 4.0 291 1.4
======================================== ========= ========= ============ ============
Infrastructure 1,868 8.8 1,702 8.5
======================================== ========= ========= ============ ============
Other 42 0.2 42 0.2
======================================== ========= ========= ============ ============
Corporate / government bond total 14,870 69.9 13,742 68.0
======================================== ========= ========= ============ ============
Lifetime mortgages 5,177 24.4 5,306 26.2
======================================== ========= ========= ============ ============
Liquidity funds 1,205 5.7 1,174 5.8
======================================== ========= ========= ============ ============
Investments portfolio 21,252 100.0 20,222 100.0
======================================== ========= ========= ============ ============
Derivatives and collateral 3,099 3,169
======================================== ========= ========= ============ ============
Gilts (interest rate hedging) 1,970 -
======================================== ========= ========= ============ ============
Total(1) 26,321 23,391
======================================== ========= ========= ============ ============
1 Includes direct ground rents and where applicable, investment
in trusts which holds ground rent generating assets which are
included in investment properties and investments accounted for
using the equity method in the IFRS consolidated statement of
financial position.
Reinsurance contract assets and liabilities
In accordance with IFRS 17, the Group distinguishes between its
portfolios of reinsurance contracts which cover longevity and
inflation risks and portfolios of reinsurance treaties covering
longevity reinsurance alone. The Group's contracts transferring
inflation risk are quota share arrangements which are in asset
positions. Since the introduction of Solvency II in 2016, the Group
has increased its use of reinsurance swaps rather than quota share
treaties and these are in liability positions.
Reinsurance assets decreased to GBP719m at 30 June 2023 (31
December 2022: GBP776m) as the reinsurance quota share treaties
gradually run-off.
Other assets
Other assets remained consistent at GBP1.3bn at 30 June 2023 (31
December 2022: GBP1.3bn). These assets mainly comprise cash and
intangible assets. The Group holds significant amounts of assets in
cash, so as to protect against liquidity stresses.
Insurance contract liabilities
Insurance contract liabilities increased to GBP20.6bn at 30 June
2023 (31 December 2022: GBP19.6bn). The increase in liabilities
reflects the increase in new business premiums written offset by an
increase to the valuation rate of interest and policyholder
payments over the period.
Other liabilities
Other liability balances decreased to GBP971m at 30 June 2023
(31 December 2022: GBP871m) due to the reductions in the deferred
tax liability and accruals.
IFRS net assets
The Group's total equity at 30 June 2023 was GBP1.2bn (31
December 2022: GBP1.1bn). Total equity includes the Restricted Tier
1 notes of GBP322m (after issue costs) issued by the Group in
September 2021. The total equity attributable to ordinary
shareholders increased to GBP850m (31 December 2022: GBP783m).
New business profit Reconciliation
New business profit is deferred on the balance sheet under IFRS
17. It is the equivalent of the previous new business profit KPI
under IFRS 4 and is determined in a similar manner, but uses risk
parameters updated for IFRS 17. The effect of these changes is
detailed in the reconciliation table at the end of this
section.
In addition IFRS 17 introduces clarification regarding the
economic assumptions to be used at the point of recognition of
contracts for accounts purposes. Just recognises contracts based on
their completion dates for IFRS 17, but bases its assessment of new
business profitability for management purposes based on the
economic parameters prevailing at the quote date for GIfL business.
IFRS 17 also introduces a requirement to include the reinsurance
CSM in respect of business to be written after the reporting date
up until the end of reinsurance treaty notice periods.
Six months Six months ended
ended 30 June 2022
30 June 2023 GBPm
GBPm (restated)
============================================= ============= ================
New business CSM on gross business written 158 88
============================================= ============= ================
Reinsurance CSM (10) (5)
============================================= ============= ================
Net new business CSM 148 83
============================================= ============= ================
Impact of using quote date for profitability
measurement 13 (7)
============================================= ============= ================
New business profit 161 76
============================================= ============= ================
Deferral of profit in CSM
As noted above, underlying operating profit is the core
performance metric on which we have based our 15% growth target,
per annum, on average, over the medium term. This includes new
business profits deferred in CSM that will be released in future.
When reconciling the underlying operating profit with the statutory
IFRS profit it is necessary to adjust for the value of the net
deferral of profit in CSM.
Net transfers to contractual service margin includes amounts
that are recognised in profit or loss including the accretion and
the amortisation of the contractual service margin:
Six months ended 30 Six months ended 30 June
June 2023 2022
=================================== =================================
Gross Gross
insurance Reinsurance insurance Reinsurance
contracts contracts Total contracts contracts Total
GBPm GBPm GBPm GBPm GBPm GBPm
============================= =========== ============= ======= =========== ============ ======
CSM balance at 1 January 1,943 (332) 1,611 1,489 (205) 1,284
============================= =========== ============= ======= =========== ============ ======
New Business initial
CSM recognised 158 (10) 148 88 (5) 83
============================= =========== ============= ======= =========== ============ ======
Accretion of interest
on CSM 34 (7) 27 18 (2) 16
============================= =========== ============= ======= =========== ============ ======
Changes to future cash
flows at locked-in economic
assumptions (21) 31 10 (23) 18 (5)
============================= =========== ============= ======= =========== ============ ======
Amortisation of CSM (67) 11 (56) (49) 7 (42)
============================= =========== ============= ======= =========== ============ ======
Net transfers to CSM 104 25 129 34 18 52
============================= =========== ============= ======= =========== ============ ======
CSM balance at 30 June 2,047 (307) 1,740 1,523 (187) 1,336
============================= =========== ============= ======= =========== ============ ======
Restatement of alternative performance measures
As noted earlier, certain Group's KPIs have been affected by the
implementation of IFRS 17 as a result of changes to risk parameters
and other measurement factors in the underlying statutory accounts.
The opportunity has been taken to make other changes to the
derivation of the KPIs at the same time as implementing IFRS 17,
notably:
-- The impact of demographic changes on the valuation of LTMs
has been reclassified as an investment value change instead of
being included with insurance experience and assumption changes.
This change treats the full return on LTMs as investment return and
recognises their reduced significance within the investment
portfolio.
-- Non-recurring expenses have been reallocated to new business
acquisition expenses or development expenses within underlying
operating profit or to strategic expenses. This has also been
reflected and aligned to the classifications used for measurement
of Solvency II capital generation.
The table below compares the new business profits, Underlying
profit and Adjusted operating profit before tax KPIs as presented
in the Annual Report and Accounts in 2022 under IFRS 4 (previous
accounting standard) with the equivalent KPIs based on the IFRS 17
accounts:
New business Underlying Adjusted
profit operating profit operating profit
GBPm GBPm GBPm
=============================================================== ============= ================== ==================
As presented in 2022 Annual Report and Accounts under IFRS 4 233 249 336
=============================================================== ============= ================== ==================
Changes in allowances for credit defaults 38 25 25
=============================================================== ============= ================== ==================
Changes attributable to replacement of IFRS 4 prudent reserves
with IFRS 17 risk adjustment 2 (9) (9)
=============================================================== ============= ================== ==================
Change to the classification of demographic assumption changes
and experience variances in
respect of LTMs - - 24
=============================================================== ============= ================== ==================
Reclassification of expenses (1) (6) (6)
=============================================================== ============= ================== ==================
Other differences (6) (2) (9)
=============================================================== ============= ================== ==================
As presented in 2023 Interim Statement under IFRS 17 266 257 361
=============================================================== ============= ================== ==================
Dividends
The Board has declared an interim dividend of 0.58 pence per
share (GBP6m) (HY2022 interim dividend 0.5 pence per share GBP5m).
This is in line with our stated policy for the interim dividend to
be one-third of the equivalent prior year full year dividend of
1.73 pence per share.
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 help our business partners and other
stakeholders. Our approach to risk management is designed to ensure
that our understanding of risk underpins how we run the
business.
Risk framework
Our risk framework, owned by the Group Board, covers all aspects
involved in the successful management of risk, including
governance, reporting and policies. Our appetite for different
types of risk is embedded across the business to create a culture
of confident risk-taking. The framework is continually developed to
reflect our risk environment and emerging best practice.
Risk evaluation and reporting
We evaluate our principal and emerging risks to decide how best
to manage them within our risk appetite. Management regularly
reviews its risks and produces management information to provide
assurance that material risks in the business are being
appropriately mitigated. The Risk function, led by the Group Chief
Risk Officer ("GCRO"), challenges the management team on the
effectiveness of its risk 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.
Company policies govern the exposure of risks to which the Group
is exposed and define the risk management activities to ensure
these risks remain within appetite.
Financial risk modelling is used to assess the amount of each
risk type against our capital risk appetite. This modelling is
principally aligned to our regulatory capital metrics. The results
of the modelling allow the Board to understand the risks included
in the Solvency Capital Requirement ("SCR") and how they translate
into regulatory capital needs. By applying stress and scenario
testing, we gain insights into how risks might impact the Group in
different circumstances.
Quantification of the financial impact of climate risk is
subject to significant uncertainty. Risks arising from the
transition to a lower carbon economy are heavily dependent on
government policy developments, social responses to these
developments and market trends. Just's initial focus has been on
the implementation of strategies to reduce the likely exposure to
this risk. Just will continue to adapt its view of climate risk as
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 carried out in
assessing the Group's risks related to its strategy and business
plan, supported by a variety of quantitative scenarios , and
integrates findings from recovery and run-off analysis. The report
provides an opinion on the viability and sustainability of the
Group and informs strategic decision making. Updates are provided
to the GRCC each quarter, including factors such as key risk limit
consumption as well as conduct, and operational and market risk
developments, to keep the Board appraised of the Group's evolving
risk profile.
Reporting on climate risk is being integrated into the Group's
regular reporting processes , which will evolve as the
quantification of risk exposures develops and key risk indicators
("KRIs") are identified.
Principal risks and uncertainties
STRATEGIC priorities
1. Grow sustainably
2. Transform how we work
3. Grow through innovation
4. Get closer to our customers and partners
5. Be proud to work at Just
A material change was made to how the risks and uncertainties
are presented in this report. The first section summarises the
Group's ongoing core risks and how they are managed in business as
usual. The risk outlook section calls out the risk subjects that
are evolving and are of material importance from a Group
perspective.
Ongoing principal risks
Risk How we manage or mitigate the risk
================================== ============================================================
A
Market risk arises from * Premiums invested into assets matching liability cash
changes in interest rates, flows as closely as practicable;
residential property prices,
credit spreads, inflation,
and exchange rates, which * Market risk exposures managed within pre-defined
affect, directly or indirectly, limits aligned to risk appetite for individual risks;
the level and volatility
of market prices of assets
and liabilities. The Group * Exposure managed using regulatory and economic
is not exposed to any metrics to achieve desired financial outcomes;
material levels of equity
risk. Some very limited
equity risk exposure arises * Balance sheet managed by hedging exposures including
from investment into credit currency and inflation where cost effective to do so;
funds which have a mandate and
which allows preferred
equity to be held.
* Interest rate hedging is in place to manage both
Strategic priorities Solvency II capital coverage and IFRS equity
1, 3 positions.
================================== ============================================================
B
Credit risk arises if * Investments are restricted to permitted asset classes
another party fails to and concentration limits;
perform its financial
obligations to the Group,
including failing to perform * Credit risk exposures monitored in line with credit
them in a timely manner. risk framework, driving corrective action where
required;
Strategic priorities
1, 3, 4
* External events that could impact credit markets are
tracked continuously;
* Credit risks from reinsurance balances mitigated by
the reinsurer depositing back premiums ceded and
through collateral arrangements or recapture plans;
and
* The external fund managers we use are subject to
Investment Management Agreements and additional
credit guidelines.
================================== ============================================================
C
Insurance risk arises * Controls maintained over insurance risks related to
through exposure to longevity, product development and pricing;
mortality, morbidity risks
and related factors such
as levels of withdrawal * Adherence to approved underwriting requirements;
from lifetime mortgages
and management and administration
expenses. * Medical information developed and used for pricing
and reserving to assess longevity risk;
Strategic priorities
1, 3, 4
* Reinsurance used to reduce longevity risk, with
oversight by Just of overall exposures and the
aggregate risk ceded;
* Group Board review and approval of assumptions used;
and
* Regular monitoring, control and analysis of actual
experience and expense levels.
================================== ============================================================
D
Liquidity risk is the * Utilise stress and scenario testing and analysis:
risk of insufficient suitable including collateral margin stresses, asset
assets available to meet eligibility and haircuts under stress;
the Group's financial
obligations as they fall
due. * Utilise corporate bond collateral capacity to reduce
liquidity demands and improve our liquidity stress
Strategic priorities resilience;
1, 3, 4
* Risk assessment reporting and risk event logs inform
governance and enable effective oversight; and
* Contingency funding plan maintained with funding
options and process for determining actions.
================================== ============================================================
E
Conduct and operational * Implementation of policies, controls, and mitigating
risks arise from inadequate activities to keep risks within appetite;
internal processes, people
and systems, or external
events including changes * GRCC oversight of risk status reports and any actions
in the regulatory environment. needed to bring risks back within appetite;
Such risks can result
in harm to our customers,
the markets in which we * Scenario-based assessment to establish the level of
do business or our regulatory capital needed for conduct and operational risks;
relationships as well
as direct or indirect
loss, or reputational * Monitoring conduct risk indicators and their
impacts. underlying drivers prompting action to protect
customers;
Strategic priorities
1, 2, 3, 4, 5
* Risk management training and other actions to embed
regulatory changes; and
* Ensuring data subjects can exercise their GDPR rights
including their right to be forgotten and subject
access requests to obtain their data held by Just.
================================== ============================================================
F
Strategic risk arises * The Group operates an annual strategic review cycle;
from the choices the Group
makes about the markets
in which it competes and * Information on the strategic environment, which
the environment in which includes both external market and economic factors
it competes. These risks and those internal factors which affect our ability
include the risk of changes to maintain our competitiveness, is regularly
to regulation, competition, analysed to assess the impact on the Group's business
or social changes which models;
affect the desirability
of the Group's products
and services. * Engagement with industry bodies supports our
information gathering; and
Strategic priorities
1, 2, 3, 4, 5
* The Group responds to consultations through trade
bodies where appropriate.
================================== ============================================================
Risk outlook
How this risk Just's exposure to the risk Outlook and how we manage
affects Just or mitigate the risk
============== =========================================================== ========================================================
1 Just monitors and assesses regulatory HM Treasury continues to
Political developments on an ongoing basis. review the future regulatory
and regulatory We seek to actively participate framework for financial
Changes in in all regulatory initiatives services, which includes
regulation which may affect or provide the Solvency II review.
and/or the future opportunities for the Both reviews could impact
political Group. Our aims are to implement the amount of capital our
environment any changes required effectively businesses are required
can impact and deliver better outcomes to hold. The HM Treasury
the Group's for our customers and a competitive response in November 2022
financial advantage for the business. set out the Government's
position We develop our strategy by giving final reform package for
and its consideration to planned political Solvency UK, including:
ability and regulatory developments * a reduction in the Risk Margin;
to conduct and allowing for contingencies
business. The should outcomes differ from
financial our expectations. * an enhancement in the Fundamental Spread risk
services sensitivity although its underlying design will be
industry unchanged; and
continues
to see a high
level of * a broadening of eligibility requirements for the
regulatory Matching Adjustment, the inclusion of assets with
activity. 'highly predictable' cash flows, and other changes
including increased flexibility in the associated
Strategic processes.
priorities
1, 3, 4, 5
Trend The Solvency II review is
Uncertain now being implemented. The
Group continues to monitor
and assess the changes proposed
and engage with the PRA
and industry representatives.
The PRA has published the
first of three consultations
(CP12/23). Matching Adjustment
and Risk Margin reform are
of key importance to Just's
business model.
The FCA's rules for a new
Consumer Duty ("Duty") (PS22/9
published July 2022) have
set higher and clearer standards
for consumer protection
across financial services
and require firms to put
customers' needs first.
Firms are required to apply
the Duty to new and existing
products and services that
are open to sale (or renewal)
from 31 July 2023, and from
31 July 2024 to apply the
Duty to products and services
in closed books. The Group
has achieved substantive
compliance by the 31 July
2023 deadline. Work is now
progressing on continuation
of embedding the Duty as
well as delivery of plans
to meet the July 2024 deadline
.
New PRA and FCA regulations
on operational resilience
took effect in March 2022.
The Regulators expect firms
to be operationally resilient
to ensure customers are
not at a financial disadvantage
or placed at risk of financial
harm. Firms must identify
its most important business
services and set impact
tolerances for each, with
regular scenario testing
and an annual Self-Assessment
for Board approval. To comply,
Just Group identified 15
Important Business Services
("IBS") and set Impact Tolerances
("ITOL") for each IBS in
March 2022. These were reviewed
and approved by the Board
as part of our annual Self-Assessment,
most recently in March 2023.
The change in insurance
accounting standard to IFRS
17 has been implemented
and reported in this interim
statement. In July 2023
we published an IFRS 17
restatement for FY22 and
HY22.
============== =========================================================== ========================================================
2 Our TCFD disclosures (pages Just is proactive in pursuing
Climate and 36 to 43 of the Just Group plc its sustainability responsibilities
ESG Annual Report and Accounts 2022) and recognises the importance
Climate change explains how climate-related of its social purpose. We
could impact risks and opportunities are have set sustainability
our financial embedded in Just's governance, targets for our operations
position by strategy and risk management, to be carbon net zero by
impacting the with metrics to show the potential 2025 and for emissions from
value of financial impacts on the Group. our investment portfolio,
residential The metrics reflect the stress-testing properties on which lifetime
properties capabilities developed to date mortgages are secured and
in our to assess the potential impact supply chain to be net zero
lifetime of climate risk on the Group's by 2050, with a 50% reduction
mortgage financial position. in these emissions by 2030.
portfolio The value of properties on which A transition plan has been
and the yields lifetime mortgages are secured published and a second iteration
and default can be affected by: is being developed.
risk of our (i) transition risk - such as Evidence is emerging that
investment potential government policy markets are beginning to
portfolios. changes related to the energy differentiate the price
Just's efficiency of residential properties; of assets based on their
reputation (ii) physical risks - such as ESG position and the Board
could also increased flooding due to severe expects this to continue.
be affected rainfall, or more widespread We will continue to develop
by missed subsidence after extended droughts. stress testing capabilities
emissions A shortfall in property sale to support the monitoring
targets or price against the outstanding of potential climate change
inadequate mortgage could lead to a loss impact on our investment
actions on due to the no-negative equity and LTM portfolios with
sustainability guarantee given to customers. a particular focus on refining
issues. The lifetime mortgage lending the quality of input data.
policy will be kept under review Under Just's Responsible
Strategic in light of climate risk and Investment Framework, the
priorities adjustments made as required. ESG characteristics are
1, 2, 3, 4, For corporate bond and illiquid considered during the investment
5 investment portfolios, the impact decision making process.
Trend of climate risk on assets or Risks arising from flooding,
Increasing business models may affect the coastal erosion and subsidence
ability of corporate bond issuers are taken into account in
and commercial borrowers to lifetime mortgage lending
service their liabilities. Yields decisions.
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.
============== =========================================================== ========================================================
3 Our IT systems are central to The cyber threat to firms
Cyber and conducting our business from is expected to continue
technology delivering outstanding customer at a high level in the coming
IT systems service to the financial management years with evolving sophistication.
are key to of the business. We maintain We will continue to closely
serving a framework of operational resilience monitor evolving external
customers and disaster recovery capabilities cyber threats to ensure
and running so that we can continue to operate our information security
the business. the business in adverse circumstances. measures remain fit for
These systems Protecting the personal information purpose.
may not of our customers and colleagues 2023 is seeing further investments
operate is a key priority. Internal in cyber-attack countermeasures,
as expected controls and our people are to enable consistent delivery
or may be integral to protecting the integrity of required security standards.
subject of our systems, with our multi-layered Just's new Chief Information
to approach to information security Security Officer is implementing
cyber-attack supported by training, embedded a revised information security
to steal or company policies and governance. team structure and approach.
misuse our We continue to invest in strategic
data or for technologies to strengthen data
financial security and overall resilience.
gain. In 2023, we are continuing to
Any system make enhancements to network
failure architecture. Our email system
affecting has been made more resilient
the Group to malicious attacks, including
could emerging types of ransomware.
lead to costs A specialist Security Operations
and Centre monitors all our externally
disruption, facing infrastructure and services,
adversely with threat analysis, incident
affecting management and response capabilities.
its business The Group's cyber defences are
and ability subject to regular external
to serve its penetration tests to drive enhancements
customers, to our technology infrastructure.
as well as The development of in-house
reputational systems and our use of third-party
damage. systems is tightly controlled
by technical teams following
Strategic established standards and practices.
priorities
1, 2, 3, 4,
5
Trend
Stable
============== =========================================================== ========================================================
4 A high proportion of longevity Experience and insights
Insurance risk on new business Just writes emerging since mid-2021
risk is reinsured, with the exception indicate that COVID-19 and
In the of Care business for which the the aftermath of the pandemic,
long-term, risk is retained in full. Most will have a material and
the rates of of the financial exposure to enduring impact on mortality
mortality the longevity risks that are for existing and future
suffered not reinsured relate to business policyholders. Our current
by our written prior to 2016. assumption about these changes
customers Reinsurance treaties include has been incorporated into
may differ collateral to minimise exposure Just's pricing across our
from the in the event of a reinsurer Retirement Income and Lifetime
assumptions default. Analysis of collateral Mortgage products and will
made when we arrangements can be found in be updated as more information
priced the Notes 27 and 29 of the Just becomes available.
contract. Group plc Annual Report and
Accounts.
Strategic Mortality experience continues
priorities to be volatile and significantly
1, 3, 4 above pre-pandemic levels.
Trend
Stable
============== =========================================================== ========================================================
5 Financial market volatility Tightening fiscal and monetary
Market and leads to changes in the level policy are expected to weaken
credit risk of market prices of assets and global growth significantly
Fluctuations liabilities. Our business model in 2023, with a sustained
in interest and risk management framework recession possible in the
rates, have been designed to remain UK. Financial markets are
residential robust against market headwinds. likely to remain volatile
property Our policy is to manage market during this period.
values, risk within pre-defined limits. Our investment assets may
credit Investment in fixed income investments experience increased movements
spreads, involves default, credit rating in downgrade and/or default
inflation and downgrade and concentration experience in 2023. Residential
currency may risks. Other credit risk exposures property price falls may
result, arise due to the potential default increase the Group's exposure
directly by counterparties we use to: to the risk of shortfalls
or indirectly, * provide reinsurance to manage longevity risk and to in expected repayments due
in changes fund new business. to no-negative equity guarantee
in the level within its portfolio of
and volatility lifetime mortgages. Any
of market * provide financial instruments to mitigate interest commercial property price
prices rate and currency risk exposures. falls would reduce the value
of assets and of collateral held within
liabilities. our commercial mortgage
* holding our cash balances. portfolio. The Group is
Investment selective in lending in
credit risk order to limit exposure
is a result All over-the-counter derivative to marginal properties which
of investing transactions are conducted under are more likely to suffer
to generate standardised International Swaps significant falls in value
returns to and Derivatives Association in a recession.
meet our master agreements. The Group Credit exposures to derivative
obligations has collateral agreements with and deposit counterparties
to relevant counterparties under are monitored and actively
policyholders. each master agreement. managed to reduce concentration
Credit risk on cash assets is risk.
Global factors managed by imposing restrictions Our balance sheet sensitivities
have led to over the credit ratings of third to these risks can be found
high parties with whom cash is deposited. in Note 11.
inflation,
increased
interest
rates and
significant
volatility
in financial
markets.
Strategic
priorities
1, 3, 4
Trend
Increasing
============== =========================================================== ========================================================
6 Exposure to liquidity risk arises Financial markets are expected
Liquidity from: to remain volatile into
risk * short term cash flow volatility leading to mismatches the foreseeable future with
Having between cash flows from assets and liabilities, an increased level of liquidity
sufficient particularly servicing collateral requirements of risk. At the same time (partly
liquidity to financial derivatives and reinsurance agreements; as a result of the LDI crisis)
meet our Just is experiencing strong
financial market demand for defined
obligations * the liquidation of assets to meet liabilities during benefit de-risking solutions
as they fall stressed market conditions; from pension schemes.
due requires Just's use of derivative
ongoing positions is planned to
management * higher-than-expected funding requirements on existing increase in proportion to
and the LTM contracts, lower redemptions than expected; and its planned growth. Throughout
availability any period of heightened
of appropriate volatility, Just maintains
liquidity * liquidity transferability risk across the Group. robust liquidity stress
cover. testing and holds a high
The liquidity level of liquidity coverage
position is Financial markets continue to above stressed projections.
stressed in experience volatility. Just
extremely was not directly affected by
volatile the Liability Driven Investment
conditions ("LDI") crisis last year however
such as those whilst the market turmoil seen
seen in has reduced volatility remains.
September Future calls on liquidity are
2022. managed within the Group's existing
liquidity risk management framework
Strategic which reserves.
priorities
1, 3, 4
Trend
Increasing
============== =========================================================== ========================================================
7 Risks to the Group's strategy Regulation changes, such
Strategic arise from regulatory change as Solvency II reform set
risk as the Group operates in regulated out in Risk 1, are subject
The choices markets and has partners and to consultation. It is likely
we make about distributors who are themselves the Group's regulators will
the markets regulated. Actions by regulators not make further significant
in which we may change the shape and scale changes until these have
compete and of the market or alter the attractiveness been implemented.
the demand of markets or demand for the There is a risk that pension
for our Group's products. scheme regulation may change
product Changes in the nature or intensity as a result of schemes'
and service of competition may impact the own exposures. The FPC has
offering may Group and increase the risk published its assessment
be affected the business model is not able of the minimum liquidity
by external to be maintained. The actions resilience requirement for
risks of our competitors may increase pension schemes which may
including the exposure to the risk from alter schemes propensity
changes to regulation should they fail to transfer liabilities
regulation, to maintain appropriate standards to insurers. The UK government
competition, of prudence. is discussing a wide range
or social of potential reforms to
changes. aspects of retirement provision
that could change the strategic
Strategic landscape.
priorities Demand for de-risking solutions
1, 2, 3, 4, is expected to remain strong
5 having increased after the
Trend LDI crisis. Competition
Stable for schemes may increase
from both existing and potential
new competitors. Demand
for Lifetime Mortgages has
reduced as a result of higher
interest rates and may remain
subdued until these fall.
============== =========================================================== ========================================================
The Group's strategic priorities are explained in more detail on
pages 16 and 17 of the Just Group plc Annual Report and Accounts
2022.
Statement of Directors' responsibilities
Each of the Directors of the Company confirms that to the best
of their knowledge:
-- the Condensed consolidated financial statements have been
prepared in accordance with UK-adopted IAS 34: Interim financial
reporting, as adopted by the UK Endorsement Board;
-- the interim results statement includes a fair review of the
information required by Disclosure and Transparency Rule 4.2.7,
namely important events that have occurred during the period and
their impact on the Condensed consolidated financial statements, as
well as a description of the principal risks and uncertainties
faced by the Company and the undertakings included in the Condensed
consolidated financial statements taken as a whole for the
remaining six months of the financial period; and
-- the interim results statement includes a fair review of
material related party transactions and any material changes in the
related party transactions described in the last annual report as
required by Disclosure and Transparency Rule 4.2.8.
By order of the Board:
David Richardson
Group Chief Executive Officer
14 August 2023
Independent review report to Just Group plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Just Group plc's condensed consolidated interim
financial statements (the "interim financial statements") in the
interim results of Just Group plc for the 6 month period ended 30
June 2023 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects, in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
-- the condensed consolidated statement of financial position as at 30 June 2023;
-- the condensed consolidated statement of comprehensive income for the period then ended;
-- the condensed consolidated statement of cash flows for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the interim results
of Just Group plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom ("ISRE (UK) 2410"). A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with ISRE (UK) 2410.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim results, including the interim financial statements,
is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the interim results in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In
preparing the interim results, including the interim financial
statements, the directors are responsible for assessing the group's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the interim results based on our review.
Our conclusion, including our Conclusions relating to going
concern, is based on procedures that are less extensive than audit
procedures, as described in the Basis for conclusion paragraph of
this report. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
14 August 2023
Condensed consolidated statement of comprehensive income
for the period ended 30 June 2023
Six months
Six months ended Year ended
ended 30 June 31 December
30 June 2022 2022
2023 GBPm GBPm
Note GBPm (restated) (restated)
================================================= ===== =========== ============ =============
Insurance revenue 2 753.3 639.3 1,325.3
================================================= ===== =========== ============ =============
Insurance service expenses 3 (682.4) (583.0) (1,196.4)
================================================= ===== =========== ============ =============
Net expenses from reinsurance contracts (17.3) (9.4) (29.8)
================================================= ===== =========== ============ =============
Insurance service result 53.6 46.9 99.1
================================================= ===== =========== ============ =============
Net investment gain/(loss) on financial
assets measured at fair value through
profit and loss 4 (11.1) (3,408.2) (5,188.8)
================================================= ===== =========== ============ =============
Interest income on financial assets measured
at amortised cost 4 11.0 - -
================================================= ===== =========== ============ =============
Investment return (0.1) (3,408.2) (5,188.8)
================================================= ===== =========== ============ =============
Net finance income/(expense) from insurance
contracts 5 150.5 3,274.3 4,823.1
================================================= ===== =========== ============ =============
Net finance (expense)/income from reinsurance
contracts (6.9) (77.3) (90.7)
================================================= ===== =========== ============ =============
Movement in investment contract liabilities (0.7) 0.4 2.6
================================================= ===== =========== ============ =============
Net investment result 142.8 (210.8) (453.8)
================================================= ===== =========== ============ =============
Other income 12.4 6.3 14.1
================================================= ===== =========== ============ =============
Other operating expenses (51.2) (50.8) (92.7)
================================================= ===== =========== ============ =============
Other finance costs (39.0) (29.0) (57.6)
================================================= ===== =========== ============ =============
Share of results of associates accounted
for using the equity method (1.9) - (2.9)
================================================= ===== =========== ============ =============
Profit/(loss) before tax 116.7 (237.4) (493.8)
================================================= ===== =========== ============ =============
Income tax 7 (35.4) 56.7 132.0
================================================= ===== =========== ============ =============
Profit/(loss) for the period 81.3 (180.7) (361.8)
================================================= ===== =========== ============ =============
Other comprehensive income/(loss):
================================================= ===== =========== ============ =============
Items that will not be reclassified subsequently
to profit or loss:
================================================= ===== =========== ============ =============
Revaluation of land and buildings - (0.2) 0.2
================================================= ===== =========== ============ =============
Items that may be reclassified subsequently
to profit or loss:
================================================= ===== =========== ============ =============
Exchange differences on translating foreign
operations 1.0 0.7 (0.3)
================================================= ===== =========== ============ =============
Other comprehensive income/(loss) for
the period, net of income tax 1.0 0.5 (0.1)
================================================= ===== =========== ============ =============
Total comprehensive income/(loss) for
the period 82.3 (180.2) (361.9)
================================================= ===== =========== ============ =============
(Loss)/profit attributable to:
================================================= ===== =========== ============ =============
Equity holders of Just Group plc 81.6 (180.4) (361.2)
================================================= ===== =========== ============ =============
Non-controlling interest (0.3) (0.3) (0.6)
================================================= ===== =========== ============ =============
Profit/(loss) for the period 81.3 (180.7) (361.8)
================================================= ===== =========== ============ =============
Total comprehensive income/(loss) attributable
to:
================================================= ===== =========== ============ =============
Equity holders of Just Group plc 82.6 (179.9) (361.3)
================================================= ===== =========== ============ =============
Non-controlling interest (0.3) (0.3) (0.6)
================================================= ===== =========== ============ =============
Total comprehensive income/(loss) for
the period 82.3 (180.2) (361.9)
================================================= ===== =========== ============ =============
Basic earnings/(loss) per share (pence) 7 7.34 (18.09) (36.30)
================================================= ===== =========== ============ =============
Diluted earnings/(loss) per share (pence) 7 7.17 (18.09) (36.30)
================================================= ===== =========== ============ =============
The notes are an integral part of these financial
statements.
Condensed consolidated statement of changes in equity
for the period ended 30 June 2023
Share
capital
and Total Tier Total Non-
Six months share Other Accumulated shareholders' 1 owners' controlling
ended premium reserves loss(1) equity notes equity interest Total
30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ========== ========= ================== ===================== ====== ========= ============ ========
At 1 January
2023 198.6 938.3 (353.5) 783.4 322.4 1,105.8 (2.5) 1,103.3
================ ========== ========= ================== ===================== ====== ========= ============ ========
Profit for
the period - - 81.6 81.6 - 81.6 (0.3) 81.3
================ ========== ========= ================== ===================== ====== ========= ============ ========
Other
comprehensive
income/(loss)
for the period,
net of income
tax - - 1.0 1.0 - 1.0 - 1.0
================ ========== ========= ================== ===================== ====== ========= ============ ========
Total
comprehensive
income/(loss)
for the period - - 82.6 82.6 - 82.6 (0.3) 82.3
================ ========== ========= ================== ===================== ====== ========= ============ ========
Contributions
and
distributions
=============== ========== =============== ======= ============== ==================================================
Shares issued - - - - - - - -
================ ========== ========= ================== ===================== ====== ========= ============ ========
Dividends - - (12.8) (12.8) - (12.8) - (12.8)
================ ========== ========= ================== ===================== ====== ========= ============ ========
Interest paid
on Tier 1 notes
(net of tax) - - (6.1) (6.1) - (6.1) - (6.1)
================ ========== ========= ================== ===================== ====== ========= ============ ========
Share-based
payments - 6.7 (4.1) 2.6 - 2.6 - 2.6
================ ========== ========= ================== ===================== ====== ========= ============ ========
Total
contributions
and
distributions - 6.7 (23.0) (16.3) - (16.3) - (16.3)
================ ========== ========= ================== ===================== ====== ========= ============ ========
At 30 June
2023 198.6 945.0 (293.9) 849.7 322.4 1,172.1 (2.8) 1,169.3
================ ========== ========= ================== ===================== ====== ========= ============ ========
Share
capital Tier Total Non-
Year ended and share Other Accumulated Total shareholders' 1 owners' controlling
31 December premium reserves loss(1) equity notes equity interest Total
2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================ ========== ========= ================== ===================== ====== ========= ============ ========
At 1 January
2022 -
previously
reported 198.5 944.0 977.0 2,119.5 322.4 2,441.9 (1.9) 2,440.0
================ ========== ========= ================== ===================== ====== ========= ============ ========
Impact of
adoption
of new
accounting
standards - - (943.6) (943.6) - (943.6) - (943.6)
================ ========== ========= ================== ===================== ====== ========= ============ ========
At 1 January
2022 - restated 198.5 944.0 33.4 1,175.9 322.4 1,498.3 (1.9) 1,496.4
================ ========== ========= ================== ===================== ====== ========= ============ ========
Loss for the
year - - (361.2) (361.2) - (361.2) (0.6) (361.8)
================ ========== ========= ================== ===================== ====== ========= ============ ========
Other
comprehensive
income/(loss)
for the year,
net of income
tax - 0.2 (0.3) (0.1) - (0.1) - (0.1)
================ ========== ========= ================== ===================== ====== ========= ============ ========
Total
comprehensive
income/(loss)
for the year - 0.2 (361.5) (361.3) - (361.3) (0.6) (361.9)
================ ========== ========= ================== ===================== ====== ========= ============ ========
Contributions
and
distributions
============== ============ ========= ================== === ======================== =================================
Shares issued 0.1 - - 0.1 - 0.1 - 0.1
================ ========== ========= ================== ===================== ====== ========= ============ ========
Dividends - - (15.6) (15.6) - (15.6) - (15.6)
================ ========== ========= ================== ===================== ====== ========= ============ ========
Interest paid
on Tier 1 notes
(net of tax) - - (13.6) (13.6) - (13.6) - (13.6)
================ ========== ========= ================== ===================== ====== ========= ============ ========
Share-based
payments - (5.9) 3.8 (2.1) - (2.1) - (2.1)
================ ========== ========= ================== ===================== ====== ========= ============ ========
Total
contributions
and
distributions 0.1 (5.9) (25.4) (31.2) - (31.2) - (31.2)
================ ========== ========= ================== ===================== ====== ========= ============ ========
At 31 December
2022 198.6 938.3 (353.5) 783.4 322.4 1,105.8 (2.5) 1,103.3
================ ========== ========= ================== ===================== ====== ========= ============ ========
Share
capital
and Total Tier Total Non-
share Other Accumulated shareholders' 1 owners' controlling
Six months ended premium reserves loss(1) equity notes equity interest Total
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================== ======== ========= ============== ================= ====== ========= ============= ========
At 1 January
2022 198.5 944.0 977.0 2,119.5 322.4 2,441.9 (1.9) 2,440.0
=================== ======== ========= ============== ================= ====== ========= ============= ========
Impact of adoption
of new accounting
standards - - (943.6) (943.6) - (943.6) - (943.6)
=================== ======== ========= ============== ================= ====== ========= ============= ========
At 1 January
2022 - restated 198.5 944.0 33.4 1,175.9 322.4 1,498.3 (1.9) 1,496.4
=================== ======== ========= ============== ================= ====== ========= ============= ========
Loss for the
period - - (180.4) (180.4) - (180.4) (0.3) (180.7)
=================== ======== ========= ============== ================= ====== ========= ============= ========
Other comprehensive
income/(loss)
for the period,
net of income
tax - (0.2) 0.7 0.5 - 0.5 - 0.5
=================== ======== ========= ============== ================= ====== ========= ============= ========
Total comprehensive
income/(loss)
for the period - (0.2) (179.7) (179.9) - (179.9) (0.3) (180.2)
=================== ======== ========= ============== ================= ====== ========= ============= ========
Contributions
and
distributions
============== === ======== ================= ===== =========== ===== ==========================================
Shares issued 0.1 - - 0.1 - 0.1 - 0.1
=================== ======== ========= ============== ================= ====== ========= ============= ========
Dividends - - (10.4) (10.4) - (10.4) - (10.4)
=================== ======== ========= ============== ================= ====== ========= ============= ========
Interest paid
on Tier 1 notes
(net of tax) - - (7.0) (7.0) - (7.0) - (7.0)
=================== ======== ========= ============== ================= ====== ========= ============= ========
Share-based
payments - 0.6 (0.4) 0.2 - 0.2 - 0.2
=================== ======== ========= ============== ================= ====== ========= ============= ========
Total contributions
and distributions 0.1 0.6 (17.8) (17.1) - (17.1) - (17.1)
=================== ======== ========= ============== ================= ====== ========= ============= ========
At 30 June 2022 198.6 944.4 (164.1) 978.9 322.4 1,301.3 (2.2) 1,299.1
=================== ======== ========= ============== ================= ====== ========= ============= ========
(1) Includes currency translation reserve of GBP0.1m (31
December 2022: GBP1.1m, 30 June 2022: GBP0.9m).
The notes are an integral part of these financial
statements.
Condensed consolidated statement of financial position
as at 30 June 2023
31 December
30 June 2022 30 June 2022
2023 GBPm GBPm
Note GBPm (restated) (restated)
========================================== ===== ========= ============ =============
Assets
========================================== ===== ========= ============ =============
Intangible assets 45.4 47.1 45.6
========================================== ===== ========= ============ =============
Property, plant and equipment 21.1 22.4 12.7
========================================== ===== ========= ============ =============
Investment property 39.7 40.3 50.1
========================================== ===== ========= ============ =============
Financial investments 10 26,160.8 23,351.4 22,788.6
========================================== ===== ========= ============ =============
Investments accounted for using
the equity method 161.6 194.3 -
========================================== ===== ========= ============ =============
Reinsurance contract assets 14 718.6 776.4 599.0
========================================== ===== ========= ============ =============
Deferred tax assets 7 418.2 449.2 363.5
========================================== ===== ========= ============ =============
Current tax assets - 5.7 14.1
========================================== ===== ========= ============ =============
Prepayments and accrued income 16.8 10.8 9.9
========================================== ===== ========= ============ =============
Other receivables 48.1 32.7 22.5
========================================== ===== ========= ============ =============
Cash available on demand 572.8 482.0 544.4
========================================== ===== ========= ============ =============
Total assets 28,203.1 25,412.3 24,450.4
========================================== ===== ========= ============ =============
Equity
========================================== ===== ========= ============ =============
Share capital and share premium 12 198.6 198.6 198.6
========================================== ===== ========= ============ =============
Other reserves 945.0 938.3 944.4
========================================== ===== ========= ============ =============
Accumulated loss (293.9) (353.5) (164.1)
========================================== ===== ========= ============ =============
Total equity attributable to shareholders
of Just Group plc 849.7 783.4 978.9
========================================== ===== ========= ============ =============
Tier 1 notes 13 322.4 322.4 322.4
========================================== ===== ========= ============ =============
Total equity attributable to owners
of Just Group plc 1,172.1 1,105.8 1,301.3
========================================== ===== ========= ============ =============
Non-controlling interest (2.8) (2.5) (2.2)
========================================== ===== ========= ============ =============
Total equity 1,169.3 1,103.3 1,299.1
========================================== ===== ========= ============ =============
Liabilities
========================================== ===== ========= ============ =============
Insurance contract liabilities 14 20,605.6 19,647.5 19,559.4
========================================== ===== ========= ============ =============
Reinsurance contract liabilities 14 103.1 120.7 145.9
========================================== ===== ========= ============ =============
Investment contract liabilities 29.3 32.5 29.8
========================================== ===== ========= ============ =============
Loans and borrowings 15 709.9 699.3 774.7
========================================== ===== ========= ============ =============
Other financial liabilities 16 5,354.1 3,668.9 2,497.4
========================================== ===== ========= ============ =============
Other provisions 1.0 1.1 0.8
========================================== ===== ========= ============ =============
Current tax liabilities - -
0.8
========================================== ===== ========= ============ =============
Accruals and deferred income 32.3 42.9 33.0
========================================== ===== ========= ============ =============
Other payables 197.7 96.1 110.3
========================================== ===== ========= ============ =============
Total liabilities 27,033.8 24,309.0 23,151.3
========================================== ===== ========= ============ =============
Total equity and liabilities 28,203.1 25,412.3 24,450.4
========================================== ===== ========= ============ =============
The notes are an integral part of these financial
statements.
The financial statements were approved by the Board of Directors
on 14 August 2023 and were signed on its behalf by:
Andy parsons
Director
Condensed consolidated statement of cash flows
for the period ended 30 June 2023
Six months ended
Six months ended 30 June 2022 Year ended 31 December 2022
30 June 2023 GBPm GBPm
Note GBPm (restated) (restated)
=========================================== ===== ================= ================= ============================
Cash flows from operating activities
=========================================== ===== ================= ================= ============================
Profit/(loss) before tax 116.7 (237.4) (493.8)
=========================================== ===== ================= ================= ============================
Property revaluation loss - - 0.5
=========================================== ===== ================= ================= ============================
Depreciation of property, plant and
equipment 1.7 1.7 3.3
=========================================== ===== ================= ================= ============================
Share of results from associates 1.9 - 2.9
=========================================== ===== ================= ================= ============================
Amortisation of intangible assets 1.4 0.3 2.6
=========================================== ===== ================= ================= ============================
Share-based payments 2.0 (0.5) (3.4)
=========================================== ===== ================= ================= ============================
Interest income (497.6) (309.5) (637.9)
=========================================== ===== ================= ================= ============================
Interest expense 39.0 28.7 58.0
=========================================== ===== ================= ================= ============================
Net purchases, sales, realised and
unrealised gains and losses on financial
investments (2,635.0) 2,668.1 2,766.0
=========================================== ===== ================= ================= ============================
Decrease/(increase) in net reinsurance
contracts 76.2 136.0 (29.5)
=========================================== ===== ================= ================= ============================
Increase in prepayments and accrued income (6.0) (3.9) (4.8)
=========================================== ===== ================= ================= ============================
Decrease/(increase) in other receivables 13.5 (2.0) (12.6)
=========================================== ===== ================= ================= ============================
Increase/(decrease) in insurance contract
liabilities 958.1 (3,527.1) (3,439.3)
=========================================== ===== ================= ================= ============================
Decrease in investment contract liabilities (3.2) (3.8) (1.1)
=========================================== ===== ================= ================= ============================
(Decrease)/increase in accruals and
deferred income (0.2) (9.9) 1.4
=========================================== ===== ================= ================= ============================
Increase in other creditors 1,694.2 787.2 1,339.6
=========================================== ===== ================= ================= ============================
(Decrease)/increase in other payables (45.9) 31.4 307.2
=========================================== ===== ================= ================= ============================
Interest received 480.6 192.0 401.9
=========================================== ===== ================= ================= ============================
Interest paid (36.0) (37.7) (74.7)
=========================================== ===== ================= ================= ============================
Taxation received 5.9 16.0 16.0
=========================================== ===== ================= ================= ============================
Net cash inflow/(outflow) from operating
activities 167.3 (270.4) 202.3
=========================================== ===== ================= ================= ============================
Cash flows from investing activities
=========================================== ===== ================= ================= ============================
Additions to internally generated
intangible assets - (0.8) (4.6)
=========================================== ===== ================= ================= ============================
Acquisition of property and equipment (0.3) (0.2) (3.5)
=========================================== ===== ================= ================= ============================
Disposal of property - 3.1 3.1
=========================================== ===== ================= ================= ============================
Acquisition of subsidiaries - - (197.3)
=========================================== ===== ================= ================= ============================
Net cash (outflow)/inflow from investing
activities (0.3) 2.1 (202.3)
=========================================== ===== ================= ================= ============================
Cash flows from financing activities
=========================================== ===== ================= ================= ============================
Issue of ordinary share capital (net of
costs) 12 - 0.1 0.1
=========================================== ===== ================= ================= ============================
Decrease in borrowings (net of costs) - - (76.5)
=========================================== ===== ================= ================= ============================
Dividends paid 9 (12.8) (10.4) (15.6)
=========================================== ===== ================= ================= ============================
Coupon paid on Tier 1 notes 9 (8.1) (8.7) (16.9)
=========================================== ===== ================= ================= ============================
Interest paid on borrowings (24.4) (28.4) (57.1)
=========================================== ===== ================= ================= ============================
Payment of lease liabilities - principal (0.9) (1.9) (2.9)
=========================================== ===== ================= ================= ============================
Payment of lease liabilities - interest - - (0.1)
=========================================== ===== ================= ================= ============================
Net cash outflow from financing activities (46.2) (49.3) (169.0)
=========================================== ===== ================= ================= ============================
Net increase/(decrease) in cash and cash
equivalents 120.8 (317.6) (169.0)
=========================================== ===== ================= ================= ============================
Foreign exchange differences on cash
balances 1.2 - 4.7
=========================================== ===== ================= ================= ============================
Cash and cash equivalents at start of
period 1,656.4 1,820.7 1,820.7
=========================================== ===== ================= ================= ============================
Cash and cash equivalents at end of period 1,778.4 1,503.1 1,656.4
=========================================== ===== ================= ================= ============================
Cash available on demand 572.8 544.4 482.0
=========================================== ===== ================= ================= ============================
Units in liquidity funds 1,205.6 958.7 1,174.4
=========================================== ===== ================= ================= ============================
Cash and cash equivalents at end of period 1,778.4 1,503.1 1,656.4
=========================================== ===== ================= ================= ============================
The notes are an integral part of these financial
statements.
Notes to the Condensed consolidated financial statements
1. Basis of preparation
These Condensed interim financial statements comprise the
Condensed consolidated financial statements of Just Group plc ("the
Company") and its subsidiaries, together referred to as "the
Group", as at, and for the six-month period ended, 30 June
2023.
This condensed consolidated interim financial report for the
half-year reporting period ended 30 June 2023 has been prepared in
accordance with the UK-adopted International Accounting Standard
34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority..
These Condensed interim financial statements need to be read in
conjunction with the Annual Report and Accounts for the year ended
31 December 2022 which were under the historical cost convention,
as modified by the revaluation of land and buildings, and financial
assets and financial liabilities (including derivative instruments
and investment contract liabilities) at fair value.
These Condensed interim financial statements do not comprise
statutory accounts within the meaning of Section 434 of the
Companies Act 2006. The results for the year ended and position as
at 31 December 2022 have been taken from the Group's 2022 Annual
Report and Accounts and restated for the adoption of IFRS 17
'Insurance Contracts', and IFRS 9 'Financial Instruments', as
explained in note 1.2. The Group's 2022 Annual Report and Accounts
was approved by the Board of Directors on 7 March 2023 and
delivered to the Registrar of Companies. The report of the auditor
on those accounts was (i) unqualified, (ii) did not contain any
statement under section 498 (2) or (3) of the Companies Act 2006,
and (iii) did not contain an emphasis of matter paragraph. The
results for the six--month period ended 30 June 2022 have been
taken from the Group's Interim Results for the six months to 30
June 2022 and are also restated for the adoption of IFRS 17 and
IFRS 9. The previously reported Statements of financial position at
31 December 2021 (the transitional balance sheet presented on 1
January 2022 for the cumulative impacts of the adoption of new
accounting standards) and 31 December 2022 and 30 June 2022 (the
comparative balance sheets) have been restated. All restated
figures resulting from the adoption of IFRS 17 and IFRS 9 are
unaudited.
1.1. 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 Condensed interim financial
statements.
This assessment includes the consideration of the Group's
business plan approved by the Board; the projected liquidity
position of the Company and the Group, impacts of economic
stresses, the current financing arrangements and contingent
liabilities and a range of forecast scenarios with differing levels
of new business and associated additional capital requirements to
write anticipated levels of new business.
The Group has a robust liquidity framework designed to withstand
a range of "worst case" to 1-in-200 year historic liquidity events.
The Group liquid resources includes an undrawn revolving credit
facility of up to GBP300m 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 30 June 2023 was
25.4% (31 December 2022: 14.6%). The Group's business plan
indicates that liquidity headroom will be maintained above the
Group's borrowing facilities and financial covenants will be met
throughout the period.
The Group and its regulated insurance subsidiaries are required
to comply with the requirements established by the Solvency II
Framework directive as adopted by the Prudential Regulation
Authority ("PRA") in the UK, and to measure and monitor its capital
resources on this basis. The overriding objective of the Solvency
II capital framework is to ensure there is sufficient capital
within the insurance company to protect policyholders and meet
their payments when due. Insurers are required to maintain eligible
capital, or "Own Funds", in excess of the value of the Solvency
Capital Requirement ("SCR"). The SCR represents the risk capital
required to be set aside to absorb 1-in-200 year stress tests, over
the next years' time horizon, of each risk type that the insurer is
exposed to, including longevity risk, property risk, credit risk,
and interest rate risk. These risks are aggregated together with
appropriate allowance for diversification benefits.
The resilience of the solvency capital position has been tested
under a range of adverse scenarios, before and after management
actions within the Group's control, which considers the possible
impacts on the Group's business, including stresses to UK
residential property prices, house price inflation, the credit
quality of assets, 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 of over 40%. Eligible own funds exceeded the minimum
capital requirement in all stressed scenarios described above.
Based on the assessment performed above, the Directors conclude
that it remains appropriate to value assets and liabilities on the
assumption that there are adequate resources to continue in
business and meet obligations as they fall due for the foreseeable
future, being at least 12 months from the date of signing this
report.
Furthermore, the Directors note that in a scenario where the
Group ceases to write new business the going concern basis would
continue to be applicable while the Group continued to service
in-force policies.
The Directors' 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. Accordingly, the going
concern basis has been adopted in the valuation of assets and
liabilities.
1.2. New accounting standards and new material accounting policies
The Group has applied UK-adopted IFRS for the preparation of
these financial statements. Other than the adoption of the new IFRS
9 and IFRS 17 accounting standards described below, the accounting
policies applied in the preparation of these consolidated financial
statements are consistent with those applied in the preparation of
the Group's consolidated financial statements for the year ended 31
December 2022.
1.2.1. Adoption of new and amended accounting standards
The Group has adopted two new accounting standards, with effect
from 1 January 2023:
-- IFRS 17 'Insurance Contracts' was issued in May 2017 with an
effective date of 1 January 2021. In June 2020, the IASB issued an
amended standard which delayed the effective date to 1 January
2023. IFRS 17 was approved for adoption by the UK Endorsement Board
in May 2022.
IFRS 17 establishes the principles for the recognition,
measurement, presentation and disclosure of insurance contracts and
supersedes IFRS 4, 'Insurance Contracts'.
-- IFRS 9 'Financial Instruments' replaces IAS 39 'Financial
Instruments: Recognition and Measurement' and is effective for
accounting periods beginning on or after 1 January 2018. However,
the Group previously met the relevant criteria and has applied the
temporary exemption from IFRS 9 for annual periods before 1 January
2023, the date at which IFRS 17 becomes effective. Consequently,
the Group has applied IFRS 9 commencing 1 January 2023, with
comparative periods restated. The classification overlay approach
permitted by IFRS 17 on transition of IFRS 9 together with IFRS 17
is applied to derecognised financial statements.
The IFRS 9 standard is applicable to financial assets and
financial liabilities and covers the classification, measurement,
impairment and derecognition of financial assets and liabilities
together with a new hedge accounting model.
The comparative figures in the financial statements have been
restated on the adoption of the standards. The impact on the
opening statement of financial position for the earliest presented
period (1 January 2022) is disclosed in Note 1.2.2.
Significant accounting policy choices on the adoption of the new
standards (IFRS 17 and IFRS 9) are included in Note 1.5 and 1.6
respectively.
On the transition date, 1 January 2022, the Group has:
-- Identified, recognised, and measured each group of gross
insurance contracts and associated reinsurance contracts, as if
IFRS 17 had always applied unless impracticable (refer to Note
1.3). Where the Group has concluded that the Fully Retrospective
Approach is impracticable, it has applied the Fair Value Approach
(refer to Note 1.4) on transition;
-- Derecognised any existing IFRS 4 balances, including the
Present Value of In Force Business and other relevant balances that
would not exist had IFRS 17 always applied;
-- Presented reinsurance balances separately depending on
whether they are in an asset or liability position at a portfolio
level (previously at a treaty level), and reinsurance deposits
previously classified as financial instruments are included within
the value of reinsurance contracts;
-- Recognised allowance for expected credit losses ("ECL") on
financial assets which are measured at amortised cost, on the
adoption of IFRS 9: Financial Instruments; and
-- Recognised any resulting net difference in retained earnings
net of any related tax adjustments.
The change in tax law enabling spreading of the tax recovery of
the deferred tax asset created at implementation of IFRS17 over a
period of 10 years was enacted on 10 November 2022. The deferred
tax asset at the transition date, based on the tax rules effective
at that date, has been deemed fully recoverable based on
projections of future business activity.
The following amendments to existing standards in issue have
been adopted by the Group and do not have a significant impact on
the financial statements:
-- IAS 1, Presentation of financial statements - Amendments in
respect of disclosures of accounting policies;
-- IAS 8, Accounting policies - Amendments in respect of the
definition of accounting estimates;
-- IAS 12, Income taxes - Amendments in respect of deferred tax
related to assets and liabilities arising from a single
transaction.
The following amendments to existing standards in issue have not
been adopted by the Group and are not expected to have a
significant impact on the financial statements:
-- IAS 1, Presentation of financial statements - Amendments in
respect of the classification of liabilities as current or
non-current (effective 1 January 2024).
1.2.2. Impact of adoption of new accounting standards
Statement of financial position
The previously reported Statements of financial position at 31
December 2021 (the transitional balance sheet presented on 1
January 2022 for the cumulative impacts of the adoption of new
accounting standards) and
31 December 2022 and 30 June 2022 (the comparative balance
sheets) have been restated as follows:
Restatement of the transitional Statement of financial position
(1 January 2022)
Statement of financial position
31 December 1 January
2021 Reclassification Measurement 2022
(previously
reported) adjustments adjustments (restated)
GBPm GBPm GBPm GBPm
====================================== ============= ================= ============= ============
Assets
====================================== ============= ================= ============= ============
Intangible assets 119.7 - (74.6) 45.1
====================================== ============= ================= ============= ============
Property, plant and equipment 14.2 - - 14.2
====================================== ============= ================= ============= ============
Financial investments measured
at fair value through profit
and loss 24,681.7 - - 24,681.7
====================================== ============= ================= ============= ============
Reinsurance contract assets
(previously reinsurance assets) 2,808.2 (2,128.1) 36.1 716.2
====================================== ============= ================= ============= ============
Deferred tax assets (5.3) 309.7 304.4
====================================== ============= ================= ============= ============
Current tax assets 30.2 - - 30.2
====================================== ============= ================= ============= ============
Prepayments and accrued income 75.6 (69.9) - 5.7
====================================== ============= ================= ============= ============
Other receivables (previously
insurance and other receivables) 35.4 (13.7) (1.0) 20.7
====================================== ============= ================= ============= ============
Other assets 582.9 - - 582.9
====================================== ============= ================= ============= ============
Total assets 28,347.9 (2,217.0) 270.2 26,401.1
====================================== ============= ================= ============= ============
Equity
====================================== ============= ================= ============= ============
Share capital 103.9 - - 103.9
====================================== ============= ================= ============= ============
Share premium 94.6 - - 94.6
====================================== ============= ================= ============= ============
Other reserves 944.0 - - 944.0
====================================== ============= ================= ============= ============
Accumulated profit 977.0 - (943.6) 33.4
====================================== ============= ================= ============= ============
Total equity attributable
to shareholders of Just Group
plc 2,119.5 - (943.6) 1,175.9
====================================== ============= ================= ============= ============
Tier 1 notes 322.4 - - 322.4
====================================== ============= ================= ============= ============
Total equity attributable
to owners of Just Group plc 2,441.9 - (943.6) 1,498.3
====================================== ============= ================= ============= ============
Non-controlling interests (1.9) - - (1.9)
====================================== ============= ================= ============= ============
Total equity 2,440.0 - (943.6) 1,496.4
====================================== ============= ================= ============= ============
Liabilities
====================================== ============= ================= ============= ============
Insurance contract liabilities
(previously Insurance liabilities) 21,812.9 (57.0) 1,330.3 23,086.2
====================================== ============= ================= ============= ============
Reinsurance contract liabilities
(previously reinsurance liabilities) 274.7 6.5 (116.5) 164.7
====================================== ============= ================= ============= ============
Investment contract liabilities 33.6 - - 33.6
====================================== ============= ================= ============= ============
Other financial liabilities 2,865.6 (2,144.7) - 720.9
====================================== ============= ================= ============= ============
Deferred tax liabilities 5.3 (5.3) -
====================================== ============= ================= ============= ============
Other payables (previously
insurance and other payables) 93.3 (12.6) - 80.7
====================================== ============= ================= ============= ============
Other liabilities 822.5 (3.9) - 818.6
====================================== ============= ================= ============= ============
Total liabilities 25,907.9 (2,217.0) 1,213.8 24,904.7
====================================== ============= ================= ============= ============
Total equity and liabilities 28,347.9 (2,217.0) 270.2 26,401.1
====================================== ============= ================= ============= ============
Restatement of the comparative Statement of financial position
at 30 June 2022
Statement of financial position
30 June
30 June 2022 Reclassification Measurement 2022
(previously
reported) adjustments adjustments (restated)
GBPm GBPm GBPm GBPm
====================================== ============= ================= ============= ============
Assets
====================================== ============= ================= ============= ============
Intangible assets 111.3 - (65.7) 45.6
====================================== ============= ================= ============= ============
Property, plant and equipment 12.7 - - 12.7
====================================== ============= ================= ============= ============
Financial investments measured
at fair value through profit
and loss 22,788.6 - - 22,788.6
====================================== ============= ================= ============= ============
Reinsurance contract assets
(previously reinsurance assets) 2,372.4 (1,803.9) 30.5 599.0
====================================== ============= ================= ============= ============
Deferred tax assets 66.8 - 296.7 363.5
====================================== ============= ================= ============= ============
Current tax assets 14.1 - - 14.1
====================================== ============= ================= ============= ============
Prepayments and accrued income 34.2 (24.3) - 9.9
====================================== ============= ================= ============= ============
Other receivables (previously
insurance and other receivables) 381.8 (358.3) (1.0) 22.5
====================================== ============= ================= ============= ============
Other assets 594.5 - - 594.5
====================================== ============= ================= ============= ============
Total assets 26,376.4 (2,186.5) 260.5 24,450.4
====================================== ============= ================= ============= ============
Equity
====================================== ============= ================= ============= ============
Share capital 103.9 - - 103.9
====================================== ============= ================= ============= ============
Share premium 94.7 - - 94.7
====================================== ============= ================= ============= ============
Other reserves 944.4 - - 944.4
====================================== ============= ================= ============= ============
Accumulated profit 734.0 - (898.1) (164.1)
====================================== ============= ================= ============= ============
Total equity attributable
to shareholders of Just Group
plc 1,877.0 - (898.1) 978.9
====================================== ============= ================= ============= ============
Tier 1 notes 322.4 - - 322.4
====================================== ============= ================= ============= ============
Total equity attributable
to owners of Just Group plc 2,199.4 - (898.1) 1,301.3
====================================== ============= ================= ============= ============
Non-controlling interests (2.2) - (2.2)
====================================== ============= ================= ============= ============
Total equity 2,197.2 - (898.1) 1,299.1
====================================== ============= ================= ============= ============
Liabilities
====================================== ============= ================= ============= ============
Insurance contract liabilities
(previously Insurance liabilities) 18,652.7 (368.5) 1,275.2 19,559.4
====================================== ============= ================= ============= ============
Reinsurance contract liabilities
(previously reinsurance liabilities) 258.6 3.9 (116.6) 145.9
====================================== ============= ================= ============= ============
Investment contract liabilities 29.8 - - 29.8
====================================== ============= ================= ============= ============
Other financial liabilities 4,307.4 (1,810.0) - 2,497.4
====================================== ============= ================= ============= ============
Deferred tax liabilities - - - -
====================================== ============= ================= ============= ============
Other payables (previously
insurance and other payables) 120.2 (9.9) - 110.3
====================================== ============= ================= ============= ============
Other liabilities 810.5 (2.0) - 808.5
====================================== ============= ================= ============= ============
Total liabilities 24,179.2 (2,186.5) 1,158.6 23,151.3
====================================== ============= ================= ============= ============
Total equity and liabilities 26,376.4 (2,186.5) 260.5 24,450.4
====================================== ============= ================= ============= ============
Restatement of the comparative Statement of financial position
at 31 December 2022
31 December 31 December
2022 Reclassification Measurement 2022
(previously
reported) adjustments adjustments (restated)
GBPm GBPm GBPm GBPm
====================================== ============= ================= ============= ============
Assets
====================================== ============= ================= ============= ============
Intangible assets 103.8 - (56.7) 47.1
====================================== ============= ================= ============= ============
Property, plant and equipment 22.4 - - 22.4
====================================== ============= ================= ============= ============
Financial investments measured
at fair value through profit
and loss 23,477.2 (125.8) - 23,351.4
====================================== ============= ================= ============= ============
Investments accounted for
using the equity method 194.3 - - 194.3
====================================== ============= ================= ============= ============
Reinsurance contract assets
(previously reinsurance assets) 2,286.9 (1,596.9) 86.4 776.4
====================================== ============= ================= ============= ============
Deferred tax assets 93.2 - 356.0 449.2
====================================== ============= ================= ============= ============
Current tax assets 5.7 - - 5.7
====================================== ============= ================= ============= ============
Prepayments and accrued income 85.0 (74.2) - 10.8
====================================== ============= ================= ============= ============
Other receivables (previously
insurance and other receivables) 322.8 (289.0) (1.1) 32.7
====================================== ============= ================= ============= ============
Other assets 522.3 - - 522.3
====================================== ============= ================= ============= ============
Total assets 27,113.6 (2,085.9) 384.6 25,412.3
====================================== ============= ================= ============= ============
Equity
====================================== ============= ================= ============= ============
Share capital 103.9 - - 103.9
====================================== ============= ================= ============= ============
Share premium 94.7 - - 94.7
====================================== ============= ================= ============= ============
Other reserves 938.3 - - 938.3
====================================== ============= ================= ============= ============
Accumulated profit 721.0 - (1,074.5) (353.5)
====================================== ============= ================= ============= ============
Total equity attributable
to shareholders of Just Group
plc 1,857.9 - (1,074.5) 783.4
====================================== ============= ================= ============= ============
Tier 1 notes 322.4 - - 322.4
====================================== ============= ================= ============= ============
Total equity attributable
to owners of Just Group plc 2,180.3 - (1,074.5) 1,105.8
====================================== ============= ================= ============= ============
Non-controlling interests (2.5) - (2.5)
====================================== ============= ================= ============= ============
Total equity 2,177.8 - (1,074.5) 1,103.3
====================================== ============= ================= ============= ============
Liabilities
====================================== ============= ================= ============= ============
Insurance contract liabilities
(previously Insurance liabilities) 18,332.9 (336.1) 1,650.7 19,647.5
====================================== ============= ================= ============= ============
Reinsurance contract liabilities
(previously reinsurance liabilities) 305.8 6.5 (191.6) 120.7
====================================== ============= ================= ============= ============
Investment contract liabilities 32.5 - - 32.5
====================================== ============= ================= ============= ============
Other financial liabilities 5,250.2 (1,581.3) - 3,668.9
====================================== ============= ================= ============= ============
Deferred tax liabilities - - - -
====================================== ============= ================= ============= ============
Other payables (previously
insurance and other payables) 262.5 (166.4) - 96.1
====================================== ============= ================= ============= ============
Other liabilities 751.9 (8.6) - 743.3
====================================== ============= ================= ============= ============
Total liabilities 24,935.8 (2,085.9) 1,459.1 24,309.0
====================================== ============= ================= ============= ============
Total equity and liabilities 27,113.6 (2,085.9) 384.6 25,412.3
====================================== ============= ================= ============= ============
The reclassification adjustments are:
-- the inclusion of insurance receivables and payables balances
as cash flows in the measurement of insurance and reinsurance
contracts;
-- the offsetting of reinsurance deposit backed liabilities
against reinsurance contract assets, previously recognised in
'Other financial liabilities';
-- the presentation of reinsurance contracts as an asset /
liability based on the net position of all contracts within a
portfolio, rather than the previous IFRS 4 treatment which was
recognised on an individual contract basis;
-- in addition to the reclassifications as a result of adopting IFRS 17 and IFRS 9, a further reclassification of GBP126m has been made in respect of future funding commitments as a derivative forward which was incorrectly accounted for previously. There is no impact on net assets of this revised classification. The impact on 1 January 2022 and 30 June 2022 is not material.
IFRS 17 represents a significant change from the previous
measurement requirements contained in IFRS 4. The measurement
adjustments are:
-- for insurance and reinsurance contracts principally:
o discount rates, which include allowance for expected and
unexpected credit default risks instead of the prudent allowance
for credit default risk in IFRS 4;
o risk adjustment for non-financial risk, a new concept required
by IFRS 17 compared to the prudent margins required by IFRS 4 ;
and
o contractual service margin, which is a significant conceptual
change from IFRS 4, whereby profits are recognised over the term of
insurance and reinsurance contracts rather than at point of
sale.
-- The derecognition of present value in force business intangible assets.
-- Accounting for the associated tax impacts of the measurement adjustments.
The impact of implementation of IFRS 9 has been minor, with the
recognition of an expected credit loss adjustment of GBP1m in the
opening balance sheet.
Impact on Statement of comprehensive income
The Statement of comprehensive income has been re-presented for
the year ended 31 December 2022 to reflect the changes in the
opening balance sheet at 1 January 2022. The transitional
requirements of IFRS 17 does not require a reconciliation between
the previous format of profit or loss and the new format of profit
or loss.
Notes 2, 3 and 5 are newly required by the adoption of IFRS
17.
Impact on Earnings per share
The loss per share for 31 December 2022 (both basic and diluted)
has been restated to 36.30 pence per share from 23.70 pence per
share as a result of the adoption of the standards (30 June 2022:
18.09 pence per share from 22.51 pence per share).
1.3. Adoption of IFRS 17
1.3.1. Insurance and reinsurance contracts - determination of
transitional amounts
The transition approach on initial adoption of IFRS 17 for the
calculation of the contractual service margin was determined for
groupings of insurance and reinsurance contracts either using
the:
a) fully retrospective approach - the contractual service margin
at inception is calculated based on initial assumptions when
groupings of contracts were incepted, and rolled forward to the
date of transition as if IFRS 17 had always been applied; or
the
b) fair value approach - the fair value CSM is calculated as the
difference between the fair value of the insurance (or reinsurance
contracts) and the value of the fulfilment cash flows at the date
of transition.
The following table summarises the approaches outlined in 1.3.3
and 1.4 below in order to transition from the previous standard,
IFRS 4, to IFRS 17:
31 December 1 January
2021 Transitional 2022
(previously
reported) Reclassifications adjustment (restated)
GBPm GBPm GBPm GBPm
============================================= ============= ================== ============= ============
Insurance contract liabilities
============================================= ============= ================== ============= ============
* Fully Retrospective Approach (1.3.3) 2,283.7 (7.5) 335.2 2,611.4
============================================= ============= ================== ============= ============
* Fair Value Approach (1.3.4) 19,529.2 (49.5) 995.1 20,474.8
============================================= ============= ================== ============= ============
Total insurance contracts 21,812.9 (57.0) 1,330.3 23,086.2
============================================= ============= ================== ============= ============
Reinsurance contracts
============================================= ============= ================== ============= ============
Reinsurance contract assets
- Fair Value Approach (2,808.2) 2,128.2 (36.2) (716.2)
============================================= ============= ================== ============= ============
Total reinsurance contract
assets (2,808.2) 2,128.2 (36.2) (716.2)
============================================= ============= ================== ============= ============
Reinsurance contract liabilities
============================================= ============= ================== ============= ============
* Fully Retrospective Approach (1.3.3) 32.6 - (32.4) 0.2
============================================= ============= ================== ============= ============
* Fair Value Approach (1.3.4) 242.1 6.5 (84.1) 164.5
============================================= ============= ================== ============= ============
Total reinsurance contract
liabilities 274.7 6.5 (116.5) 164.7
============================================= ============= ================== ============= ============
Net reinsurance contracts
(assets) (2,533.5) 2,134.7 (152.7) (551.5)
============================================= ============= ================== ============= ============
1.3.2. Inputs used to determine best estimate and risk
adjustment (IFRS 17 values) at date of transition for insurance and
reinsurance contracts
1.3.2.1. Determination of best estimate and risk adjustment
For insurance and reinsurance contracts where the fully
retrospective approach has been adopted, the best estimate and risk
adjustment components of fulfilment cash flows have been recognised
and measured using the accounting policies set out in Note 1.5 from
the inception date of the contracts to the date of transition (1
January 2022) . For insurance and reinsurance contracts where the
fair value approach has been adopted, the best estimate and risk
adjustment components of fulfilment cash flows have been determined
as at 1 January 2022. The longevity assumptions used are consistent
with the basis used in the Just Group plc Solvency and Financial
Condition Report as at 31 December 2021, as follows:
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.
Product Group
---------------------------------------------------------- ----------------------------------------------------------
Individually underwritten Guaranteed Income Modified E&W Population mortality, with CMI
for Life Solutions (JRL) 2019 model mortality improvements
---------------------------------------------------------- ----------------------------------------------------------
Individually underwritten Guaranteed Income Modified E&W Population mortality, with CMI
for Life Solutions (PLACL) 2019 model mortality improvements
---------------------------------------------------------- ----------------------------------------------------------
Defined Benefit (JRL) 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) Modified E&W Population mortality, with
modified CMI 2019 model mortality
improvements
---------------------------------------------------------- ----------------------------------------------------------
Care Plans and other annuity products Modified PCMA/PCFA and with CMI 2019 model
(JRL/PLACL) 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) TM/TF00 Select
---------------------------------------------------------- ----------------------------------------------------------
The long-term improvement rates in the CMI 2019 model are 1.5%
for males and 1.25% for females. The period smoothing parameter in
the modified CMI 2019 model has been set to 7.00. The addition to
initial rates ("A") parameters in the model varies between 0% and
0.25% depending on product. All other CMI model parameters are the
defaults.
1.3.2.2. Discount rates
All cash flows were discounted using investment yield curves
adjusted to allow for expected and unexpected credit risk (refer to
1.5 and Note 14(b)).
The overall reduction in yield to allow for the risk of defaults
from all non-LTM assets (including gilts, corporate bonds,
infrastructure loans, private placements and commercial mortgages)
and the adjustment from LTMs, which included a combination of the
NNEG guarantee and the additional reduction to future house price
growth rate, was 61bps (Just Retirement Limited "JRL") and 68bps
(Partnership Life Assurance Company Limited "PLACL").
The discount rates used to calculate the value of the best
estimate and risk adjustment for the groups of contracts applying
the fair value approach were determined based on a reference
portfolio as at the transition date.
The discount rates used for the determination of the fulfilment
cash flows (and the locked-in rates for the contracts transitioning
to IFRS 17 under the fair value approach) were:
JRL PLACL PLACL
DB/GIfL Care DB/GIfL
========= ======== ===== ========
1 year 2.6 % 0.8% 2.7%
========= ======== ===== ========
5 years 3.0% 1.1% 3.0%
========= ======== ===== ========
10 years 2.9% 1.0% 2.9%
========= ======== ===== ========
20 years 2.8% 1.0% 2.9%
========= ======== ===== ========
30 years 2.7% 0.9% 2.8%
========= ======== ===== ========
1.3.3. Fully retrospective approach
On transition to IFRS 17, the Group has applied the fully
retrospective approach unless it has concluded it is impracticable
(see sections 1.3.4 and 1.3.5). The Group has applied the fully
retrospective approach on transition for all insurance contracts
issued on or after 1 January 2021 and prior to the 1 January 2023
effective date.
For all contracts issued after 1 January 2021, the Group has
applied the accounting policies (see Note 1.5) for the measurement
and recognition of insurance and reinsurance contracts and used the
quantitative inputs described in Note 1.3.2 to determine the best
estimate and risk adjustment.
The locked-in discount rates for the 2021 cohort, which have
been determined on a fully retrospective basis are:
JRL JRL PLACL
GIfL DB Care
========= ===== ==== =====
1 year 2.2% 2.2% 0.8%
========= ===== ==== =====
5 years 3.1% 2.7% 1.1%
========= ===== ==== =====
10 years 3.2% 2.7% 1.0%
========= ===== ==== =====
20 years 2.9% 2.4% 1.0%
========= ===== ==== =====
30 years 2.7% 2.4% 0.9%
========= ===== ==== =====
For all groups of insurance and associated reinsurance contracts
issued prior to this, the fair value approach (see Note 1.3.4; 1.4)
has been applied.
1.3.4. Fair value approach
Where the Group has concluded that the fully retrospective
approach is impracticable, it has applied the fair value approach
on transition for all groups of insurance and associated
reinsurance contracts. For each legal entity, fair value basis
cohorts have been grouped across multiple underwriting years into a
single unit for each product type and reinsurance treaty for
measurement purposes, which is the unit of account applied.
The assumptions, models and the results of the determination of
the fair value of the insurance and reinsurance contracts under
this approach are explained in Note 1.4.
1.3.5. Impracticability assessment
IFRS 17 requires firms to apply the Standard fully
retrospectively, unless it is impracticable to do so, in which case
either a modified retrospective approach or fair value approach may
be taken. For insurance and reinsurance contracts where the
effective date of the contract was prior to 1 January 2021, the
Group concluded that it would be impracticable to apply the
standard on a fully retrospective basis due to the inability of
determining the risk adjustment, a new requirement in terms of IFRS
17, in earlier years without the application of hindsight. Guidance
contained in the IAS 8 accounting standard 'Accounting Policies,
Changes in Accounting Estimates and Errors' requires that hindsight
should not be applied in the application of an accounting standard
on a retrospective basis.
Impracticability of application of Risk Adjustment on the fully
retrospective approach (insurance contracts)
The most significant issue identified was the absence of an
approved Group Risk Adjustment framework, policy and methodology
prior to 2021, with any target setting to prior year information
representing the application of hindsight which is prohibited by
the Standard.
The risk adjustment is a new requirement of IFRS 17 and
represents the compensation that an entity requires to take on
non-financial risk. Defining "compensation that the entity
requires" to take on risk differs to any of the risk-based
allowances adopted for either existing regulatory or statutory
reporting purposes. A new framework and policy have been defined
and implemented to measure the risk adjustment.
The new risk adjustment policy was developed and adopted during
2021 with calculation of the risk stresses to be applied from 1
January 2021. Under this policy, the Group determines a target
confidence level based upon an assessment of the current level of
risks that the business is exposed to and the compensation required
to cover the risks. Key factors for consideration here include: the
size of the business, products offered, reinsurance structures,
regulatory challenges and market competitiveness. These factors are
not necessarily stable from period to period, and today's
understanding of these aspects should be excluded from any historic
assessment of risk as doing so would be to apply hindsight.
The Group has assessed whether other information used in
previous reporting cycles, including pricing for new business,
could be used to determine the risk adjustment, but has concluded
that none of these alternatives would be an appropriate proxy for
the risk adjustment. The development of the new approach for IFRS
17 represents a significant enhancement in the approach used to
determine the Group's allowance for non-financial risk, with the
use of a target confidence interval and probability distributions
providing a more meaningful quantification of allowance for risk
compared with IFRS 4 reporting.
Therefore, the Group has concluded that the Fully Retrospective
Approach is impracticable prior to 2021 in respect of risk
adjustment as it would require the use of hindsight.
Impracticability assessment for reinsurance contracts held
The risk adjustment for reinsurance contracts held in IFRS 17
reflects the "amount of risk being transferred" to the reinsurer,
so where the risk adjustment for insurance contracts is
impracticable then, by definition, the reinsurance risk adjustment
is also impracticable.
Approach adopted
After considering the severity of these factors, the Group
concluded that it was impracticable to determine the value of
insurance and reinsurance contracts on a fully retrospective
approach basis for those years of business transacted prior to
2021.
As a result of this impracticality, the IFRS 17 standard allows
an accounting policy choice of the fair value approach or modified
retrospective approach from which the Group elected to apply the
fair value approach.
1.4. Determination of fair value
1.4.1. Fair value principles
The Group has used the principles contained in IFRS 13, Fair
Value Measurement, except the principles relating to demand
features, to determine the fair value of the insurance and
reinsurance contracts.
The objective of a fair value measurement is to estimate the
price at which an orderly transaction to sell the asset or to
transfer the liability would take place between market participants
at the measurement date under current market conditions (i.e. an
exit price at the measurement date from the perspective of a market
participant that holds the asset or owes the liability).
For certain assets and liabilities, observable market
transactions or market information may be available. For other
assets and liabilities, such as insurance obligations and
associated reinsurance agreements, observable market transactions
and market information is not widely available. There is no active
market for the transfer of insurance liabilities and associated
reinsurance between market participants and therefore there is
limited market observable data. Although there may be transactions
for specific books of annuity business, the profile of the cash
flows and nature of the risks of each book of business is unique to
each, with key inputs underlying the price of these transactions
not being widely available public knowledge, and therefore it is
not possible to determine a reliable market benchmark from these
transactions.
When a price for an identical asset or liability is not
observable, the Group measures fair value using an alternative
valuation technique that maximises the use of relevant observable
inputs and minimises the use of unobservable inputs. Because fair
value is a market--based measurement, it is determined using the
assumptions that market participants would use when pricing the
asset or liability, including assumptions about risk. As a result,
an entity's intention to hold an asset or to settle or otherwise
fulfil a liability is not relevant when measuring fair value.
The initial determination of the fair value was calculated on a
gross and net of reinsurance basis. The fair value of the
reinsurance contracts was then determined based on the difference
between the gross and net of reinsurance results.
In arriving at the definition of a "market participant" the
Group has assumed the following:
-- A similar monoline, rather than a multi-product line insurer;
-- The portfolios are transferred as closed books of business;
-- Transferral of the associated reinsurance contracts currently
in place, as these would be expected to transfer at the point of
sale alongside the underlying insurance contracts; and
-- Treatment of the business under a Solvency II Internal Model
approach, including a matching adjustment as it is expected that a
market participant would adopt this approach. This is regardless as
to whether the business as part of the Group today has an internal
model and/or applies the matching adjustment.
The measurement of the fair value of insurance contracts and
associated reinsurance contracts have therefore been classified, in
terms of the financial reporting fair value hierarchy as Level
3.
1.4.2. Aggregation of contracts for the determination of fair
value
The Group has aggregated contracts issued more than one year
apart when determining groups of insurance and reinsurance
contracts under the fair value approach at transition as permitted
by IFRS 17. For the application of the fair value approach, the
Group has used reasonable and supportable information available at
the transition date in order to identify groups of insurance and
reinsurance contracts.
All insurance contracts which are valued at the date of
transition using the fair value transition method have been
allocated to the 'any remaining contracts' profitability grouping
(see note 1.5).
1.4.3. Overview of the fair value approach applied
The fair value approach adopted by the Group calculates the
theoretical premium (market premium approach) required by a market
participant to accept insurance liabilities. The quantification of
the premium required for the gross insurance liabilities and the
associated reinsurance contracts was determined separately.
The market premium required at the transition date has been
determined as follows:
-- The premium required to earn the target rate of return on
capital ("RoC") on reserves held in respect of Solvency II Best
Estimate Liability, Risk Margin and Solvency Capital Requirements,
adjusted for associated Solvency II Transitional Measure on
Technical Provisions ("TMTP") benefits, for the relevant pre-2016
business;
-- The level of Solvency Capital assumed to be required has been
determined as 140% of the solvency capital required under Solvency
II regulations, being based on an external benchmark of a market
participant's requirement for a closed book of business (refer
1.4.4.2); and
-- The target Return on Capital has been determined as 8%, being
based on an external benchmark of a market participant's target
return for a closed book of business (refer to 1.4.4.3).
These assumptions and other key inputs into the fair value
calculations have been reviewed by an independent firm of
accountants who have access to industry surveys and other
benchmarking, and their review conclusions were made available to
the Group Audit Committee. The fair value result has been
benchmarked against any publicly available and relevant market
information as well as an independent internal calculation based
upon a Dividend Discount Model ("DDM") approach used in industry
for the valuation of insurance business.
1.4.4. Principal inputs used to determine fair value
1.4.4.1. Best estimate and risk margin
The estimates for the best estimate and the risk margin are
determined on a basis consistent with Solvency II. The inputs used
for JRL are based on its Internal Model, and for PLACL are based on
the assumed results that would be derived from its internal model.
An allowance for Solvency II TMTP benefits on relevant pre-2016
business is reflected within the valuation.
The longevity assumptions used for the determination of the best
estimate and risk margin are consistent with the basis used in the
Just Group plc Solvency and Financial Condition Report as at 31
December 2021.
The discount rate assumption used for the determination of JRL
and PLACL best estimate liabilities is the prescribed Solvency II
risk-free rate term structure including a Matching Adjustment
("MA") based upon the JRL asset portfolio as at 31 December
2021.
1.4.4.2. Solvency capital ratio ("SCR")
The target SCR coverage ratio assumed for the determination of
fair value at the date of transition is based on a market
participant view for a closed book of business. A target ratio of
140% is assumed in the fair value calculation after consideration
of the current ranges quoted by similar peers, notably those
principally operating closed books of business in the market and
other publicly available data. The fair value calculated is based
on the purchase of the insurance contracts liabilities and the
associated reinsurance agreements and does not include a premium
associated with writing new business.
1.4.4.3. Return on capital - weighted average cost of capital ("WACC")
The fair value measurement guidance within IFRS 13 requires that
the Return on Capital assumption should be based upon a WACC
applicable to a "generic" market participant, rather than the
Group's specific WACC. Consequently, an appropriate market
participant WACC is computed for the Group's business based on debt
and equity cost of capital for companies that have closed books of
insurance business, using input from brokers, and the cost of
external debt sourced from an external pricing provider.
The market participant WACC determined was 8% and is applied to
all books of business irrespective of the expected duration of the
underlying schemes.
1.4.5. Summary of fair value results
The following table summarises the fair value of insurance and
reinsurance contracts determined at the 1 January 2022 transition
date.
Estimate
of present Contractual
value of Risk service
Fair value future cashflows adjustment margin
GBPm GBPm GBPm GBPm
================================= =========== ================== ============ ============
Insurance contract liabilities 20,474.8 18,342.9 905.1 1,226.8
================================= =========== ================== ============ ============
Reinsurance contract assets 716.2 546.3 115.7 54.2
================================= =========== ================== ============ ============
Reinsurance contract liabilities (164.5) (677.6) 394.7 118.4
================================= =========== ================== ============ ============
Net reinsurance contracts
(asset) 551.7 (131.3) 510.4 172.6
================================= =========== ================== ============ ============
Insurance contract liabilities
- net of reinsurance 19,923.1 18,474.2 394.7 1,054.2
================================= =========== ================== ============ ============
The amounts previously reported under IFRS 4 on 1 January 2022
for insurance contract liabilities and net reinsurance contracts,
where the fair value approach to transition has been adopted was
GBP19,529.2m and GBP2,566.1m respectively. Disclosure of the fair
value component of the transition approach can be found in Note
1.3.1.
1.4.6. Sensitivities
The following table provides sensitivities to changes in key
inputs used to determine the fair value of net insurance contract
liabilities. Figures shown in the table represent the estimated
impact on the fair value of each sensitivity in isolation. The
Solvency Coverage Ratio and Return on Capital sensitivities can be
interpreted as the corresponding impact on the contractual service
margin. However, the Matching Adjustment sensitivity may not
display the same relationship as there may be linkages between the
asset portfolio referenced by a market participant in the
calculation of the fair value and the asset portfolio underlying
the calculation of IFRS 17 best estimate and risk adjustment
liabilities. This linkage has not been allowed for in the
sensitivity.
Insurance
Reinsurance contract
Insurance contract liabilities
contract liabilities (net) net of reinsurance
GBPm GBPm GBPm
(increase)/decrease increase/(decrease) (increase)/decrease
======================= ====================== ===================== =====================
Reported balances 20,474.8 (551.7) 19,923.1
======================= ====================== ===================== =====================
Solvency coverage ratio
======================= ====================== ===================== =====================
+10% 103.4 (25.2) 78.2
======================= ====================== ===================== =====================
-10% (103.3) 25.1 (78.2)
======================= ====================== ===================== =====================
Return on capital
======================= ====================== ===================== =====================
+1% 177.2 (60.0) 117.2
======================= ====================== ===================== =====================
-1% (201.3) 68.4 (132.9)
======================= ====================== ===================== =====================
Matching Adjustment
======================= ====================== ===================== =====================
+10bps (49.2) 2.4 (46.8)
======================= ====================== ===================== =====================
-10bps 50.0 (2.4) 47.6
======================= ====================== ===================== =====================
1.5. IFRS 17 Accounting policies
The Group uses the General Measurement Model to measure all
insurance and reinsurance contracts and consequently does not apply
the Variable Fee Approach or the Premium Allocation Approach to the
measurement of any of its liabilities. IFRS 17 is only applied to
insurance and reinsurance contracts and not to any other ancillary
agreements which represent the provision of distinct non-insurance
services.
1.5.1. Level of aggregation
Within each legal entity, the Group identifies portfolios of
insurance contracts which comprise contracts that are subject to
similar risks, and are managed together. Risks included in this
assessment comprise both risks transferred from the policyholder
and other business risks. For this purpose, Defined Benefit ("DB"),
Guaranteed Income for Life ("GIfL"), and Care contracts have been
determined to represent a single portfolio that is managed together
and subject to primarily longevity and financial risk. Minor
products including the small protection portfolio that is in
run-off have been included in the same portfolio to simplify
reporting.
The single annual portfolio for reporting purposes is divided
into three groups:
-- any contracts that are onerous on initial recognition, if any;
-- any contracts that have no significant likelihood of becoming onerous, if any;
-- any remaining contracts in the portfolio.
Contracts within the single portfolio that would fall into
different groups only because law or regulation specifically
constrains the Group's practical ability to set a different price
or level of benefits for policyholders with different
characteristics are included in the same group. This applies to
contracts issued in the UK that are required by regulation to be
priced on a gender-neutral basis.
All GIfL and Care contracts are evaluated based on the margins
that individual contracts contribute when measured on a
gender-neutral basis. The Group has evaluated that these contracts
all fall into the remaining contracts grouping in the current year.
DB contracts are allocated either to the grouping of those
contracts that have no significant likelihood of becoming onerous,
or the remainder, based on whether contracts are Solvency II
capital generative at inception. Each group of insurance contracts
is further divided by year of issue for calculation of the
contractual service margin ("CSM"). The resulting groups represent
the level at which the recognition and measurement accounting
policies are applied. The groups are established on initial
recognition and their composition is not reassessed
subsequently.
Reinsurance treaties are allocated to portfolios depending on
whether they transfer longevity and financial (inflation and / or
investment) risk or longevity risk alone. Reinsurance CSM is
computed separately for each reinsurance treaty for each
underwriting year.
1.5.2. Recognition
The Group recognises a group of insurance contracts issued from
the earliest of the following dates (point of sale):
- The date of the beginning of the insurance coverage period of the group of contracts.
- The date when the first payment from a policyholder in the group becomes due.
- The date when facts and circumstances indicate that the group
to which an insurance contract will belong is onerous.
Premiums are considered to be due and the company 'on risk' only
after a contract with a policyholder has been completed. New
contracts are added to the annual cohort group when they are
issued, provided that all contracts in the group are issued in the
same financial year.
Reinsurance is recognised from the start of the period during
which the Group receives coverage for claims arising from the
reinsured portions of the underlying insurance contracts and
underlying insurance contracts are incepted. From time to time the
Group may transact reinsurance coverage in respect of underlying
contracts already in force, in which case recognition is from the
date of the reinsurance contract.
The Group recognises a group of contracts acquired as part of a
business transfer as at the date of acquisition.
1.5.3. Contract boundaries
The measurement of a group of contracts includes all of the
future cash flows within the boundary of each contract in the
group. Cash flows are within the boundary of a contract if they
arise from substantive rights and obligations that exist during the
current reporting period under which the Group has a substantive
obligation to provide services or be compelled to pay reinsurance
premiums, or can compel reinsurers to pay claims.
1.5.4. Initial measurement
On initial recognition, the Group measures a group of profitable
insurance contracts as the total of:
(a) the fulfilment cash flows; and
(b) the CSM, if a positive value.
Fulfilment cash flows include payments to policyholders and
directly attributable expenses including investment management
expenses. Investment management expenses are considered to be
directly attributable if they are in respect of investment
activities from which the expected investment returns are
considered in setting the price at outset for the policyholder
benefits.
Fulfilment cash flows, which comprise estimates of current and
future cash flows, are adjusted to reflect the time value of money
and associated financial risks, and a risk adjustment for
non-financial risk. Insurance acquisition cash flows which are
included in fulfilment cash flows at point of sale are costs
incurred in the selling, underwriting and starting a group of
contracts that are directly attributable to the portfolio of
contracts to which the group of contracts belongs.
The risk adjustment for non-financial risk for a group of
insurance contracts is the compensation required for bearing
uncertainty regarding the amount and timing of the cash flows that
arise from non-financial risk. The measurement of the fulfilment
cash flows of a group of insurance contracts does not reflect
non-performance (own credit) risk of the Group.
The detailed policies and methodologies used for the
determination of the discount rate and the risk adjustment are
included within Note 14.
The CSM of a group of insurance contracts represents the
unearned profit that the Group will recognise as it provides
services under those contracts. A group of insurance contracts is
not onerous on initial recognition if the total of the fulfilment
cash flows, any derecognised assets for insurance acquisition cash
flows, and any cash flows arising at that date is a net inflow. In
this case, the CSM is measured as the equal and opposite amount of
the net inflow, which results in no income or expenses arising on
initial recognition.
If the total of the fulfilment cash flows is a net outflow, then
the CSM grouping of contracts is considered to be onerous. The full
value of the fulfilment cash flows is recognised as an insurance
liability, and the net outflow recognised as a loss component in
profit or loss on initial recognition. Reversals of loss components
following re-projection of future cash flows are recognised in
profit or loss only to the extent that they reverse the loss
previously recorded in profit or loss, with any further amounts
recognised on the balance sheet by creation of a CSM. The value of
the run-off of the loss component as policyholder benefits are paid
is excluded from insurance revenue.
1.5.5. Subsequent measurement
The carrying amount of a group of insurance contracts at each
reporting date is the sum of the liability for remaining coverage
and the liability for incurred claims. The liability for remaining
coverage comprises:
(a) the fulfilment cash flows that relate to services that will
be provided under the contracts in future periods, and
(b) any remaining CSM at that date.
The fulfilment cash flows of groups of insurance contracts are
measured at the reporting date using current estimates of future
cash flows, current discount rates and current estimates of the
risk adjustment for non-financial risk. Outstanding balances due
from or to policyholders and intermediaries are also included
within this balance.
Payments of annuities made before due dates owing to the timing
of non-working days are included within insurance contract
liabilities.
The CSM of each group of contracts is calculated on a cumulative
year to date basis, rather than being locked in at each interim
reporting period.
For insurance contracts, the carrying amount of the CSM at the
end of each period is the carrying amount at the start of the
period, adjusted for:
-- the CSM of any new contracts that are added to the group in the period;
-- interest accreted on the carrying amount of the CSM during
the period, measured at the discount rates determined on initial
recognition of the group of contracts;
-- changes in fulfilment cash flows that relate to future services, except to the extent that:
o any increases in the fulfilment cash flows exceed the carrying
amount of the CSM, in which case the excess is recognised as a loss
in the profit or loss account and creates a loss component; or
o any decreases in the fulfilment cash flows are allocated to
the loss component, reversing losses previously recognised in
profit or loss account;
o the changes are due to financial risk in policyholder cash
flows compared with expectations, for example inflation,
-- the amount recognised as insurance revenue in respect of services provided in the period.
Changes in fulfilment cash flows that relate to future services
and accordingly adjust the CSM comprise:
-- premium adjustments, such as DB true-ups (which can be both
positive and negative) to the extent that they relate to future
coverage;
-- changes in estimates of the present value of future cash
flows in the liability for remaining coverage, except for those
that relate to the effects of the time value of money, benefit
inflation, financial risk and changes therein; and
-- changes in the risk adjustment for non-financial risk that relate to future services.
Adjustments to CSM for changes in fulfilment cash flows are
measured at the discount rates determined at initial recognition,
i.e. are calculated using 'locked-in' discount rates. The allowance
for benefit inflation within the CSM calculation uses the locked-in
inflation assumptions prospectively, with actual inflation
experience recognised in the period up to the measurement date. The
effect of changes to the related best estimate and risk adjustment
balances caused by changes in discount rates and benefit inflation
are recognised as insurance finance income or expenses within the
profit or loss account.
The standard requires that the CSM is recognised in profit and
loss over the period of the contracts issued. The recognition of
amounts in profit and loss is based on coverage units which
represent the services that are received by the customers.
The Group provides the following services to customers:
-- Investment return service when a customer is in the deferred or guarantee phase; and
-- Insurance coverage services when an annuitant is in payment period for annuitants.
By their nature, coverage units will vary depending on the type
of service provided. A weighting then needs to be applied to the
different types of coverage unit in order to calculate an aggregate
value of the proportion of the CSM balance that is to be released.
The Group will use the probability of the policy being in force in
each time period for weighting the disparate types of coverage
units. This weighting reflects management's view that the value of
services provided to policyholders is broadly equivalent across the
different phases in the life of contracts.
The coverage units and the weightings used to combine coverage
units are discounted using the locked-in discount rates and
financial risk assumptions as at inception of the contracts. The
weightings applied are updated each period for changes in life
expectancies to annuitants.
1.5.6. Reinsurance contracts
The Group applies consistent accounting policies to measure
reinsurance contracts as it does for the underlying contracts.
Measurement of the estimates of the present value of future cash
flows uses assumptions that are consistent with those used to
measure the estimates of the present value of future cash flows for
the underlying insurance contracts, with an adjustment for risk of
non-performance by the reinsurer. The effect of the non-performance
risk of the reinsurer is assessed at each reporting date and the
effect of changes in the non-performance risk is recognised in
profit or loss.
The risk adjustment for non-financial risk represents the amount
of the risk transferred by the Group to the reinsurer. Allowance
for non-performance risks of reinsurers is made within the future
cash flows.
On initial recognition, the CSM of a group of reinsurance
contracts represents the net cost or net gain on purchasing
reinsurance. Reinsurance contracts cannot be onerous. The initial
CSM is measured as the equal and opposite amount of the total of
the reinsurance fulfilment cash flows recognised in the period
including any cash flows arising at that date. However, if any net
cost on purchasing reinsurance coverage relates to insured events
that occurred before the purchase, the cost is recognised
immediately in profit or loss as an expense.
The level of aggregation for CSM calculation purposes is at
annual cohort level for each treaty. The existing treaties for
which the deposit back arrangements were reported separately as
financial liabilities under IFRS are included within the value of
the associated reinsurance contracts under IFRS 17. Reinsurance
contracts are presented in the Statement of financial position
based on whether the portfolios of reinsurance contracts are an
asset or liability. The Group has identified that, for each entity,
it has two portfolios of reinsurance contracts based on whether the
underlying contracts transfer financial risk in addition to
longevity risk, or not.
The carrying amount of the reinsurance CSM at the end of each
period is the carrying amount at the start of the year, adjusted
for:
-- the CSM of reinsurance ceded in the period;
-- interest accreted on the CSM during the period, measured at
the discount rates determined on initial recognition;
-- changes in fulfilment cash flows that relate to future
services, measured at the discount rates determined on initial
recognition, except to the extent that a change results from a
change in fulfilment cash flows allocated to a group of underlying
insurance contracts that does not adjust the CSM of the group of
underlying contracts, in which case the change is recognised in
profit or loss;
-- any reinsurance recovery, or reversal thereof, recognised in
connection with a loss component on underlying contracts calculated
based on the reinsurance quota share; and
-- the amount representing either the cost or gain of services
received from reinsurance in the period.
The allowance for benefit inflation within the CSM calculation
uses the locked-in inflation assumptions prospectively, with actual
inflation experience recognised in the period up to the measurement
date.
The coverage units for the release of the reinsurance CSM in
profit and loss are based on the 'variable leg' reinsurance claim
cash flow values.
1.5.7. Derecognition and contract modification
The Group derecognises a contract when it is extinguished - i.e.
when the specified obligations in the contract expire or are
discharged or cancelled. It also derecognises a contract if its
terms are modified in a way that would have changed the accounting
for the contract significantly had the new terms always existed, in
which case a new contract based on the modified terms is
recognised. If a contract modification does not result in
derecognition, then the Group treats the changes in cash flows
caused by the modification as changes in estimates of fulfilment
cash flows.
The Group transacts two main types of contract modification
which are not normally expected to result in derecognition as they
do not result in changes to profitability groupings or accounting
treatment:
- Transition of DB schemes from buy-in to buy-out is anticipated
within the original contracts and are therefore not treated as
modifications;
- From time to time, fee charging terms and quota shares are
amended within reinsurance treaties however these do not have a
significant impact on the accounting for the treaties.
On the derecognition of a contract from within a group of
contracts, the fulfilment cash flows, CSM and coverage units of the
group are adjusted to reflect the removal of the contract that has
been derecognised.
1.5.8. Presentation
The Group only writes types of annuity insurance business which
are similar in risk profile and are managed together. The small
protection portfolio, which is in run off, is considered immaterial
and is aggregated with the annuity business and reported as a
single portfolio.
The Group holds proportional reinsurance cover that is designed
to be similar in longevity risk profile to the underlying
contracts. The proportional reinsurance cover is reported in
separate portfolios depending on whether treaties transfer
financial risk. Aggregated reinsurance portfolio balances may be
either assets or liabilities in the statement of financial
position.
Income and expenses from insurance contracts are presented
separately from income and expenses from reinsurance contracts.
Income and expenses from reinsurance contracts, other than
insurance finance income or expenses, are presented on a net basis
as 'net expenses from reinsurance contracts' in the insurance
service result.
The Group has elected to disaggregate the change in the risk
adjustment for non-financial risk between the insurance service
result and insurance finance income or expenses.
1.5.8.1. Insurance revenue
The Group recognises insurance revenue as it satisfies its
performance obligations - i.e. as it provides coverage or other
services under groups of insurance contracts through the payment of
annuities and expenses. Repayment of investment components do not
represent provision of services.
In addition, the Group allocates a portion of premiums that
relate to recovery of insurance acquisition cash flows to each
period in a systematic way based on CSM coverage units. The Group
recognises the allocated amount as insurance revenue and an equal
amount as insurance service expenses.
The proportion of the CSM account balance recognised as
insurance revenue in each period is based on the proportion of
insurance contract service margin provided in the period compared
with the value of services expected to be provided in future
periods. The proportion of CSM is based on 'coverage units' which
represent the quantity of insurance coverage provided by the
contracts in the group, determined by considering for each contract
the quantity of benefits provided and its expected coverage
duration. Further information on the calculation of CSM is given in
Notes 2 and 14.
Policyholder cash flows that may occur regardless of an
insurance event are deemed to be 'investment components' or other
non-insurance components (such as a premium refund) or a
combination. This includes the guarantees that the Group offers to
policyholders which provide for annuity payments to continue after
death until the policy reaches a predetermined anniversary of its
start date (the guarantee period), tax free cash payments that DB
scheme members may select at retirement and payments on surrenders
and transfers to other retirement schemes. Any investment
components are regarded as non-distinct as they only exist as a
result of the underlying insurance contract.
The value of payments made within investment components and
other non-insurance payments are excluded from both insurance
revenue and expenses.
1.5.8.2. Insurance service expenses
The Group recognises insurance service expenses arising from
groups of insurance contracts issued comprising incurred claims
(excluding repayments of investment components); and other
non-insurance cash flows; maintenance expenses; amortisation of
insurance acquisition cash flows; and the impact of changes that
relate to either past service (changes in fulfilment cash flows
relating to the liability for incurred claims) or future service
(loss component).
1.5.8.3. Loss component
The Group establishes a loss component of the liability for
remaining coverage for onerous groups of insurance contracts, if
any. The Group writes only single premium contracts which are
generally profitable, and hence loss components are not expected to
occur. The loss component represents the amount of fulfilment cash
outflows that exceed the premium income, and hence are excluded
from insurance revenue. Loss components are recognised in the
statement of comprehensive income within insurance service expenses
when they occur. The balance sheet disclosures in notes 14 present
the allocation between the loss component and the liability for
remaining coverage excluding the loss component, if any. This run
off of the loss component element of the liability for remaining
coverage is determined based on coverage units (as used for CSM
amortisation) such that the loss component is nil at the end of the
contracts.
Once a loss component is established, subsequent decreases in
fulfilment cash flows relating to future services are allocated
solely to the loss component. If the loss component is reduced to
zero, then any excess over the amount allocated to the loss
component creates a new CSM for the group of contracts.
1.6. IFRS 9 Financial instruments
1.6.1. Summary of impact of adoption of IFRS 9
1.6.1.1. Financial assets
The Group's business model is to manage the financial assets and
liabilities which back its net insurance contract fulfilment cash
flows on a fair value basis. The Group will therefore adopt the
approach allowed within the standard to continue to measure the
majority of its financial assets at fair value through profit or
loss. On the adoption of the standards (IFRS17 and IFRS 9) the
Group will continue to classify the Lifetime Mortgages as financial
investments at fair value through profit and loss.
For the residual financial assets which are measured at
amortised cost, IFRS 9 operates an expected credit loss model
rather than an incurred credit loss model. Providing for an
expected credit loss on the existing financial assets measured at
amortised cost has not had a material impact on Group shareholders'
funds.
During 2023, the Group has acquired a portfolio of sovereign
gilts which it has classified at amortised cost due to the Group's
intention to collect solely payments of principal and interest.
Further details have been provided in Note 10 Financial
Investments.
1.6.1.2. Financial liabilities
IFRS 9 retains the requirements in IAS 39 for the classi cation
and measurement of nancial liabilities, and hence there are no
changes required in this area.
1.6.1.3. Hedge accounting
The Group does not currently apply hedge accounting and
therefore was not impacted by the requirements of IFRS 9 .
1.6.1.4. Classification of financial assets and financial
liabilities
The following table shows the original measurement category and
carrying amount under IAS 39 and the new measurement category and
carrying amount under IFRS 9 for each class of the Group's
financial assets and financial liabilities as at 31 December 2022.
There has been no significant change in the measurement basis
(either fair value or amortised cost) as a result of the adoption
of IFRS 9. There is no change to the carrying about of financial
instruments for the opening balance sheet presented for the 1
January 2022.
Carrying
amount New carrying
New classification under IAS amount under
Original classification under IFRS 39 IFRS 9
2022 under IAS 39 9 GBPm GBPm
======================================== ========================= ==================== =========== ==============
Financial assets
======================================== ========================= ==================== =========== ==============
Financial investments
fair value through profit
and loss
======================================== ========================= ==================== =========== ==============
FVTPL
* Derivative assets (held for trading) FVTPL (mandatory) 2,277.0 2,277.0
======================================== ========================= ==================== =========== ==============
* Residential mortgages FVTPL (designated) FVTPL (mandatory) 5,305.9 5,305.9
======================================== ========================= ==================== =========== ==============
FVTPL (business
* All other financial investments FVTPL (designated) model) 15,768.5 15,768.5
======================================== ========================= ==================== =========== ==============
Other receivables Loans & receivables Amortised cost 33.7 32.7
======================================== ========================= ==================== =========== ==============
Cash available on demand Loans & receivables Amortised cost 482.0 482.0
======================================== ========================= ==================== =========== ==============
Financial liabilities
======================================== ========================= ==================== =========== ==============
FVTPL (accounting
Investment contracts FVTPL (designated) mismatch) 32.5 32.5
======================================== ========================= ==================== =========== ==============
Loans and Borrowings Amortised cost Amortised cost 699.3 699.3
======================================== ========================= ==================== =========== ==============
Other financial liabilities Amortised cost Amortised cost 623.1 623.1
======================================== ========================= ==================== =========== ==============
FVTPL
* Derivative liabilities (held for trading) FVTPL (mandatory) 3,000.6 3,000.6
======================================== ========================= ==================== =========== ==============
Other payables Amortised cost Amortised cost 96.1 96.1
======================================== ========================= ==================== =========== ==============
Amounts reported in this table include the amounts reported as
at 31 December 2022 in the 2022 financial statements adjusted for
the reclassifications of certain balances as required by IFRS
17.
1.6.2. Classification of financial assets and financial
liabilities
The Group classifies its financial assets into either the
Amortised Cost or Fair Value Through Profit and Loss (FVTPL)
measurement categories. The Group measures its financial assets
according to the business model applied. This reflects how the
Group manages financial assets either in order to solely collect
the contractual cash flows from assets (measured at amortised
cost), or collect both the contractual cash flows and cash flows
arising from the sale of assets (measured at fair value).
1.6.2.1. Business model - measurement of financial investments
at Fair Value Through Profit and Loss
Financial investments which back the net insurance fulfilment
cash flows are classified as part of the fair value business model
and measured at Fair Value Through Profit and Loss. Factors
considered by the Group in determining the business model for a
group of assets include past experience on how the cash flows for
these assets were collected, how the asset's performance is
evaluated and reported to key management personnel, how risks are
assessed and managed and how managers are compensated. To ensure
that the contractual cash flows from the financial assets are
sufficient to settle those liabilities, the Group undertakes
significant buying and selling activity on a regular basis to
rebalance its portfolio of assets and to meet cash flow needs as
they arise. Investments are measured at fair value with any gains
and losses recognised in Net investment income in the Consolidated
statement of comprehensive income. Transaction costs are recognised
in Other operating expenses when incurred.
The Groups' investment in Lifetime Mortgages, which contain No
Negative Equity Guarantees, are included in financial investments
measured at fair value through profit and loss.
1.6.2.2. Derivative instruments
All derivative instruments, both assets and liabilities are
classified as fair value through profit and loss in accordance with
IFRS 9. All derivatives are carried as assets when the fair value
is positive and liabilities when the fair values are negative. The
Group does not use hedge accounting.
1.6.2.3. Amortised cost
The Group has classified bank balances and other receivables at
amortised cost. These financial assets are eligible for this
measurement as they contain payments of solely payments of
principal and interest and are not held for trading purposes.
In addition, the Group has purchased a distinct portfolio of
sovereign gilts where the purpose of holding the instruments is to
collect solely payments of principal and interest. This portfolio
is managed separately from the assets that are held to back the
insurance contract fulfilment cash flows (net of reinsurance),
financial liabilities measured at amortised cost, and equity
balances. The Group has policies and procedures which define the
framework for when disposals of these gilts can occur, which is
expected to be in extremely limited circumstances.
Transaction costs incurred on financial assets measured at
amortised cost are capitalised to the underlying instrument and are
included in the determination of the effective rate of
interest.
1.6.3. Recognition and derecognition
Regular-way purchases and sales of investments are recognised on
the trade date, which is the date that the Group commits to
purchase or sell the assets. Amounts payable or receivable on
unsettled purchases or sales are recognised in other payables or
other receivables respectively. Forward contracts to enter into
investments at a contracted date some time in the future are not
recognised until the settlement date; prior to that a derivative
forward contract is recognised.
Loans secured by residential mortgages, 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.
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 to the
contractual cash flows expire, or it is deemed that substantially
all the risks and rewards of ownership have been transferred. Where
non-cash collateral pledged continues to be recognised by the Group
but the counterparty is permitted to sell or re-pledge the
collateral, the non-cash collateral assets are classified
separately within the Financial instruments note. In the current
year these include the new portfolio of amortised cost gilts (See
note 10).
1.6.4. 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.
1.6.4.1. 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 11 on the basis of
the lowest level of inputs that are significant to the fair value
measurement of the financial investment concerned.
1.6.5. Financial assets measured at amortised cost
Financial assets held at amortised cost are measured using the
effective interest rate method and are impaired using an expected
credit loss model. The model splits financial assets into those
which are performing, underperforming and non-performing based on
changes in credit quality since initial recognition.
At initial recognition financial assets are considered to be
performing. They become underperforming where there has been a
significant increase in credit risk since initial recognition, and
non-performing when there is objective evidence of impairment. 12
months of expected credit losses are recognised within expenses in
the Statement of comprehensive income and netted against the
financial asset in the Statement of financial position for all
performing financial assets, with lifetime expected credit losses
recognised for underperforming and non-performing financial
assets.
Expected credit losses are based on the historic levels of loss
experienced for the relevant financial assets, with due
consideration given to forward-looking information. The most
significant categories of financial assets held at amortised cost
for the Group are its portfolio of investments in sovereign gilts
and cash available on demand, (see note 10). Investments are
reclassified from performing to under-performing when coupons
become more than 30 days past due, in line with the presumption set
out in IFRS 9, Financial Instruments, or when the financial
institution is no longer considered to be investment grade by the
rating agents. Due to the nature of the investment in sovereign
gilts, it is assumed that these investments are low credit risk and
there has been no significant deterioration in credit risk in the
investments.
1.7. Material accounting policies and the use of judgements,
estimates and assumptions
The preparation of financial statements requires the Group to
select accounting policies and make estimates and assumptions that
affect items reported in the Statement of comprehensive income,
Statement of financial position, other primary statements and Notes
to the financial statements. The adoption of IFRS 17 and IFRS 9 by
the Group has resulted in changes to significant accounting
estimates and judgements and the major areas of judgement used as
part of accounting policy application are summarised below.
Note Item involving judgement Critical accounting judgement
----- --------------------------- -------------------------------------------------------
1.3 Method of transition The Group has concluded that is impracticable
in the adoption to apply the fully retrospective approach to all
of IFRS 17 insurance and reinsurance contracts prior to 1
January 2021 and has elected to adopt the fair
value approach to these contracts.
----- --------------------------- -------------------------------------------------------
1.5 Determination of The Group has concluded that each entity holds
whether the insurance a single portfolio of insurance contracts as all
contracts share contracts share similar risks, primarily relating
similar risks and to longevity and financial risk, and are managed
are managed together. together as a single portfolio.
The Group has also concluded that both JRL and
PLACL hold portfolios of reinsurance contracts
that transfer only longevity risk, and that JRL
holds a portfolio that transfers longevity risk
and financial risks.
----- --------------------------- -------------------------------------------------------
1.5 Selection of method The Group has elected to apply the top-down approach
to determine the to determine the discount rate.
discount rate for The discount rate will be determined based on
insurance and reinsurance a reference portfolio of assets and allow for
contracts deductions for credit risk (both expected and
unexpected).
----- --------------------------- -------------------------------------------------------
1.6 Selection of recognition The Group has elected to apply the option contained
and measurement in paragraph 8A in IFRS 17, Insurance Contracts
basis of Lifetime to recognise and measure Lifetime Mortgages, including
Mortgages, including the No Negative Equity Guarantee component, as
the No Negative financial instruments in terms of IFRS 9, Financial
Equity Guarantees Instruments.
----- --------------------------- -------------------------------------------------------
1.6 Classification of The Group has assessed its business model for
financial assets the management of investments backing the insurance
held at fair value contract fulfilment cash flows as fair value as
it manages those financial assets on a fair value
basis.
----- --------------------------- -------------------------------------------------------
1.6 Classification of The Group has invested in a portfolio of sovereign
financial assets gilts during 2023 that should be measured at amortised
held at amortised cost as it intends to collect solely payments
cost of principal and interest.
The Group has concluded that it has the ability
and intention to collect solely payments of principal
and interest, after due consideration of the liquidity
requirements of the Group.
----- --------------------------- -------------------------------------------------------
1.6.4 Financial assets Assessment of fair value hierarchy for financial
- valuation method investments, which considers the market observability
of valuation inputs. Where the market is not active,
such as for illiquid assets including commercial
mortgages, infrastructure loans and ground rents,
management applies judgement in selecting the
appropriate valuation technique.
----- --------------------------- -------------------------------------------------------
1.6 The selection of The Group has selected and used a variant of the
an appropriate measurement Black Scholes option pricing formula with real
model to determine world assumptions to determine the fair value
the fair value of of the no-negative equity guarantee component
loans secured by of the fair value of loans secured by residential
residential mortgages mortgages. The Group has selected to use real
which includes the world assumptions instead of risk neutral assumptions
no-negative equity due to the lack of relevant observable market
guarantees clauses inputs to support a risk neutral valuation approach
(judgement unchanged This selected measurement approach is in line
by changes in accounting with common industry practice and there does not
policies) 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.
The table below sets out those items the Group considers
susceptible to changes in critical estimates and assumptions
together with the relevant accounting policy.
Note Item involving Critical estimates and assumptions
estimates
and assumptions
1.4 Determination of The Group has determined the fair value of these
the fair value of insurance contracts on 1 January 2022. The critical
insurance and reinsurance assumptions used as part of the determination
contracts issued of fair value have included the selection of an
prior to 1 January appropriate weighted average cost of capital,
2021. the appropriate level of solvency capital required,
and the selection of the asset portfolio to determine
the discount rate. A comprehensive description
of the approach applied, and the inputs used in
the determination of fair value can be found in
note 1.4.
11 Measurement of fair The critical estimates used in valuing loans secured
value of loans secured by residential mortgages include the projected
by residential mortgages, future receipts of interest and loan repayments,
including measurement future house prices, and the future costs of administering
of the no-negative the loan portfolio. The key assumptions used as
equity guarantees part of the valuation calculation include future
(estimate unchanged property prices and their volatility, mortality,
by changes in accounting the rate of voluntary redemptions and the liquidity
policies) premium added to the swap curve and used to discount
the mortgage cash flows. Further details can be
found in note 11 under 'Loans secured by residential
mortgages'.
1.5, Measurement of insurance The critical estimates used in measuring insurance
14 contract liabilities liabilities include the projected future annuity
- present value payments and the cost of administering payments
of future cash flows to policyholders. The Group considers any expenses
to be directly attributable if they are required
to be incurred to enable the insurance entities
to continue to operate as insurance companies
selling and maintaining the contracts in force.
The key assumptions used in the determination
of future cash flows are the mortality and annuity
escalations assumptions and the level and inflation
of costs of administration. Mortality assumptions
are derived from the appropriate standard mortality
tables, adjusted to reflect the future expected
mortality experience of the policyholders. Maintenance
expenses are determined from expense analyses
and are assumed to inflate at market-implied rates.
Further detail can be found in note 14.
The present value of future cash flows are discounted
based on discount rates as at the valuation date.
1.5, Determination of Discount rates for gross insurance contract liabilities
14 discount rate for are based on the yield of a reference portfolio
insurance and reinsurance after deducting allowances for expected and unexpected
contracts credit default losses. The reference portfolio
consisting of the actual asset portfolio backing
the net of reinsurance best estimate liabilities
and risk adjustment and is adjusted in respect
of new contracts incepting in the period to allow
for a period of transition from the actual asset
holdings to the target portfolio where necessary.
No adjustment for liquidity differences between
the reference portfolio and the liabilities is
made. For calculation of the CSM at the inception
of contracts, discount rates are based on the
yields from a reference portfolio assumed to be
represented by the current target portfolio mix
based on the latest investment strategy.
A weighted average discount rate curve is used
for accreting interest on the CSM and for calculating
movements in the CSM due to changes in fulfilment
cash flows relating to future service. This separate
'locked-in' discount rate curve is determined
for each annual cohort at the end of the cohort's
first year and then does not change throughout
the remainder of life of the group of contracts.
---- -------------------------- -----------------------------------------------------------
1.5, Calibration of risk IFRS 17 requires that the future cashflows are
adjustment for insurance adjusted by the risk adjustment for non-financial
contract liabilities risk. The risk adjustment for non-financial risks
reflects the adjustment to the best estimate cash
flows required to provide a 70% level of confidence
that longevity, expense and insurance contract
specific operational risks will be covered by
the liabilities when viewed over the lifetime
of the contracts. This represents the level of
compensation that Just requires for bearing the
uncertainty regarding the amount and timing of
the cash flows that arises from non-financial
risk and is used as a core parameter within Just's
pricing framework when assessing the profitability
of new business.
14
-------
1.5, Measurement of the The critical estimates used in measuring the value
14 fulfilment cash of reinsurance assets and liabilities include
flows arising from the projected future cash flows arising from reinsurers'
reinsurance arrangements share of the Group's insurance liabilities including
the risk adjustment.
The key assumptions used in the valuation include
discount rates and mortality experience, as described
above, and assumptions around the reinsurers'
ability to meet their claims obligations.
In instances where reinsurance cover is in place
when underlying contracts are written, consistent
discount rates are used for calculation of reinsurance
CSM as used for the underlying business. In instances
where reinsurance is transacted subsequently to
the underlying business being written, the reinsurance
CSM is calculated using discount rates as at the
start date of the reinsurance treaty.
Allowance is made for reinsurer credit default
risk within the expected cash flows based on the
net balance held with the reinsurer after allowing
for collateral arrangements.
The reinsurance risk adjustment, represents the
extent to which non-financial risks are transferred
to reinsurers and is measured using the same calibrations
as applied to the underlying contracts.
1.5, Subsequent measurement The CSM is recognised at point of sale based on
14 of contractual service the value of the fulfilment cash flows, including
margin (CSM) for directly attributable acquisition expenses. The
insurance contracts CSM is recognised in profit and loss over the
terms of services provided to policyholders (coverage
units).
Coverage units will vary depending on the type
of service provided. The Group uses the probability
of the policy being in force in each time period
for weighting the disparate types of coverage
unit. This weighting reflects management's view
that the value of services provided to policyholders
is broadly equivalent across the different phases
in the life of contracts.
These weightings are applied to the coverage units
which are defined as follows:
* In the deferred phase of Defined Benefit policies,
investment return service coverage units are
represented by the return on the funds backing the
future cash flow liability in this accumulation
phase. Insurance service in this phase is considered
insignificant;
* In the guaranteed phase of Defined Benefit and
Guaranteed Income for Life policies, when payments
outwards are being made regardless of any insurance
event, investment return service is represented by
the payments to annuitants; and
* In the life contingent phase of all policies,
insurance service is represented by payments to
annuitants, as confirmed by the IASB Interpretation
Committee ("IFRIC") during 2022.
7 Recoverability of The adoption of IFRS 17 has created tax losses
deferred tax on transition which can be offset against future
taxable profits. The Group has assessed that these
tax losses will be fully recoverable based on
the Group's five-year business plan and projection
thereafter.
---------- -------------------------- -----------------------------------------------------------
2. Insurance revenue
30 June 2023 30 June 2022
GBPm GBPm
=================================================== ============ ============
Contractual service margin recognised for services
provided 67.3 49.3
=================================================== ============ ============
Change in risk adjustment for non-financial
risk for risks expired 6.7 7.4
=================================================== ============ ============
Expected incurred claims and other insurance
service expenses 671.0 579.3
=================================================== ============ ============
Recovery of insurance acquisition cash flows 8.3 3.3
=================================================== ============ ============
Total insurance revenue 753.3 639.3
=================================================== ============ ============
Contractual service margin recognised
The contractual service margin ("CSM") release of GBP67.3m (HY22
GBP49.3m) is based on the coverage units, at cohort level,
representing services provided in the year as a proportion of
current and future coverage units.
The CSM release represents 6.4% annualised (HY 22 6.3%
annualised) of the CSM reserve balance immediately prior to
release. The six months 2023 release includes the effects of the
deferral in CSM of the demographic assumption changes made at 31
December 2022 and the new business written in 2022.
Change in risk adjustment for non-financial risk for risks
expired
The risk adjustment release of GBP6.7m (HY22 GBP7.4m) represents
the value of the release from risk as insurance coverage
expires.
Expected incurred claims and other insurance service
expenses
This amount represents the expected claims and maintenance
expenses cash flows in the period based on the assumptions within
the opening liability for future cash flows, reduced to exclude the
value of investment components (and other non-insurance) cash
flows.
The increase in the value of expected claims and expenses in the
period to GBP671.0m (HY22 GBP579.3m) reflects the growth and
maturity of the business. In the current period 16% of payments to
annuitants were still within the guarantee period compared with 22%
in the same period in 2022. This decline reflects the run-off of
historically longer guarantee periods in GIfL and the change in the
mix of business towards DB.
Recovery of insurance acquisition cash flows
Acquisition costs are deducted from the CSM at point of sale,
with the result that as the CSM release is recognised in the income
statement, there will be an implicit allowance for acquisition
costs made each year over the life of contracts. The amount
recognised in each period represents the portion of past and
current acquisition expenses in respect of insurance contracts that
are allocable to the current period based on the services provided
(coverage units). Insurance revenue and insurance service expenses
are grossed up by this annual value of acquisition expenses so that
the full value of the premium is recognised as insurance revenue
over the lifetime of contracts.
The significant growth in the value in the six months to GBP8.3m
(HY22 GBP3.3m) reflects the inclusion of an additional new business
cohort. Only the cohorts measured on a fully retrospective basis at
transition to IFRS 17 and cohorts of business written since
transition (i.e. underwriting years 2021 onwards) have insurance
acquisition cash flows. The recovery percentage recognised in the
period is consistent with the CSM release percentages.
3. Insurance service expense
30 June 2023 30 June 2022
GBPm GBPm
================================================= ============ ============
Incurred expenses
================================================= ============ ============
Claims 652.2 563.2
================================================= ============ ============
Commission 14.5 26.8
================================================= ============ ============
Personnel expenses 59.0 49.6
================================================= ============ ============
Other costs 83.3 37.1
================================================= ============ ============
IFRS 17 treatment of acquisition costs
================================================= ============ ============
Amounts attributable to insurance acquisition
cash flows (83.7) (46.2)
================================================= ============ ============
Amortisation of insurance acquisition cash flows 8.3 3.3
================================================= ============ ============
733.6 633.8
================================================= ============ ============
Represented by:
Actual claims and maintenance expenses 674.1 579.7
================================================= ============ ============
Amortisation of insurance acquisition cash flows 8.3 3.3
================================================= ============ ============
Insurance service expenses 682.4 583.0
================================================= ============ ============
Other operating expenses 51.2 50.8
================================================= ============ ============
733.6 633.8
================================================= ============ ============
The actual claims and expenses in the six months of GBP674.1m
(HY22 GBP579.7m) compare with an expected value of GBP671.0m (HY22
GBP579.3m). The difference of GBP3.1m (HY22 GBP0.4m) is not
considered significant. Claims exclude investment components and
other non-insurance cash flows as noted above for insurance
revenue. The fall in commission and increase in investment expenses
(included in other costs) reflects the switch in investment
strategy from LTMs towards more other illiquid investments.
The removal of insurance acquisition cash flows incurred in the
period represents costs that have been deferred on the balance
sheet as part of the new business CSM. Acquisition costs deferred
are the incremental costs of writing new business and relate to the
costs associated with writing insurance policies and related
overheads . Amounts are amortised over the term of the insurance
policies, in line with the service provided (coverage units).
The other operating expenses of GBP51.2m (HY 2022: GBP50.8m)
include the portion of investment acquisition expenses of GBP10.4m
which are not allocated to new business sales, project and other
one-off costs of GBP16.5m, and GBP17.3m of costs in the non-life
companies.
4. Net investment gains/(losses) from financial assets
30 June 2023 30 June 2022
GBPm GBPm
============================================== ============ ============
Interest income:
============================================== ============ ============
Assets at fair value through profit or loss 486.6 309.5
============================================== ============ ============
Assets at amortised cost 11.0 -
============================================== ============ ============
Movement in fair value:
============================================== ============ ============
Financial assets and liabilities designated
on initial recognition at fair value through
profit and loss (642.5) (3,129.7)
============================================== ============ ============
Derivative financial instruments 143.6 (588.0)
============================================== ============ ============
Movement in amortised cost assets 1.2 -
============================================== ============ ============
Total net investment (expense)/revenue (0.1) (3,408.2)
============================================== ============ ============
The investment return is GBP0.1m loss (HY22: GBP3,408.2m loss).
In the current period, interest income and favourable movements on
derivatives entirely offset the fair value losses experienced on
revaluation of the fixed-income portfolio. Whereas in HY22, the
GBP3.4bn loss was mainly driven by interest rate increases reducing
mark to market values offset by higher interest income from the
assets and increase in value of inflation swaps).
Interest income of GBP486.6m (HY22: GBP309.5m) mainly relates to
corporate bonds which have increased due to new business
investment. Since June 2022, the Group has invested GBP0.9m in
purchases of debt and other fixed income securities; the fair value
of the portfolio at 30 June 2023 is GBP1.8bn (HY 2022
GBP1.4bn.)
A new amortised cost portfolio was created with GBP2.0bn of
gilts during the period as a means of backing the IFRS 17 CSM and
shareholder funds reserves with investments that do not expose the
IFRS balance sheet to interest rate movements. This portfolio is
valued on a market value basis for Solvency II reporting, where it
is available to back the solvency capital requirement which is
interest rate sensitive. The income on this portfolio was
GBP11.0m.
Movements in fair values of GBP(642.5)m (HY22: GBP(3,129.7)m)
reflect the continued increases in interest rates into the first
half of 2023.
Net gains on derivatives of GBP143.6m (HY22 loss of GBP588.0m)
primarily reflected the increase in inflation. The prior year loss
primarily relates to FX swaps. The Group purchases non-GBP
denominated assets to diversify and maximise investment
opportunities. As our liabilities are GBP denominated we hedge the
resulting foreign exchange exposure. The changes to the underlying
investment due to foreign exchange movement is therefore broadly
offset by the change in derivative value.
5. Net finance (expenses)/ income from insurance contracts
30 June 2023 30 June 2022
GBPm GBPm
================================================== ============ ============
Interest accreted (603.6) (261.2)
================================================== ============ ============
Effect of changes in interest rates and other
financial assumptions 752.0 3,537.7
================================================== ============ ============
Effect of measuring changes in estimates at
current rates and adjusting the CSM at rates
on initial recognition 2.1 (2.2)
================================================== ============ ============
Total net finance (expense)/income from insurance
contracts 150.5 3,274.3
================================================== ============ ============
Interest accreted
Interest accreted of GBP603.6m (HY22 GBP261.2m) represents the
effect of unwinding of the discount rates on the future cash flow
and risk adjustment components of the insurance contract
liabilities and the effect of interest accretion on the CSM. The
more than doubling of accretion in the current period compared with
the first six months of 2022 reflects the impact of higher discount
rates at the start of 2023 compared with the start of 2022,
combined with growth in the size of the insurance portfolio.
The future cash flows and risk adjustment are interest rate
sensitive and represent circa 90% of the total value of insurance
contract liabilities . The CSM is measured using historic
'locked-in' discount rate curves. The majority of the CSM arises
from the fair value approach on transition to IFRS 17 which is
measured using the locked-in discount rate curve as at 1 January
2022. This curve is upward sloping in the early years which,
combined with an increasing CSM balance, has resulted in increased
accretion.
Effect of changes in interest rates and other financial
assumptions
The principal economic assumption changes favourably impacting
the movement in insurance liabilities during the period of
GBP752.0m (HY22 GBP3,537.7m gain) relate to discount rates and
inflation. The CSM is held at locked-in discount rates and benefit
inflation, and hence the effect of the increase in interest rates
experienced in the period applies only to the future cash flows and
risk adjustment.
Effect of measuring changes in estimates at current rates and
adjusting the CSM at rates on initial recognition
The difference in the measurement of changes in estimates
relating to future coverage at current discount rates compared to
locked-in rates, is recognised within net finance expenses. S
ignificant assumption changes are usually made at year end and
therefore the impact at HY23 and HY22 is small (GBP2.1m gain and
GBP2.2m loss respectively).
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 and Care Plans -
and invests the premiums received from these contracts in debt and
other fixed income securities, gilts, liquidity funds and lifetime
mortgage advances and other illiquid assets.
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.
Underlying operating profit
The Group reports underlying operating profit as an alternative
measure of profit which is used for decision making and performance
measurement. The Board believes that underlying operating profit,
which represents a combination of both the future profit generated
from new business written in the period and additional profit
emerging from the in-force book of business, provides a better view
of the development of the business. Moreover, the net underlying
CSM increase is added back when calculating the underlying
operating profit as the Board considers the value of new business
is significant in assessing business performance. Actual operating
experience where different from that assumed at the start of the
period and the impacts of changes to future operating assumptions
applied in the period are then also included in arriving at
adjusted operating profit.
New business profits represent expected investment returns on
the financial instruments assumed to be newly purchased to back
that business after allowances for expected movements in
liabilities and deduction of acquisition costs. New business
profits are based on valuation of investment returns as at the date
of quoting for new business whereas the CSM on new business is
computed as at the date of inception of new contracts. Profits
arising from the in-force book of business represent the expected
return on surplus assets, the expected unwind of allowances for
credit default and the release of the risk adjustment.
Underlying operating profit excludes the impairment and
amortisation of goodwill and other intangible assets arising on
consolidation, and strategic expenditure, since these items arise
outside the normal course of business in the year. Underlying
operating profit also excludes exceptional items. Exceptional items
are those items that, in the Directors' view, are required to be
separately disclosed by virtue of their nature or incidence to
enable a full understanding of the Group's financial
performance.
Variances between actual and expected investment returns due to
economic and market changes, including on surplus assets and on
assets assumed to back new business, and gains and losses on the
revaluation of land and buildings, are also disclosed outside
underlying operating profit.
Segmental reporting and reconciliation to financial
information
Six months ended 30
June 2022
Six months ended 30
June 2023 (restated)
============================= ============================
Insurance Other Total Insurance Other Total
GBPm GBPm GBPm GBPm GBPm GBPm
================================= ========== ====== ========= ========== ====== ========
New business profits 161.3 - 161.3 76.2 - 76.2
================================= ========== ====== ========= ========== ====== ========
CSM amortisation(1) (28.7) - (28.7) (26.6) - (26.6)
================================= ========== ====== ========= ========== ====== ========
Net underlying CSM increase
(2) 132.6 - 132.6 49.6 - 49.6
================================= ========== ====== ========= ========== ====== ========
In-force operating profit(3) 88.8 3.2 92.0 70.2 1.4 71.6
================================= ========== ====== ========= ========== ====== ========
Other Group companies'
operating results - (8.5) (8.5) - (7.5) (7.5)
================================= ========== ====== ========= ========== ====== ========
Development expenditure (8.8) (0.8) (9.6) (7.3) (1.4) (8.7)
================================= ========== ====== ========= ========== ====== ========
Finance costs (42.2) 8.7 (33.5) (44.4) 6.8 (37.6)
================================= ========== ====== ========= ========== ====== ========
Underlying operating
profit 170.4 2.6 173.0 68.1 (0.7) 67.4
================================= ========== ====== ========= ========== ====== ========
Operating experience and
assumption changes(4) 1.3 - 1.3 (3.6) - (3.6)
================================= ========== ====== ========= ========== ====== ========
Adjusted operating profit/(loss)
before tax 171.7 2.6 174.3 64.5 (0.7) 63.8
================================= ========== ====== ========= ========== ====== ========
Investment and economic
movement 63.7 6.0 69.7 (255.6) 0.8 (254.8)
================================= ========== ====== ========= ========== ====== ========
Strategic expenditure (4.3) (2.4) (6.7) (2.8) - (2.8)
================================= ========== ====== ========= ========== ====== ========
Interest adjustment to
reflect IFRS accounting
for Tier 1 notes as equity 14.0 (5.9) 8.1 14.0 (5.3) 8.7
================================= ========== ====== ========= ========== ====== ========
Amortisation of acquired
intangibles - (0.1) (0.1) - (0.1) (0.1)
================================= ========== ====== ========= ========== ====== ========
Adjusted profit/(loss)
before tax 245.1 0.2 245.3 (179.9) (5.3) (185.2)
================================= ========== ====== ========= ========== ====== ========
Deferral of profit in CSM(5) (128.6) - (128.6) (52.2) - (52.2)
================================= ========== ====== ========= ========== ====== ========
Profit/(loss) before
tax 116.5 0.2 116.7 (232.1) (5.3) (237.4)
================================= ========== ====== ========= ========== ====== ========
1: CSM amortisation represents the net release from the CSM
reserve into profit as services are provided. The figures are net
of accretion (unwind of discount), and the release is computed
based on the closing CSM reserve balance for the period.
2: Net underlying CSM increase excludes the impact of using
quote date for profitability measurement.
3: In-force operating profit represents profits from the in
force portfolio before investment and insurance experience
variances, and assumption changes. It mainly represents release of
risk adjustment for non-financial risk and of allowances for credit
default in the period, investment returns earned on shareholder
assets, together with the value of the CSM amortisation.
4: Operating experience and assumption changes represent changes
to cash flows in the current and future periods valued based on end
of period economic assumptions.
5: Deferral of profit in CSM represents the total movement on
CSM reserve in the year. The figure represents CSM recognised on
new business, accretion of CSM (unwind of discount), transfers to
CSM related to changes to future cash flows at locked-in economic
assumptions, less CSM release in respect of services provided.
Year ended 31 December
2022 (restated)
=============================
Insurance Other Total
GBPm GBPm GBPm
======================================= === ========== ======= ========
New business profits 265.9 - 265.9
=============================================== ========== ======= ========
CSM amortisation (60.6) - (60.6)
=============================================== ========== ======= ========
Net CSM increase 205.3 - 205.3
=============================================== ========== ======= ========
In-force operating profit 152.7 3.0 155.7
=============================================== ========== ======= ========
Other Group companies' operating
results - (16.0) (16.0)
=============================================== ========== ======= ========
Development expenditure (13.5) (1.4) (14.9)
=============================================== ========== ======= ========
Financing costs (87.5) 14.2 (73.3)
=============================================== ========== ======= ========
Underlying operating profit 257.0 (0.2) 256.8
=============================================== ========== ======= ========
Operating experience and assumption
changes 104.4 - 104.4
=============================================== ========== ======= ========
Adjusted operating profit/(loss)
before tax 361.4 (0.2) 361.2
=============================================== ========== ======= ========
Investment and economic movement (557.0) 19.3 (537.7)
=============================================== ========== ======= ========
Strategic expenditure (6.4) - (6.4)
=============================================== ========== ======= ========
Interest adjustment to reflect IFRS
accounting for Tier 1 notes as equity 27.3 (11.3) 16.0
=============================================== ========== ======= ========
Amortisation of acquired intangibles - (0.1) (0.1)
=============================================== ========== ======= ========
Adjusted profit/(loss) before tax (174.7) 7.7 (167.0)
=============================================== ========== ======= ========
Deferral of profit in CSM (326.8) - (326.8)
=============================================== ========== ======= ========
Profit/(loss) before tax (501.5) 7.7 (493.8)
=============================================== ========== ======= ========
The reconciliation of the new business profit non-IFRS measure
to the new business contractual service margin (IFRS measure) is
included in the Business review.
Additional analysis of segmental profit or loss
Revenue, depreciation of property, plant and equipment, and
amortisation of intangible assets are materially all allocated to
the insurance segment. The interest adjustment in respect of Tier 1
notes in the other segment represents the difference between
interest charged to the insurance segment in respect of Tier 1
notes and interest incurred by the Group in respect of Tier 1
notes.
Product information analysis
Additional analysis relating to the Group's products is
presented below:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
======================================================== =========== =========== =============
Defined Benefit De-risking Solutions
("DB") 1,429.3 573.6 2,566.9
======================================================== =========== =========== =============
Guaranteed Income for Life contracts
("GIfL")(1) 470.1 305.5 563.8
======================================================== =========== =========== =============
Retirement Income sales 1,899.4 879.1 3,130.7
======================================================== =========== =========== =============
Defined Benefit De-risking partnering ("DB partnering") - - 258.6
======================================================== =========== =========== =============
Net change in premiums receivable 202.5 (358.4) (274.7)
======================================================== =========== =========== =============
Premium cash flows (note 14(c)) 2,101.9 520.7 3,114.6
======================================================== =========== =========== =============
1. GIfL includes UK GIfL, South Africa GIfL and Care Plans.
7. Income tax
Six months Year ended
ended 31 December
Six months ended 30 June 2022 2022
30 June 2023 (restated) (restated)
GBPm GBPm GBPm
================================================================= ================== =============== ==============
Current taxation
================================================================= ================== =============== ==============
Current year tax on current year profits 2.0 - -
================================================================= ================== =============== ==============
Adjustments in respect of prior periods - 1.7 8.5
================================================================= ================== =============== ==============
Total current tax 2.0 1.7 8.5
================================================================= ================== =============== ==============
Deferred taxation
================================================================= ================== =============== ==============
Deferred tax recognised for losses in the current period - (42.7) (128.5)
================================================================= ================== =============== ==============
Deferred tax asset not recognised - - 0.2
================================================================= ================== =============== ==============
Origination and reversal of temporary differences 9.4 0.2 (5.0)
================================================================= ================== =============== ==============
Adjustments in respect of prior periods 6.2 - (8.4)
================================================================= ================== =============== ==============
Tax relief on the transitional adjustment on IFRS 17 -
implementation 16.0 -
================================================================= ================== =============== ==============
Remeasurement of deferred tax - change in UK tax rate 1.8 (15.9) 1.2
================================================================= ================== =============== ==============
Total deferred tax 33.4 (58.4) (140.5)
================================================================= ================== =============== ==============
Total income tax recognised in profit or loss 35.4 (56.7) (132.0)
================================================================= ================== =============== ==============
The deferred tax assets and liabilities at 30 June 2023 have
been calculated based on the rate at which they are expected to
reverse. On 3 March 2021, the Government announced an increase in
the rate of corporation tax to 25% from 1 April 2023.
A deferred tax asset of GBP341.0m has been recognised on the
adoption of IFRS 17 Insurance Contracts on 1 January 2023, which is
fully recoverable, and deferred tax has been recognised at 25%,
reflecting the rate at which the deferred tax asset is expected to
unwind.
Reconciliation of total income tax to the applicable tax
rate
Six months Year ended
ended 31 December
Six months ended 30 June 2022 2022
30 June 2023 (restated) (restated)
GBPm GBPm GBPm
=========================================================== ================== =============== ==============
Profit/(loss) on ordinary activities before tax 116.7 (237.4) (493.8)
=========================================================== ================== =============== ==============
Income tax at 23.5% (30 Jun 2022: 19.0%, 31 Dec 2022: 19%) 27.4 (45.1) (93.8)
=========================================================== ================== =============== ==============
Effects of:
=========================================================== ================== =============== ==============
Expenses not deductible for tax purposes - 0.8 1.4
=========================================================== ================== =============== ==============
Remeasurement of deferred tax - change in UK tax rate 1.8 1.2 1.2
=========================================================== ================== =============== ==============
Impact of future tax rate on tax losses - (14.1) (33.9)
=========================================================== ================== =============== ==============
Adjustments in respect of prior periods 6.2 0.1 0.1
=========================================================== ================== =============== ==============
Deferred tax asset not recognised - - 0.2
=========================================================== ================== =============== ==============
Other - 0.4 (7.2)
=========================================================== ================== =============== ==============
Total income tax recognised in profit or loss 35.4 (56.7) (132.0)
=========================================================== ================== =============== ==============
Income tax recognised directly in equity
Six months Year ended
Six months ended ended 31 December
30 June 2023 30 June 2022 2022
GBPm GBPm GBPm
=============================================== ================= ============== =============
Current taxation
=============================================== ================= ============== =============
Relief on Tier 1 interest - (1.7) -
=============================================== ================= ============== =============
Relief on cost of redeeming RT1 - - -
=============================================== ================= ============== =============
Other - - -
=============================================== ================= ============== =============
Total current tax - (1.7) -
=============================================== ================= ============== =============
Deferred taxation
=============================================== ================= ============== =============
Relief on Tier 1 interest (2.0) - (3.2)
=============================================== ================= ============== =============
Relief in respect of share-based payments (0.3) (0.7) (1.3)
=============================================== ================= ============== =============
Total deferred tax (2.3) (0.7) (4.5)
=============================================== ================= ============== =============
Total income tax recognised directly in equity (2.3) (2.4) (4.5)
=============================================== ================= ============== =============
8. Earnings per share
The calculation of basic and diluted earnings per share is based
on dividing the profit or loss attributable to ordinary equity
holders of the Company by the weighted average number of ordinary
shares outstanding, and by the diluted weighted average number of
ordinary shares potentially outstanding at the end of the period.
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.
Six months ended
Six months ended 30 June 2022
30 June 2023 (restated)
================================================ ================================================
Weighted average Weighted average
Earnings number of shares Earnings per Earnings number of shares Earnings per
GBPm million share pence GBPm million share pence
================== ========= ================= ================== ========= ================= ==================
Profit/(loss)
attributable to
equity holders of
Just Group plc 81.6 - - (180.4) - -
================== ========= ================= ================== ========= ================= ==================
Coupon payments in
respect of Tier 1
notes (net of
tax) (6.1) - - (7.0) - -
================== ========= ================= ================== ========= ================= ==================
Profit/(loss)
attributable to
ordinary equity
holders of Just
Group plc (basic) 75.5 1,029.0 7.34 (187.4) 1,035.7 (18.09)
================== ========= ================= ================== ========= ================= ==================
Effect of
potentially
dilutive share
options(1) - 23.8 (0.17) - - -
================== ========= ================= ================== ========= ================= ==================
Diluted
profit/(loss)
attributable to
ordinary equity
holders of Just
Group plc 75.5 1,052.8 7.17 (187.4) 1,035.7 (18.09)
================== ========= ================= ================== ========= ================= ==================
(1) The weighted-average number of share options for the six
months ended 30 June 2022 and year ended 31 December 2022 that
could have potentially diluted basic earnings per share in the
future but are not included in diluted EPS because they would be
antidilutive was 22.2 million and 23.3 million share options
respectively.
Year ended
31 December 2022
(restated)
===================================================
Weighted average
Earnings number of shares Earnings per share
GBPm million pence
================================== ===== =========== ========= ========= =================== ===================
Loss attributable to equity holders of Just - -
Group plc (361.2)
============================================== ======= ==== ========= =================== ===================
Coupon payments in respect of Tier 1 notes - -
(net of tax) (13.6)
============================================== ======= ==== ========= =================== ===================
Loss attributable to ordinary equity holders
of Just Group plc (374.8) 1,032.4 (36.30)
============================================== ======= ======= ========= =================== ===================
Effect of potentially dilutive share - - -
options(1)
============================================== ======= ==== ========= =================== ===================
Diluted (loss)/profit attributable to ordinary
equity holders of Just Group plc (374.8) 1,032.4 (36.30)
============================================== ======= ======= ========= =================== ===================
9. Dividends and appropriations
Dividends and appropriations paid were as follows:
Six months
ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
GBPm GBPm GBPm
==================================================== ============= ================ =================
Final dividend
==================================================== ============= ================ =================
Final dividend in respect of prior year end 12.8 10.4 10.4
==================================================== ============= ================ =================
Interim dividend in respect of current year - - 5.2
==================================================== ============= ================ =================
Total dividends paid 12.8 10.4 15.6
==================================================== ============= ================ =================
Coupon payments in respect of Tier 1 notes(1) 8.1 8.7 16.9
==================================================== ============= ================ =================
Total distributions to equity holders in the period 20.9 19.1 32.5
==================================================== ============= ================ =================
(1) Coupon payments on Tier 1 notes are treated as an
appropriation of retained profits and, accordingly, are accounted
for when paid.
Dividends are paid out of the reserves of Just Group plc, the
Company, who at 30 June 2023 had total reserves of GBP459.7m.
Distributions by the Company are not impeded by the accumulated
loss reflected in the consolidated financial statements.
In addition to the amounts recognised in the Interim financial
statements above, subsequent to 30 June 2023, the Directors
approved an interim dividend for 2023 of 0.58 pence per ordinary
share (2022: 0.5 pence), amounting to GBP6m (2022: GBP5.2m) in
total, which will be paid on 4 October 2023.
10. FINANCIAL INVESTMENTS
The Group's financial investments that are measured at fair
value through the profit or loss, are either managed within a fair
value business model or mandatorily measured at fair value.
The Group's financial investments that are measured at amortised
cost are held within a business model where the intention of
holding the instruments is to collect solely payments of principal
and interest.
In the current year, the Group acquired UK sovereign gilts with
a total invested value of GBP2.0bn that act as an economic hedge to
liabilities and components of equity that are not sensitive to
interest rate movements. At the point of investment, these
investments had contractual maturities of between 14 and 30 years,
with an average invested yield of 4.1%. The Group has financed the
purchase of these gilts through a series of repurchase ("repo")
agreements whereby a fixed amount is repayable at a certain date.
At the inception of these agreements they had tenors of between 12
and 21 months.
Fair value
======================
Amortised cost Mandatory Designated Total
30 June 2023 GBPm GBPm GBPm GBPm
======================================== =============== ========== =========== ===========
Cash available on demand 572.8 - - 572.8
======================================== =============== ========== =========== ===========
Financial investments - fair value - 7,542.3 16,647.9 24,190.2
======================================== =============== ========== =========== ===========
Financial investments - amortised cost 1,970.6 - - 1,970.6
======================================== =============== ========== =========== ===========
Other receivables 48.1 - - 48.1
======================================== =============== ========== =========== ===========
Total financial assets 2,591.5 7,542.3 16,647.9 26,781.7
======================================== =============== ========== =========== ===========
Underlying assets
======================================== =============== ========== =========== ===========
* Investment contracts - - 29.3 29.3
======================================== =============== ========== =========== ===========
* Other 2,591.5 7,542.3 16,618.6 26,752.4
======================================== =============== ========== =========== ===========
Total financial assets 2,591.5 7,542.3 16,647.9 26,781.7
======================================== =============== ========== =========== ===========
Investment contract liabilities - - 29.3 29.3
======================================== =============== ========== =========== ===========
Loans and borrowings 709.9 - - 709.9
======================================== =============== ========== =========== ===========
Other financial liabilities 2,640.8 2,713.3 - 5,354.1
======================================== =============== ========== =========== ===========
Other payables 197.7 - - 197.7
======================================== =============== ========== =========== ===========
Total financial liabilities 3,548.4 2,713.3 29.3 6,291.0
======================================== =============== ========== =========== ===========
Fair value
======================
Amortised cost Mandatory Designated Total
31 December 2022 GBPm GBPm GBPm GBPm
================================= =============== ========== =========== ============
Cash available on demand 482.0 - - 482.0
================================= =============== ========== =========== ============
Financial investments - 7,582.9 15,768.5 23,351.4
================================= =============== ========== =========== ============
Other receivables 32.7 - - 32.7
================================= =============== ========== =========== ============
Total financial assets 514.7 7,582.9 15,768.5 23,866.1
================================= =============== ========== =========== ============
Underlying assets
================================= =============== ========== =========== ============
* Investment contracts - - 32.5 32.5
================================= =============== ========== =========== ============
* Other 514.7 7,582.9 15,736.0 23,833.6
================================= =============== ========== =========== ============
Total financial assets 514.7 7,582.9 15,768.5 23,866.1
================================= =============== ========== =========== ============
Investment contract liabilities - - 32.5 32.5
================================= =============== ========== =========== ============
Loans and borrowings 699.3 - - 699.3
================================= =============== ========== =========== ============
Other financial liabilities 623.1 3,045.8 - 3,668.9
================================= =============== ========== =========== ============
Other payables 96.1 - - 96.1
================================= =============== ========== =========== ============
Total financial liabilities 1,418.5 3,045.8 32.5 4,496.8
================================= =============== ========== =========== ============
Fair value
======================
Amortised cost Mandatory Designated Total
30 June 2022 GBPm GBPm GBPm GBPm
================================= =============== ========== =========== ===========
Cash available on demand 544.4 - - 544.4
================================= =============== ========== =========== ===========
Financial investments - 7,577.4 15,211.2 22,788.6
================================= =============== ========== =========== ===========
Other receivables 22.5 - - 22.5
================================= =============== ========== =========== ===========
Total financial assets 566.9 7,577.4 15,211.2 23,355.5
================================= =============== ========== =========== ===========
Underlying assets
================================= =============== ========== =========== ===========
* Investment contracts - - 29.8 29.8
================================= =============== ========== =========== ===========
* Other 566.9 7,577.4 15,181.4 23,325.7
================================= =============== ========== =========== ===========
Total financial assets 566.9 7,577.4 15,211.2 23,355.5
================================= =============== ========== =========== ===========
Investment contract liabilities - - 29.8 29.8
================================= =============== ========== =========== ===========
Loans and borrowings 774.7 - - 774.7
================================= =============== ========== =========== ===========
Other financial liabilities 480.0 2,017.4 - 2,497.4
================================= =============== ========== =========== ===========
Other payables 110.3 - - 110.3
================================= =============== ========== =========== ===========
Total financial liabilities 1,365.0 2,017.4 29.8 3,412.2
================================= =============== ========== =========== ===========
Analysis of financial investments
30 30
June 31 December 2022 June
2023 (restated) 2022
GBPm GBPm GBPm
================================================================= ========= ================= =========
Units in liquidity funds 1,205.6 1,174.4 958.7
================================================================= ========= ================= =========
Investment funds 439.8 421.0 315.1
================================================================= ========= ================= =========
Debt securities and other fixed income securities 11,780.4 11,352.9 11,238.7
================================================================= ========= ================= =========
Deposits with credit institutions 749.4 907.6 750.5
================================================================= ========= ================= =========
Loans secured by residential mortgages 5,176.7 5,305.9 5,897.3
================================================================= ========= ================= =========
Loans secured by commercial mortgages 629.2 583.7 616.0
================================================================= ========= ================= =========
Loans secured by ground rents 647.1 246.9 236.6
================================================================= ========= ================= =========
Infrastructure loans 1,057.0 947.8 968.8
================================================================= ========= ================= =========
Other loans 139.4 134.2 126.8
================================================================= ========= ================= =========
Derivative financial assets 2,365.6 2,277.0 1,680.1
================================================================= ========= ================= =========
Total investments measured at fair value through profit and loss 24,190.2 23,351.4 22,788.6
================================================================= ========= ================= =========
Gilts - subject to repurchase agreements 1,970.6 - -
================================================================= ========= ================= =========
Total investments measured at amortised cost 1,970.6 - -
================================================================= ========= ================= =========
Total financial investments 26,160.8 23,351.4 22,788.6
================================================================= ========= ================= =========
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 short dated liquid assets.
Deposits with credit institutions with a carrying value of
GBP733.5m (31 December 2022: GBP892.4m / 30 June 2022: GBP750.5m)
have been pledged as collateral in respect of the Group's
derivative financial instruments. Amounts pledged as collateral are
deposited with the derivative counterparty.
11. 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.
Level 1
Inputs to Level 1 fair values are unadjusted quoted prices in
active markets for identical assets and liabilities that the entity
can access at the measurement date.
Level 2
Inputs to Level 2 fair values are inputs other than quoted
prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. If the asset or liability
has a specified (contractual) term, a Level 2 input must be
observable for substantially the full term of the instrument. Level
2 inputs include the following:
-- quoted prices for similar assets and liabilities in active markets;
-- quoted prices for identical assets or similar assets in
markets that are not active, the prices are not current, or price
quotations vary substantially either over time or among market
makers, or in which very little information is released
publicly;
-- inputs other than quoted prices that are observable for the asset or liability; and
-- market-corroborated inputs.
Level 3
Inputs to Level 3 fair values include significant unobservable
inputs for the asset or liability. Unobservable inputs are used to
measure fair value to the extent that observable inputs are not
available, thereby allowing for situations in which there is
little, if any, market activity for the asset or liability at the
measurement date. However, the fair value measurement objective
remains the same, i.e. an exit price at the measurement date from
the perspective of a market participant that holds the asset or
owes the liability. Unobservable inputs reflect the same
assumptions as those that the market participant would use in
pricing the asset or liability.
Assessment of the observability of pricing information
All Level 1 and 2 assets continue to have pricing available from
actively quoted prices or observable market data.
Where the Group receives broker/asset manager quotes and the
information is given a low score by Bloomberg's pricing service
(BVAL), the investments are classified as level 3 as are assets
valued internally.
Debt securities and financial derivatives which are valued using
independent pricing services or third party broker quotes are
classified as Level 2.
The Group's assets and liabilities held at fair value which are
valued using valuation techniques for which significant observable
market data is not available and classified as Level 3 include
loans secured by mortgages, loans secured by ground rents,
infrastructure loans, private placement debt securities, investment
funds, investment contract liabilities, and other loans.
(b) Analysis of assets and liabilities held at fair value
according to fair value hierarchy
31 December 2022
30 June 2023 (restated)
======================================= =======================================
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Assets held at fair value through
profit or loss
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Units in liquidity funds 1,200.0 5.6 - 1,205.6 1,169.8 4.6 - 1,174.4
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Investment funds - 86.0 353.8 439.8 - 82.6 338.4 421.0
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Debt securities and other fixed
income securities 3,011.7 6,950.5 1,818.2 11,780.4 3,843.7 5,904.0 1,605.2 11,352.9
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Deposits with credit institutions 733.5 15.9 - 749.4 892.4 15.2 - 907.6
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Loans secured by residential
mortgages - - 5,176.7 5,176.7 - - 5,305.9 5,305.9
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Loans secured by commercial
mortgages - - 629.2 629.2 - - 583.7 583.7
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Loans secured by ground rents - - 647.1 647.1 - - 246.9 246.9
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Infrastructure loans - - 1,057.0 1,057.0 - - 947.8 947.8
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Other loans - 27.0 112.4 139.4 - 22.3 111.9 134.2
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Derivative financial assets - 2,365.6 - 2,365.6 - 2,276.6 0.4 2,277.0
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Financial investments 4,945.2 9,450.6 9,794.4 24,190.2 5,905.9 8,305.3 9,140.2 23,351.4
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Investment property - - 39.7 39.7 - - 40.3 40.3
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Gilts - subject to repurchase
agreements (fair value) 1,965.4 - - 1,965.4 - - - -
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Total financial assets 6,910.6 9,450.6 9,834.1 26,195.3 5,905.9 8,305.3 9,180.5 23,391.7
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Liabilities held at fair value
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Derivative financial liabilities - 2,699.9 13.4 2,713.3 - 3,004.1 41.7 3,045.8
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Obligations for repayment of cash
collateral received 654.2 43.1 - 697.3 592.8 30.3 - 623.1
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Other financial liabilities 654.2 2,743.0 13.4 3,410.6 592.8 3,034.4 41.7 3,668.9
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Investment contract liabilities - - 29.3 29.3 - - 32.5 32.5
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Loans and borrowings at amortised
cost (fair value) - 706.1 - 706.1 - 704.2 - 704.2
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Repurchase obligation (fair value) - 1,915.2 - 1,915.2 - - - -
==================================== ======== ======== ======== ========= ======== ======== ======== =========
Total financial liabilities 654.2 5,364.3 42.7 6,061.2 592.8 3,738.6 74.2 4,405.6
==================================== ======== ======== ======== ========= ======== ======== ======== =========
30 June 2022
=======================================
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
============================================= ==== ======= ====== ======= ======== ======== ======== =========
Assets held at fair value through profit or
loss
============================================= ==== ======= ====== ======= ======== ======== ======== =========
Units in liquidity funds 953.7 5.0 - 958.7
============================================= =========================== ======== ======== ======== =========
Investment funds - 64.8 250.3 315.1
============================================= =========================== ======== ======== ======== =========
Debt securities and other fixed income
securities 3,346.4 6,507.6 1,384.7 11,238.7
============================================= =========================== ======== ======== ======== =========
Deposits with credit institutions 735.8 14.7 - 750.5
============================================= =========================== ======== ======== ======== =========
Loans secured by residential mortgages - - 5,897.3 5,897.3
============================================= =========================== ======== ======== ======== =========
Loans secured by commercial mortgages - - 616.0 616.0
============================================= =========================== ======== ======== ======== =========
Loans secured by ground rents - - 236.6 236.6
============================================= =========================== ======== ======== ======== =========
Infrastructure loans - - 968.8 968.8
============================================= =========================== ======== ======== ======== =========
Other loans - 14.5 112.3 126.8
============================================= =========================== ======== ======== ======== =========
Derivative financial assets - 1,680.1 - 1,680.1
============================================= =========================== ======== ======== ======== =========
Financial investments 5,035.9 8,286.7 9,466.0 22,788.6
============================================= =========================== ======== ======== ======== =========
Investment property - - 50.1 50.1
============================================= =========================== ======== ======== ======== =========
Total financial assets 5,035.9 8,286.7 9,516.1 22,838.7
============================================= =========================== ======== ======== ======== =========
Liabilities held at fair value
============================================= ==== ======= ====== ======= ======== ======== ======== =========
Derivative financial liabilities - 2,008.4 9.0 2,017.4
============================================= =========================== ======== ======== ======== =========
Obligations for repayment of cash collateral
received 459.1 20.9 - 480.0
============================================= =========================== ======== ======== ======== =========
Other financial liabilities 459.1 2,029.3 9.0 2,497.4
============================================= =========================== ======== ======== ======== =========
Investment contract liabilities - - 29.8 29.8
============================================= =========================== ======== ======== ======== =========
Loans and borrowings at amortised cost (fair value) - 822.9 - 822.9
============================================================================= ======== ======== ======== =========
Total financial liabilities 459.1 2,852.2 38.8 3,350.1
============================================= =========================== ======== ======== ======== =========
(c) 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
fixed by by by Infra- Derivative Investment Derivative
Six months Investment income residential commercial ground structure Other financial contract financial
ended funds securities mortgages mortgages rents loans loans assets liabilities liabilities
30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
At 1 January
2023 338.4 1,605.2 5,305.9 583.7 246.9 947.8 111.9 0.4 (32.5) (41.7)
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
Purchases/advances/
deposits 36.3 320.4 86.5 96.3 433.9 138.5 6.8 - (4.7) -
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
Transfers from - - - - - - - - -
Level 2 -
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
Sales/redemptions/
payments (16.0) (28.1) (162.3) (43.4) (2.7) (16.3) - - 0.2 -
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
Recognised in
profit or loss
in net investment
income
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
Realised gains
and losses - - 56.5 - - - - (0.4) - 21.0
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
Unrealised gains
and losses (4.9) (68.0) (237.5) (7.6) (31.0) (12.9) (6.3) - - 7.3
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
Interest accrued - (11.3) 127.6 0.2 - (0.1) - - - -
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
Change in fair
value of
liabilities
recognised in
profit or loss - - - - - - - - 7.7 -
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
At 30 June
2023 353.8 1,818.2 5,176.7 629.2 647.1 1,057.0 112.4 - (29.3) (13.4)
==================== ========== ========== =========== ========== ======= ========= ===== ========== =========== ===========
Infra-
Loans
secured
Year ended Investment by ground structure
Debt securities
and other Loans Loans
fixed secured secured Derivative Investment Derivative
31 December income by residential by commercial Other financial contract financial
2022 funds securities mortgages mortgages rents loans loans assets liabilities liabilities
(restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
At 1 January
2022 233.3 1,449.5 7,422.8 677.8 189.7 993.1 89.7 8.5 (33.6) (8.6)
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
Purchases/advances/
deposits 106.6 698.8 538.3 91.5 217.6 233.2 - - (14.0) -
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
Transfers from
Level 2 - (122.9) - - - - - - - -
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
Sales/redemptions/
payments (17.7) (101.1) (542.7) (134.4) (11.2) (21.6) (14.3) - 11.4 -
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
Disposal of
a portfolio
of LTMs(1) - - (750.8) - - - - - - -
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
Recognised in
profit or loss
in net investment
income
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
Realised gains
and losses - - (87.0) (2.2) - - - - - -
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
Unrealised gains
and losses 16.2 (303.7) (1,433.9) (49.1) (149.2) (258.5) 36.5 (8.1) - (33.1)
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
Interest accrued - (15.4) 159.2 0.1 - 1.6 - - - -
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
Change in fair
value of
liabilities
recognised in
profit or loss - - - - - - - - 3.7 -
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
At 31 December
2022 338.4 1,605.2 5,305.9 583.7 246.9 947.8 111.9 0.4 (32.5) (41.7)
==================== ========== =============== ============== ============= ========= ========== ====== ========== =========== ===========
Debt
securities Loans Loans Loans
and other secured secured secured
fixed by by by Infra- Derivative Investment Derivative
Investment income residential commercial ground structure Other financial contract financial
Six months ended funds securities mortgages mortgages rents loans loans assets liabilities liabilities
30 June 2022 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
At 1 January
2022 233.3 1,449.5 7,422.8 677.8 189.7 993.1 89.7 8.5 (33.6) (8.6)
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
Purchases/advances/
deposits 49.5 126.6 284.9 47.8 112.9 150.1 - - (2.7) -
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
Transfers from - - - - - - - - - -
Level 2
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
Sales/redemptions/
payments - (41.7) (253.6) (83.5) (9.4) (11.3) (12.8) - 6.1 -
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
Disposal of
a portfolio
of LTMs(1) - - (750.8) - - - - - - -
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
Recognised in
profit or loss
in net investment
income
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
Realised gains
and losses - - 87.9 - - - - - - -
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
Unrealised gains
and losses(1) (32.5) (151.5) (963.0) (26.1) (56.6) (163.9) 35.4 (8.5) - (0.4)
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
Interest accrued - 1.8 69.1 - - 0.8 - - - -
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
Change in fair
value of
liabilities
recognised in
profit or loss - - - - - - - - 0.4 -
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
At 30 June 2022 250.3 1,384.7 5,897.3 616.0 236.6 968.8 112.3 - (29.8) (9.0)
==================== ========== ========== =========== ========== ======= ========= ====== ========== =========== ===========
(1) In February 2022 the Group disposed of a portfolio of loans
secured by residential mortgages with a fair value of GBP750.8m.
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.
Investment funds
Investment funds classified as Level 3 are structured entities
that operate under contractual arrangements which allow a group of
investors to invest in a pool of corporate loans without any one
investor having overall control of the entity.
Principal assumptions underlying the calculation of investment
funds classified as Level 3
Discount rate
Discount rates are the most significant assumption applied in
calculating the fair value of investment funds. The average
discount rate used is 10.0% (31 December 2022 and 30 June 2022:
7.0%).
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
assets. The sensitivity of the valuation of investment funds is
determined by reference to the movement in credit spreads. The
Group has estimated the impact on fair value to changes to these
inputs as follows:
Investment funds Credit spreads
net increase/(decrease) in fair value (GBPm) +100bps
30 June 2023 (10.0)
========================================================= ============
31 December 2022 (9.4)
========================================================= ============
30 June 2022 (10.6)
========================================================= ============
Debt securities and other fixed income securities
Fixed income securities, in line with market practice, are
generally valued using an independent pricing service. These
valuations are determined using independent external quotations
from multiple sources and are subject to a number of monitoring
controls, such as monthly price variances, stale price reviews and
variance analysis. Pricing services, where available, are used to
obtain the third party broker quotes. When prices are not available
from pricing services, prices are sourced from external asset
managers or internal models and classified as Level 3 under the
fair value hierarchy due to the use of significant unobservable
inputs. These include private placement bonds and asset backed
securities as well as less liquid corporate bonds.
Principal assumptions underlying the calculation of the debt
securities and other fixed income securities classified as Level
3
Credit spreads
The valuation model discounts the expected future cash flows
using a discount rate which includes a credit spread allowance
associated with that asset.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
assets. The sensitivity of the valuation of bonds is determined by
reference to movement in credit spreads. The Group has estimated
the impact on fair value to changes to these inputs as follows:
Debt securities and other fixed income securities Credit spreads
net increase/(decrease) in fair value (GBPm) +100bps
================================================== ===============
30 June 2023 (130.5)
================================================== ===============
31 December 2022 (138.1)
================================================== ===============
30 June 2022 (109.6)
================================================== ===============
Loans secured by residential mortgages
Methodology and judgement underlying the calculation of loans
secured by residential mortgages
The valuation of loans secured by residential mortgages is
determined using internal models which project future cash flows
expected to arise from each loan. Future cash flows allow for
assumptions relating to future expenses, future mortality
experience, voluntary redemptions and repayment shortfalls on
redemption of the mortgages due to the NNEG. The fair value is
calculated by discounting the future cash flows at a swap rate plus
a liquidity premium.
Under the NNEG, the amount recoverable by the Group on eligible
termination of mortgages is capped at the net sale proceeds of the
property. A key judgement is with regard to the calculation
approach used. 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.
Cash flow models are used in the absence of a deep and liquid
market for loans secured by residential mortgages. The bulk sales
of the portfolios of Just LTMs over the past three years
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 14.
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 4.0% (31 December
2022: 3.9% / 30 June 2022: 4.0%).
Mortality
Mortality assumptions have been derived with reference to
England & Wales population mortality using the CMI 2021 model
for mortality improvements. These base mortality and improvement
tables have been adjusted to reflect the expected future mortality
experience of mortgage contract holders, taking into account the
medical and lifestyle evidence collected during the sales process
and the Group's assessment of how this experience will develop in
the future. This assessment takes into consideration relevant
industry and population studies, published research materials and
management's own experience. The Group has considered the possible
impact of the COVID-19 pandemic on its mortality assumptions and
has included an allowance for the expected future direct and
indirect impacts of this, which remains unchanged from 31 December
2022. Further details of the matters considered in relation to
mortality assumptions at 30 June 2023 are set out in Note 14.
Property prices
The approach in place at 30 June 2023, which is the same as at
31 December 2022, is to calculate the value of a property by taking
the latest Automated Valuation Model "AVM" result, or latest
surveyor value if more recent, indexing this to the balance sheet
date using Nationwide UK house price indices and then making a
further allowance for property dilapidation since the last
revaluation date. To the extent that this reflects market values as
at 30 June 2023, no additional short-term adjustment is allowed
for.
The appropriateness of this valuation basis is regularly tested
on the event of redemption of mortgages. The sensitivity of loans
secured by mortgages to a fall in property prices is included in
the table of sensitivities below.
Future property price
In the absence of a reliable long-term forward curve for UK
residential property price inflation, the Group has made an
assumption about future residential property price inflation based
upon available market and industry data. These assumptions have
been derived with reference to the long-term expectation of the UK
consumer price inflation, "CPI", plus an allowance for the
expectation of house price growth above CPI (property risk premium)
less a margin for a combination of risks including property
dilapidation and basis risk. An additional allowance is made for
the volatility of future property prices. This results in a single
rate of future house price growth of 3.3% (31 December 2022: 3.3% /
30 June 2022: 3.3%), with a volatility assumption of 13% per annum
(31 December 2022: 13% / 30 June 2022 13%). The setting of these
assumptions includes consideration of future long and short-term
forecasts, the Group's historical experience, benchmarking data,
and future uncertainties including the possible impacts of Brexit,
the COVID-19 pandemic and a higher interest and inflation rate
economic environment on the UK property market. House price
reductions have been experienced across much of the UK to date,
albeit these have been more modest than some forecasts for the
period. As such, at this stage our view is that there is no clear
indication of a change in the long-term prospects of the housing
market. In light of this, the future house price growth and
property volatility assumptions have been maintained at the same
level as assumed at 31 December 2022. The sensitivity of loans
secured by mortgages to changes in future property price growth,
and to future property price volatility, are included in the table
of sensitivities below.
Voluntary redemptions
Assumptions for future voluntary redemption levels are based on
the Group's recent analyses. The assumed redemption rate varies by
duration and product line between 0.5% and 4.1% for loans in JRL
(31 December 2022: between 0.5% and 4.1% / 30 June 2022: between
0.5% and 4.1%) and between 0.6% and 6.8% for loans in PLACL (31
December 2022: between 0.6% and 6.8% / 30 June 2022: between 0.6%
and 6.8%).
Liquidity premium
The liquidity premium at initial recognition is set such that
the fair value of each loan is equal to the face value of the loan.
The liquidity premium partly reflects the illiquidity of the loan
and also spreads the recognition of profit over the lifetime of the
loan. Once calculated, the liquidity premium remains unchanged at
future valuations except when further advances are taken out. In
this situation, the single liquidity premium to apply to that loan
is recalculated allowing for all advances. The average liquidity
premium for loans held within JRL is 3.09% (31 December 2022: 3.2%
/ 30 June 2022: 3.23%) and for loans held within PLACL is 3.44% (31
December 2022: 3.5% / 30 June 2022: 3.47%). The movement over the
period observed in both JRL and PLACL is a function of the
liquidity premiums on new loan originations compared to the
liquidity premiums on those policies which have redeemed over the
period, both in reference to the average spread on the back book of
business.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model could give rise to significant
changes in the fair value of the assets. The Group has estimated
the impact on fair value to changes to these inputs as follows:
Loans secured by
residential Future Future
mortgages Immediate property property
net Maintenance Base property price price Voluntary Liquidity
increase/(decrease) expenses mortality price fall growth volatility redemptions premium
in fair value (GBPm) +10% -5% -10% -0.5% +1% +10% +10bps
==================== ============ ============ ============ ============ ============ ============ ============
30 June 2023 (5.7) (12.3) (83.5) (53.4) (34.8) 18.0 (50.2)
==================== ============ ============ ============ ============ ============ ============ ============
31 December 2022 (5.2) (13.9) (75.2) (48.5) (32.1) 19.7 (47.8)
==================== ============ ============ ============ ============ ============ ============ ============
30 June 2022 (5.6) 16.2 (89.5) (63.3) (41.2) 4.3 (62.2)
==================== ============ ============ ============ ============ ============ ============ ============
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. Sensitivities are generally of a smaller magnitude
compared to the prior period due to the discounting effect of
interest rate rises over the period. These interest rate rises also
underpin the directional change in the mortality and voluntary
redemption sensitivities.
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 14.
Other limitations in the above sensitivity analysis include the
use of hypothetical market movements to demonstrate potential risk
that only represents the Group's view of reasonably possible
near-term market changes that cannot be predicted with any
certainty .
Loans secured by commercial mortgages
Loans secured by commercial mortgages are valued using
discounted cash flow analysis using assumptions based on the
repayment of the underlying loan.
Principal assumptions underlying the calculation of loans
secured by commercial mortgages
Credit spreads
The valuation model discounts the expected future cash flows
using a discount rate which includes a credit spread allowance
associated with that asset.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
assets. The sensitivity of the valuation of commercial mortgages is
determined by reference to movement in credit spreads. The Group
has estimated the impact on fair value to changes to these inputs
as follows:
Loans secured by commercial mortgages Credit spreads
net increase/(decrease) in fair value (GBPm) +100bps
============================================== ===============
30 June 2023 (19.9)
============================================== ===============
31 December 2022 (19.2)
============================================== ===============
30 June 2022 (20.3)
============================================== ===============
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 assumptions 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.
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:
Loans secured by ground rents Credit spreads
net increase/(decrease) in fair value (GBPm) +100bps
=============================================== ===============
30 June 2023 (142.8)
=============================================== ===============
31 December 2022 (77.9)
=============================================== ===============
30 June 2022 (60.2)
=============================================== ===============
Infrastructure loans
Infrastructure loans 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.
Sensitivity analysis
Reasonably possible alternative assumptions for unobservable
inputs used in the valuation model either as at the valuation date
or from a suitable recent reporting period where appropriate to do
so could give rise to significant changes in the fair value of the
assets. The sensitivity of the valuation of infrastructure loans is
determined by reference to movement in credit spreads. The Group
has estimated the impact on fair value to changes to these inputs
as follows:
Infrastructure loans Credit spreads
net increase/(decrease) in fair value (GBPm) +100bps
=============================================== ===============
30 June 2023 (72.2)
=============================================== ===============
31 December 2022 (71.7)
=============================================== ===============
30 June 2022 (87.9)
=============================================== ===============
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.
Sensitivity analysis
The sensitivity of fair value to changes in credit spread
assumptions in respect of other loans is not material.
Investment contract liabilities
Investment contracts are valued using an internal model and
determined on a policy-by-policy basis using a prospective
valuation of future retirement income benefit and expense cash
flows.
Principal assumptions underlying the calculation of investment
contract liabilities
Valuation discount rates
The valuation model discounts the expected future cash flows
using a discount rate derived from the assets hypothecated to back
the liabilities. The discount rate used for the fixed term annuity
product treated as investment business is based on a curve where
8.18% is the 1 year rate and 7.31% is the 5 year rate (31 December
2022: 5.67% / 30 June 2022: 4.45%).
Sensitivity analysis
The sensitivity of fair value to changes in the discount rate
assumptions in respect of investment contract liabilities is not
material and is linked to the value of the asset.
12. Share capital and share premium
The allotted, issued and fully paid ordinary share capital of
Just Group plc at 30 June 2023 is detailed below:
Number of GBP0.10 Share capital Share premium Total
ordinary shares GBPm GBPm GBPm
================== ============================= ============== ============== ======
At 1 January 2023 1,038,702,932 103.9 94.7 198.6
================== ============================= ============== ============== ======
At 30 June 2023 1,038,702,932 103.9 94.7 198.6
================== ============================= ============== ============== ======
At 1 January 2022 1,038,537,044 103.9 94.6 198.5
===================================== ============== ====== ===== ======
In respect of employee share schemes 165,888 - 0.1 0.1
===================================== ============== ====== ===== ======
At 31 December 2022 1,038,702,932 103.9 94.7 198.6
===================================== ============== ====== ===== ======
At 1 January 2022 1,038,537,044 103.9 94.6 198.5
===================================== ============== ====== ===== ======
In respect of employee share schemes 16,589 - 0.1 0.1
===================================== ============== ====== ===== ======
At 30 June 2022 1,038,553,633 103.9 94.7 198.6
===================================== ============== ====== ===== ======
The company does not have a limited amount of authorised share
capital.
13. Tier 1 notes
30 June 31 December 30 June
2023 2022 2022
GBPm GBPm GBPm
============================ ======== ============ ========
At start and end of period 322.4 322.4 322.4
============================ ======== ============ ========
On 16 September 2021 the Group issued GBP325m 5.0% perpetual
restricted Tier 1 contingent convertible notes, incurring issue
costs of GBP2.6m.
During the period, interest of GBP8.1m was paid to holders of
the Tier 1 notes, (31 December 2022: GBP16.9m, 30 June 2022:
GBP8.7m). The Tier 1 notes bear interest on the principal amount up
to 30 September 2031 (the first reset date) at the rate of 5.0% per
annum, and thereafter at a fixed rate of interest reset on the
first call date and on each fifth anniversary thereafter. Interest
is payable on the Tier 1 notes semi-annually in arrears on 30 March
and 30 September each year which commenced on 30 March 2022.
The Group has the option to cancel the coupon payment at its
discretion and cancellation of the coupon payment becomes mandatory
upon non-compliance with the solvency capital requirement or
minimum capital requirement or where the Group has insufficient
distributable 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.
14. Insurance contracts and related reinsurance
30 June 31 December 30 June
2023 2022 2022
GBPm restated restated
GBPm GBPm
================================== ========= ============ ==========
Gross insurance liabilities 20,605.6 19,647.5 19,559.4
================================== ========= ============ ==========
Reinsurance contract assets (718.6) (776.4) (599.0)
================================== ========= ============ ==========
Reinsurance contract liabilities 103.1 120.7 145.9
================================== ========= ============ ==========
Net reinsurance contracts (615.5) (655.7) (453.1)
================================== ========= ============ ==========
Net insurance liabilities 19,990.1 18,991.8 19,106.3
================================== ========= ============ ==========
(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 (Defined Benefit ("DB"), Guaranteed Income for
Life ("GIfL"), and Care Plans), and whole of life and term
protection insurance.
Although the process for the establishment of insurance
liabilities follows specified rules and guidelines, the liabilities
that result from the process remain uncertain. As a consequence of
this uncertainty, the eventual value of claims could vary from the
amounts provided to cover future claims.
The estimation process used in determining insurance liabilities
involves projecting future annuity payments and the cost of
maintaining the contracts.
(b) Measurement of insurance contracts
The Group's long-term insurance contracts include retirement
annuities, namely DB and GIfL products, and annuities to fund care
fees (immediate needs and deferred).
The value of insurance contracts in the financial statements
comprises the following components:
- estimates of future cash flows;
- an adjustment to reflect the time value of money and the
financial risks related to future cash flows, to the extent that
the financial risks are not included in the estimates of future
cash flows;
- a risk adjustment for non-financial risk; and
- a contractual service margin.
Estimates of future cash flows
In estimating future cash flows, the Group incorporates, in an
unbiased way, all reasonable and supportable information that is
available without undue cost or effort at the reporting date. This
information includes both internal and external historical data
about claims and other experience, updated to reflect current
expectations of future events. When estimating future cash flows,
the Group takes into account current expectations of future events
that might affect those cash flows.
Cash flows within the boundary of a contract relate directly to
the fulfilment of the contract, including those for which the Group
has discretion over the amount or timing. These include payments to
(or on behalf of) policyholders, insurance acquisition cash flows
and other costs, including investment expenses, that are incurred
when fulfilling contracts. The valuation of future policyholder
payments is by its nature inherently uncertain, and is based on
recognised mortality assumptions (see the next section below).
Insurance acquisition cash flows and other costs that are
incurred in fulfilling contracts comprise both direct costs and an
allocation of fixed and variable overheads. These may include costs
incurred in providing the required level of benefits; policy
administration and maintenance costs; transaction-based taxes and
levies directly associated with the insurance contract; payments by
the insurer in a fiduciary capacity to meet tax obligations
incurred by the policyholder, and related receipts; costs the
entity will incur performing investment activities to the extent
the entity performs that activity to enhance benefits from
insurance coverage for policyholders; and an allocation of fixed
and variable overheads.
Cash flows are attributed to acquisition activities, other
fulfilment activities and other activities using activity-based
costing techniques. Cash flows attributable to acquisition and
other fulfilment activities are allocated to groups of contracts
using methods that are systematic and rational and are consistently
applied to all costs that have similar characteristics. Other costs
are recognised in profit or loss as they are incurred.
Mortality assumptions
The COVID-19 pandemic has had a significant effect on mortality
rates in recent years. High COVID-19 mortality rates in 2020 and
early 2021 contributed significantly to positive mortality
experience variances in those respective reporting periods, whereas
during 2022 rates were closer to expected levels, for the UK
population overall. The extent to which mortality rates may be
elevated in future, as a result of the pandemic, is subject to
considerable uncertainty.
An allowance for future effects of COVID-19 was implemented at
31 December 2022 through a combination of using the latest CMI 2021
improvement model and applying an overlay to increase short term
mortality rates but which tapers to zero in the long-term. The CMI
2021 improvement model has been used with core parameters, placing
no weight on 2020 and 2021 experience. The overlay applies
multipliers to mortality rates for each calendar year, uniformly
across all ages. The Group will continue to follow closely the
actual impact of COVID-19 on mortality and to analyse potential
direct and indirect future impacts of the pandemic, including the
possibility there will be enduring influences on the longevity of
customers. The Group will consider the conclusions of such
analysis, alongside assessment of other factors influencing
mortality trends, in keeping its assumptions under regular review.
Mortality assumptions have been maintained at the same level as
assumed at 31 December 2022.
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.
Discount rates
All cash flows are discounted using investment yield curves
adjusted to allow for expected and unexpected credit risk. The
yields on lifetime mortgage assets are derived using the
assumptions described in Note 11 with an additional reduction to
the future house price growth rate of 50bps (30 June 2022 / 31
December 2022: 50bps) allowed for.
The overall reduction in yield to allow for the risk of defaults
from all non-LTM assets (including gilts, corporate bonds,
infrastructure loans, private placements and commercial mortgages)
and the adjustment from LTMs, which included a combination of the
NNEG guarantee and the additional reduction to future house price
growth rate, was 59bps for JRL (31 December 2022 / 30 June 2022:
58bps) and 67bps for PLACL (31 December 2022: 69bps / 30 June 2022:
66bps).
Discount rates at the inception of each contract are based on
the yields within a hypothetical reference portfolio of assets
which the Group expects to acquire to back the portfolio of new
insurance liabilities (the "target portfolio"). A weighted average
of these discount rate curves is determined for the purpose of
locking-in and calculating movements in the CSM relating to each
group of contracts.
Separate weighted average discount curves are calculated for
each new business product line. The point of sale discount curves
are weighted by the value of projected claims payments.
At each valuation date, the estimate of the present value of
future liability cash flows and the risk adjustment for
non-financial risks are discounted based on the yields from a
reference portfolio consisting of the actual asset portfolio
backing the net of reinsurance best estimate liabilities and risk
adjustment. The reference portfolio is adjusted in respect of new
contracts incepting in the period to allow for a period of
transition from the actual asset holdings to the target portfolio
where necessary. Typically, this period of transition can be up to
six months but is dependent on the volume of new business
transactions completed.
The target asset portfolio seeks to select the appropriate mix
of assets to match the underlying net insurance contract
liabilities. The target asset portfolio consists of listed bonds,
unlisted illiquid investments and loans secured by residential
mortgages.
Except where there is a significant time difference between the
date of entering in the underlying contract and being subject to a
reinsurance agreement, the discount rates used for the gross
insurance and reinsurance contracts are consistent.
The table below sets out rates at certain points on the yield
curves used to discount the best estimate liability and risk
adjustment reserves as at each period end:
Discount rate - insurance and reinsurance contracts
30 June 2023 31 December 2022 30 June 2022
JRL PLACL JRL PLACL JRL PLACL
All Care GIfL/DB All Care GIfL/DB All Care GIfL/DB
business business business business business business business business business
% % % % % % %
======== ========== ========== ========== =========== ========== ========== =========== ========== ==========
1 year 8.2 5.9 8.2 6.6 4.5 6.6 4.6 2.4 4.8
======== ========== ========== ========== =========== ========== ========== =========== ========== ==========
5 year 7.3 4.9 7.2 6.3 4.1 6.3 4.8 2.4 4.8
======== ========== ========== ========== =========== ========== ========== =========== ========== ==========
10 year 6.5 4.1 6.4 5.9 3.8 5.9 4.7 2.3 4.7
======== ========== ========== ========== =========== ========== ========== =========== ========== ==========
20 year 6.2 3.8 6.0 5.8 3.6 5.7 4.6 2.2 4.6
======== ========== ========== ========== =========== ========== ========== =========== ========== ==========
30 year 5.9 3.5 5.8 5.6 3.4 5.5 4.5 2.1 4.5
======== ========== ========== ========== =========== ========== ========== =========== ========== ==========
Discount rates have been disclosed in aggregate and have not
been split according to their profitability groupings.
Inflation
Assumptions for annuity escalation are required for RPI, CPI and
LPI index linked liabilities, the majority of which are within the
Defined Benefit business. The inflation curve assumed in each case
is that which is implied by market swap rates, using a mark to
model basis for LPI inflation, taking into account any escalation
caps and/or floors applicable. This methodology is unchanged at 30
June 2023 compared to the previous period.
For the purposes of calculating movements in the CSM relating to
each group of contracts, for JRL separate weighted average
inflation curves for each index are calculated and locked-in for
each annual cohort. The inflation curves from each day are weighted
by the business volumes completed on that day to which that
inflation variant applies.
Future expenses
Assumptions for future policy expense levels, expressed as a per
plan charge for GIfL contracts 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 4.00% (31 December 2022: 3.90% / 30
June 2022: 4.00%) derived from the expected retail price and
consumer price indices implied by inflation swap rates and an
additional allowance for earnings inflation. The annual inflation
rate allowance is regarded as a financial assumption and therefore
all changes in expense inflation rates are recognised in the profit
or loss account.
Risk adjustment
The risk adjustment for non-financial risk is determined to
reflect the compensation that the Group requires for bearing
longevity, expense, and insurance-contract specific operational
risks.
The Group determines the risk adjustment for non-financial risk
using a 'value at risk' technique. On an annual basis, the Group
uses the probability distributions of the future net of reinsurance
cash flows from insurance contracts on a one-year time horizon as
used within JRL's internal model for Solvency II reporting, which
are then converted to ultimate horizon distributions in order to
determine stress parameters at the target percentile. The risk
adjustment in PLACL uses the same risk adjustment stress factors as
determined for JRL as these represent the compensation the Group
requires in light of there being no standalone PLACL internal model
for Solvency II reporting.
The risk adjustment for non-financial risk is then calculated as
the excess of the value at risk at the target confidence level
percentile over the expected present value of the future cash
flows. The Group targets an ultimate confidence interval at the
70th percentile. At the point of calibration, this calibration
represents an approximately 1 in 10 year stress on a one-year
basis. The calibration is carried out on an annual basis ahead of
the financial reporting year end, therefore the actual confidence
interval as at the valuation date may differ slightly. For example,
due to economic movements in the intervening period.
The Group's IFRS risk adjustment for non-financial risk is
considered by management to provide an economic view of the
profitability of new business and is therefore used for pricing
purposes as well as representing the basis used within the new
business profits KPI.
The confidence level is targeted on a net of reinsurance basis
as this reflects how insurance risk is managed by the Group.
Reinsurance risk adjustment represents the amount of risk being
transferred by the holder of the reinsurance contract to the issuer
of that contract. Reinsurance contracts held by the Group transfer
longevity risk proportional to the underlying insurance contract.
Consequently, the same risk adjustment stresses for this
non-financial risk are applied to both gross and reinsurance
contracts to determine the respective risk adjustment for each.
Expense and operational risks are not transferred to reinsurers as
part of the reinsurance contract held by the Group and hence there
are no stresses applied for these in the reinsurance risk
adjustment.
Allowance is made for diversification between risks within legal
entities, but not between the different legal entities within the
Group.
(c) Movements analyses
Insurance contracts analysed by measurement component
Contractual service margin
=========================================
Contracts under
fully
retrospective
Risk adjustment approach and
Estimate of PV of for non-financial general Contracts under
Six months ended 30 future cash flows risk measurement model Fair value approach Total
June 2023 GBPm GBPm GBPm GBPm GBPm
==================== =================== =================== =================== ==================== ===========
Opening insurance
contract
liabilities balance (17,030.2) (674.0) (589.1) (1,354.2) (19,647.5)
==================== =================== =================== =================== ==================== ===========
Changes in the
statement of
comprehensive income
==================== =================== =================== =================== ==================== ===========
Changes that relate
to current service
==================== =================== =================== =================== ==================== ===========
CSM recognised for
service provided - - 18.5 48.8 67.3
==================== =================== =================== =================== ==================== ===========
Change in risk
adjustment for
financial risk for
risk expired - 6.7 - - 6.7
==================== =================== =================== =================== ==================== ===========
Experience
adjustments (3.1) - - - (3.1)
==================== =================== =================== =================== ==================== ===========
Changes that relate
to future service
==================== =================== =================== =================== ==================== ===========
Contracts initially
recognised in the
year 230.7 (72.5) (158.2) - -
==================== =================== =================== =================== ==================== ===========
Changes in estimates
that adjust the CSM (23.2) 2.2 16.8 4.2 -
==================== =================== =================== =================== ==================== ===========
Insurance service
result 204.4 (63.6) (122.9) 53.0 70.9
==================== =================== =================== =================== ==================== ===========
Net finance
income/(expenses)
from insurance
contracts 152.2 32.3 (13.0) (21.0) 150.5
==================== =================== =================== =================== ==================== ===========
Exchange rate
movements 36.8 - - - 36.8
==================== =================== =================== =================== ==================== ===========
Total changes in the
statement of
comprehensive
income 393.4 (31.3) (135.9) 32.0 258.2
==================== =================== =================== =================== ==================== ===========
Cash flows
==================== =================== =================== =================== ==================== ===========
Premiums received (2,101.9) - - - (2,101.9)
==================== =================== =================== =================== ==================== ===========
Claims and other
insurance service
expenses paid,
including
investment
components 801.9 - - - 801.9
==================== =================== =================== =================== ==================== ===========
Insurance
acquisition cash
flows 83.7 - - - 83.7
==================== =================== =================== =================== ==================== ===========
Total cash flows (1,216.3) - - - (1,216.3)
==================== =================== =================== =================== ==================== ===========
Closing insurance
contract
liabilities balance (17,853.1) (705.3) (725.0) (1,322.2) (20,605.6)
==================== =================== =================== =================== ==================== ===========
Changes that relate to current service
CSM recognised in the period is computed based on the policy as
outlined in Note 1.7.
Experience adjustments represent the difference between the
expected value of claims and expenses projected as at the start of
the year and the actual value of claims and expenses due in the
period.
Changes that relate to future service
Contracts initially recognised in the period
The amount recognised in the CSM represents the value of new
business acquired in the period valued based on point of sale
economic and non-economic assumptions. The expense loading is
determined based on incremental marginal costs including overheads
that are attributable to the new contracts signed in the current
period and does not include costs which have been previously
allocated to existing contracts in prior years.
Changes in estimates that adjust the CSM
Changes in estimates that adjust the CSM represent changes in
projected future years cash flows that arise from experience in the
period and non-economic assumption changes:
-- Experience variances - relates to change in mortality events
that result in changes to future cash flows.
-- Non-economic assumption changes - relates to items such as
changes in projected longevity assumptions.
Net finance income and expense from insurance contracts are
discussed in note 5.
Contractual service margin
=========================================
Contracts under
fully
retrospective
Risk adjustment approach and
Estimate of PV of for non-financial general Contracts under
Year ended 31 future cash flows risk measurement model Fair value approach Total
December 2022 GBPm GBPm GBPm GBPm GBPm
==================== =================== =================== =================== ==================== ===========
Opening insurance
contract
liabilities balance (20,573.8) (1,023.2) (262.4) (1,226.8) (23,086.2)
==================== =================== =================== =================== ==================== ===========
Changes in the
statement of
comprehensive income
==================== =================== =================== =================== ==================== ===========
Changes that relate
to current service
==================== =================== =================== =================== ==================== ===========
CSM recognised for
service provided - - 18.4 101.5 119.9
==================== =================== =================== =================== ==================== ===========
Change in risk
adjustment for
financial risk for
risk expired - 13.0 - - 13.0
==================== =================== =================== =================== ==================== ===========
Experience
adjustments (4.0) - - - (4.0)
==================== =================== =================== =================== ==================== ===========
Changes that relate
to future service
==================== =================== =================== =================== ==================== ===========
Contracts initially
recognised in the
year 469.1 (149.0) (320.1) - -
==================== =================== =================== =================== ==================== ===========
Changes in estimates
that adjust the CSM 171.8 41.1 (16.2) (196.7) -
==================== =================== =================== =================== ==================== ===========
Insurance service
result 636.9 (94.9) (317.9) (95.2) 128.9
==================== =================== =================== =================== ==================== ===========
Net finance
income/(expenses)
from insurance
contracts 4,420.0 444.1 (8.8) (32.2) 4,823.1
==================== =================== =================== =================== ==================== ===========
Exchange rate
movements (7.7) - - - (7.7)
==================== =================== =================== =================== ==================== ===========
Total changes in the
statement of
comprehensive
income 5,049.2 349.2 (326.7) (127.4) 4,944.3
==================== =================== =================== =================== ==================== ===========
Cash flows
==================== =================== =================== =================== ==================== ===========
Premiums received (3,114.6) - - - (3,114.6)
==================== =================== =================== =================== ==================== ===========
Claims and other
insurance service
expenses paid,
including
investment
components 1,484.2 - - - 1,484.2
==================== =================== =================== =================== ==================== ===========
Insurance
acquisition cash
flows 124.8 - - - 124.8
==================== =================== =================== =================== ==================== ===========
Total cash flows (1,505.6) - - - (1,505.6)
==================== =================== =================== =================== ==================== ===========
Closing insurance
contract
liabilities balance (17,030.2) (674.0) (589.1) (1,354.2) (19,647.5)
==================== =================== =================== =================== ==================== ===========
Contractual service margin
=========================================
Contracts under
fully
retrospective
Risk adjustment approach and
Estimate of PV of for non-financial general Contracts under FV
Six months ended 30 future cash flows risk measurement model approach Total
June 2022 GBPm GBPm GBPm GBPm GBPm
==================== =================== =================== =================== ==================== ===========
Opening insurance
contract
liabilities
balance (20,573.8) (1,023.2) (262.4) (1,226.8) (23,086.2)
==================== =================== =================== =================== ==================== ===========
Changes in the
statement of
comprehensive
income
==================== =================== =================== =================== ==================== ===========
Changes that relate
to current service
==================== =================== =================== =================== ==================== ===========
CSM recognised for
service provided - - 6.7 42.6 49.3
==================== =================== =================== =================== ==================== ===========
Change in risk
adjustment for
financial risk for
risk expired - 7.4 - - 7.4
==================== =================== =================== =================== ==================== ===========
Experience
adjustments (0.4) - - - (0.4)
==================== =================== =================== =================== ==================== ===========
Changes that relate
to future service
==================== =================== =================== =================== ==================== ===========
Contracts initially
recognised in the
period 126.6 (38.5) (88.1) - -
==================== =================== =================== =================== ==================== ===========
Changes in
estimates that
adjust the CSM (21.0) (2.1) 5.2 17.9 -
==================== =================== =================== =================== ==================== ===========
Insurance service
result 105.2 (33.2) (76.2) 60.5 56.3
==================== =================== =================== =================== ==================== ===========
Net finance
income/(expenses)
from insurance
contracts 2,979.6 312.8 (3.5) (14.6) 3,274.3
==================== =================== =================== =================== ==================== ===========
Exchange rate
movements (16.8) - - - (16.8)
==================== =================== =================== =================== ==================== ===========
Total changes in
the statement of
comprehensive
income 3,068.0 279.6 (79.7) 45.9 3,313.8
==================== =================== =================== =================== ==================== ===========
Cash flows
==================== =================== =================== =================== ==================== ===========
Premiums received (520.7) - - - (520.7)
==================== =================== =================== =================== ==================== ===========
Claims and other
insurance service
expenses paid,
including
investment
components 687.5 - - - 687.5
==================== =================== =================== =================== ==================== ===========
Insurance
acquisition cash
flows 46.2 - - - 46.2
==================== =================== =================== =================== ==================== ===========
Total cash flows 213.0 - - - 213.0
==================== =================== =================== =================== ==================== ===========
Closing insurance
contract
liabilities
balance (17,292.7) (743.6) (342.1) (1,181.0) (19,559.4)
==================== =================== =================== =================== ==================== ===========
(d) Reinsurance contracts
R einsurance contracts analysed by measurement component
Reinsurance contracts consist of those in an asset and liability
position
Contractual service margin
=========================================
Contracts under
fully
retrospective
approach and
Estimate of PV of Risk adjustment for general Contracts under FV
Six months ended 30 future cash flows non-financial risk measurement model approach Total
June 2023 GBPm GBPm GBPm GBPm GBPm
===================== ==================== ==================== =================== ==================== ========
Opening reinsurance
contract asset 589.0 80.4 32.5 74.5 776.4
===================== ==================== ==================== =================== ==================== ========
Opening reinsurance
contract liability (664.4) 318.6 87.9 137.2 (120.7)
===================== ==================== ==================== =================== ==================== ========
Net opening balance (75.4) 399.0 120.4 211.7 655.7
===================== ==================== ==================== =================== ==================== ========
Changes in the
statement of
comprehensive income
===================== ==================== ==================== =================== ==================== ========
Changes that relate
to current service
===================== ==================== ==================== =================== ==================== ========
CSM recognised for
service received - - (1.1) (10.1) (11.2)
===================== ==================== ==================== =================== ==================== ========
Change in risk
adjustment for
financial risk for
risk expired - (2.2) - - (2.2)
===================== ==================== ==================== =================== ==================== ========
Experience
adjustments (3.9) - - - (3.9)
===================== ==================== ==================== =================== ==================== ========
Changes that relate
to future service
===================== ==================== ==================== =================== ==================== ========
Contracts initially
recognised in the
year (72.2) 62.0 10.2 - -
===================== ==================== ==================== =================== ==================== ========
Change in estimates
that adjust the CSM 31.7 (1.2) (14.8) (15.7) -
===================== ==================== ==================== =================== ==================== ========
Net expenses from
reinsurance
contracts (44.4) 58.6 (5.7) (25.8) (17.3)
===================== ==================== ==================== =================== ==================== ========
Net finance expenses
from reinsurance
contracts 7.2 (20.8) 2.2 4.5 (6.9)
===================== ==================== ==================== =================== ==================== ========
Total changes in the
statement of
comprehensive income (37.2) 37.8 (3.5) (21.3) (24.2)
===================== ==================== ==================== =================== ==================== ========
Cash flows
===================== ==================== ==================== =================== ==================== ========
Premiums paid 354.0 - - - 354.0
===================== ==================== ==================== =================== ==================== ========
Claims received (370.3) - - - (370.3)
===================== ==================== ==================== =================== ==================== ========
Expenses paid 0.3 - - - 0.3
===================== ==================== ==================== =================== ==================== ========
Total cash flows (16.0) - - - (16.0)
===================== ==================== ==================== =================== ==================== ========
Closing reinsurance
contract asset 560.9 77.8 9.1 70.8 718.6
===================== ==================== ==================== =================== ==================== ========
Closing reinsurance
contract liability (689.5) 359.0 107.8 119.6 (103.1)
===================== ==================== ==================== =================== ==================== ========
Net closing balance (128.6) 436.8 116.9 190.4 615.5
===================== ==================== ==================== =================== ==================== ========
Contractual service margin
=========================================
Contracts under
fully
retrospective
approach and
Estimate of PV of Risk adjustment for general Contracts under FV
Year ended 31 future cash flows non-financial risk measurement model approach Total
December 2022 GBPm GBPm GBPm GBPm GBPm
===================== ==================== ==================== =================== ==================== ========
Opening reinsurance
contract asset 546.4 115.7 - 54.1 716.2
===================== ==================== ==================== =================== ==================== ========
Opening reinsurance
contract liability (803.1) 487.5 32.4 118.5 (164.7)
===================== ==================== ==================== =================== ==================== ========
Net opening balance (256.7) 603.2 32.4 172.6 551.5
===================== ==================== ==================== =================== ==================== ========
Changes in the
statement of
comprehensive income
===================== ==================== ==================== =================== ==================== ========
Changes that relate
to current service
===================== ==================== ==================== =================== ==================== ========
CSM recognised for
service received - - (2.6) (22.0) (24.6)
===================== ==================== ==================== =================== ==================== ========
Change in risk
adjustment for
financial risk for
risk expired - (4.9) - - (4.9)
===================== ==================== ==================== =================== ==================== ========
Experience
adjustments (0.3) - - - (0.3)
===================== ==================== ==================== =================== ==================== ========
Changes that relate
to future service
===================== ==================== ==================== =================== ==================== ========
Contracts initially
recognised in the
period (165.2) 115.4 49.8 - -
===================== ==================== ==================== =================== ==================== ========
Change in estimates
that adjust the CSM (60.0) (35.8) 39.6 56.2 -
===================== ==================== ==================== =================== ==================== ========
Net expenses from
reinsurance
contracts (225.5) 74.7 86.8 34.2 (29.8)
===================== ==================== ==================== =================== ==================== ========
Net finance expenses
from reinsurance
contracts 182.1 (278.9) 1.2 4.9 (90.7)
===================== ==================== ==================== =================== ==================== ========
Total changes in the
statement of
comprehensive income (43.4) (204.2) 88.0 39.1 (120.5)
===================== ==================== ==================== =================== ==================== ========
Cash flows
===================== ==================== ==================== =================== ==================== ========
Premiums paid 803.8 - - - 803.8
===================== ==================== ==================== =================== ==================== ========
Claims received (579.3) - - - (579.3)
===================== ==================== ==================== =================== ==================== ========
Expenses paid 0.2 - - - 0.2
===================== ==================== ==================== =================== ==================== ========
Total cash flows 224.7 - - - 224.7
===================== ==================== ==================== =================== ==================== ========
Closing reinsurance
contract asset 589.0 80.4 32.5 74.5 776.4
===================== ==================== ==================== =================== ==================== ========
Closing reinsurance
contract liability (664.4) 318.6 87.9 137.2 (120.7)
===================== ==================== ==================== =================== ==================== ========
Net closing balance (75.4) 399.0 120.4 211.7 655.7
===================== ==================== ==================== =================== ==================== ========
Contractual service margin
=========================================
Contracts under
fully
retrospective
approach and
Estimate of PV of Risk adjustment for general Contracts under FV
Six months ended 30 future cash flows non-financial risk measurement model approach Total
June 2022 GBPm GBPm GBPm GBPm GBPm
===================== ==================== ==================== =================== ==================== ========
Opening reinsurance
contract asset 546.4 115.7 - 54.1 716.2
===================== ==================== ==================== =================== ==================== ========
Opening reinsurance
contract liability (803.1) 487.5 32.4 118.5 (164.7)
===================== ==================== ==================== =================== ==================== ========
Net opening balance (256.7) 603.2 32.4 172.6 551.5
===================== ==================== ==================== =================== ==================== ========
Changes in the
statement of
comprehensive income
===================== ==================== ==================== =================== ==================== ========
Changes that relate
to current service
===================== ==================== ==================== =================== ==================== ========
CSM recognised for
service received - - (0.3) (6.6) (6.9)
===================== ==================== ==================== =================== ==================== ========
Change in risk
adjustment for
financial risk for
risk expired - (1.9) - - (1.9)
===================== ==================== ==================== =================== ==================== ========
Experience
adjustments (0.6) - - - (0.6)
===================== ==================== ==================== =================== ==================== ========
Changes that relate
to future service
===================== ==================== ==================== =================== ==================== ========
Contracts initially
recognised in the
period (34.4) 29.4 5.0 - -
===================== ==================== ==================== =================== ==================== ========
Change in estimates
that adjust the CSM 18.2 0.6 (6.1) (12.7) -
===================== ==================== ==================== =================== ==================== ========
Net expenses from
reinsurance
contracts (16.8) 28.1 (1.4) (19.3) (9.4)
===================== ==================== ==================== =================== ==================== ========
Net finance expenses
from reinsurance
contracts 119.0 (198.5) 0.3 1.9 (77.3)
===================== ==================== ==================== =================== ==================== ========
Total changes in the
statement of
comprehensive income 102.2 (170.4) (1.1) (17.4) (86.7)
===================== ==================== ==================== =================== ==================== ========
Cash flows
===================== ==================== ==================== =================== ==================== ========
Premiums paid 272.9 - - - 272.9
===================== ==================== ==================== =================== ==================== ========
Claims received (284.8) - - - (284.8)
===================== ==================== ==================== =================== ==================== ========
Expenses paid 0.2 - - - 0.2
===================== ==================== ==================== =================== ==================== ========
Total cash flows (11.7) - - - (11.7)
===================== ==================== ==================== =================== ==================== ========
Closing reinsurance
contract asset 462.9 85.6 - 50.5 599.0
===================== ==================== ==================== =================== ==================== ========
Closing reinsurance
contract liability (629.1) 347.2 31.3 104.7 (145.9)
===================== ==================== ==================== =================== ==================== ========
Net closing balance (166.2) 432.8 31.3 155.2 453.1
===================== ==================== ==================== =================== ==================== ========
(e) New insurance contracts issued and reinsurance contracts
held
The tables below present the contractual service margin at point
of inception of new contracts sold in the year together with CSM
for the related reinsurance:
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
======================================== =========== =========== ==============
Insurance contracts issued
======================================== =========== =========== ==============
Estimate of present value of future
cash inflows 1,918.6 891.7 3,391.1
======================================== =========== =========== ==============
Insurance acquisition cash flows (83.7) (46.2) (124.8)
======================================== =========== =========== ==============
Estimate of present value of future
cash outflows (1,604.2) (718.9) (2,797.2)
======================================== =========== =========== ==============
Estimates of net present value of cash
inflows 230.7 126.6 469.1
======================================== =========== =========== ==============
Risk Adjustment (72.5) (38.5) (149.0)
======================================== =========== =========== ==============
Contractual Service Margin 158.2 88.1 320.1
======================================== =========== =========== ==============
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
===================================== =========== =========== ==============
Reinsurance contracts held
===================================== =========== =========== ==============
Estimate of present value of future
cash outflows (72.2) (34.4) (165.2)
===================================== =========== =========== ==============
Risk Adjustment 62.0 29.4 115.4
===================================== =========== =========== ==============
Contractual Service Margin (10.2) (5.0) (49.8)
===================================== =========== =========== ==============
A positive CSM for reinsurance reflects when an initial gain is
made on entering into a reinsurance contract, whereas a negative
reinsurance CSM reflect costs that will be incurred by the
Group.
(f) Sensitivity analysis
The Group has estimated the impact on profit before tax for the
period in relation to insurance contracts and related reinsurance
from reasonably possible changes in key assumptions relating to
financial assets and to liabilities. The sensitivities capture the
liability impacts arising from the impact on the yields of the
assets backing liabilities in each sensitivity. The impact of
changes in the value of assets and liabilities has been shown
separately to aid the comparison with the change in value of assets
for the relevant sensitivities in note 11.
The sensitivity factors are applied via financial models either
as at the valuation date or from a suitable recent reporting period
where appropriate to do so. The analysis has been prepared for a
change in each variable with other assumptions remaining constant.
In reality, such an occurrence is unlikely, due to correlation
between the assumptions and other factors. It should also be noted
that these sensitivities are non-linear, and larger or smaller
impacts cannot necessarily be interpolated or extrapolated from
these results. The extent of non-linearity grows as the severity of
any sensitivity is increased. For example, in the specific scenario
of property price falls, the impact on IFRS profit before tax from
a 5% fall in property prices would be slightly less than half of
that disclosed in the table below. Furthermore, in the specific
scenario of a mortality reduction, a smaller fall in fulfilment
cash flows than disclosed in the table below or a similar increase
in mortality may be expected to result in broadly linear impacts.
However, it becomes less appropriate to extrapolate the expected
impact for more severe scenarios. The sensitivity factors take into
consideration that the Group's assets and liabilities are actively
managed and may vary at the time that any actual market movement
occurs. The sensitivities below cover the changes on all assets and
liabilities from the given stress. The impact of these
sensitivities on IFRS net equity is the impact on profit before tax
as set out in the table below less tax at the current tax rate.
A guide to the sensitivity table is provided below:
Abbreviation Title Impact
============= ==================== ====================================================
FCF Fulfilment Cash Positive values represent cash inflows or lower
flows cash outflows resulting in reductions in insurance
contract liabilities or increase in reinsurance
contracts assets.
Negative values represent cash outflows or
higher cash outflows resulting in increased
insurance contract liabilities or decrease
in reinsurance contracts assets.
============= ==================== ====================================================
CSM Contractual Service Increase -Additional future profits recognised
Margin in the CSM.
(Decrease) - Lower future profits recognised
in the CSM, or higher reinsurance 'cost' deferred
in CSM.
============= ==================== ====================================================
P&L Profit and Loss Profit - increase in pre-tax profit
(Loss) - decrease in pre-tax profit
============= ==================== ====================================================
Sensitivities at 30 June 2023
Insurance Reinsurance Net insurance Net impact
contract contracts contract Valuation on profit
GBPm liabilities (net) held liabilities of assets and loss
========================= ===== ============= ============ ============== =========== ===========
Interest rate and
investments + 1% FCF 1,721.6 (37.7) 1,683.9 - -
CSM - - - - -
P&L 1,721.6 (37.7) 1,683.9 (1,679.8) 4.1
Interest rate and
investments -1% FCF (2,051.8) 48.6 (2,003.2) - -
CSM - - - - -
P&L (2,051.8) 48.6 (2,003.2) 2,011.5 8.3
Decrease in base
mortality by 5% FCF (297.2) 169.5 (127.7) - -
CSM 443.7 (263.6) 180.1 - -
P&L 146.5 (94.1) 52.4 (11.8) 40.7
Immediate fall of
10% in house prices FCF (59.4) 2.8 (56.6) - -
CSM - - - - -
P&L (59.4) 2.8 (56.6) (69.7) (126.3)
Future property
price growth reduces
by 0.5% FCF (51.7) 2.4 (49.3) - -
CSM - - - - -
P&L (51.7) 2.4 (49.3) (41.0) (90.3)
Credit default allowance
- increase by 10bps(1) FCF (187.3) 5.6 (181.7) - -
CSM - - - - -
P&L (187.3) 5.6 (181.7) - (181.8)
=============================== ============= ============ ============== ===========
Sensitivities at 31 December 2022
Insurance Reinsurance Net insurance Net impact
contract contracts contract Valuation on profit
GBPm liabilities (net) held liabilities of assets and loss
========================= ===== ============= ============ ============== =========== ===========
Interest rate and
investments + 1% FCF 1,555.0 (37.3) 1,517.7 - -
CSM - - - - -
P&L 1,555.0 (37.3) 1,517.7 (1,545.4) (27.7)
Interest rate and
investments -1% FCF (1,859.5) 46.9 (1,812.6) - -
CSM - - - - -
P&L (1,859.5) 46.9 (1,812.6) 1,837.6 25.0
Decrease in base
mortality by 5% FCF (268.8) 156.6 (112.2) - -
CSM 428.4 (255.9) 172.5 - -
P&L 159.6 (99.3) 60.3 (13.4) 47.0
Immediate fall of
10% in house prices FCF (58.5) 2.5 (56.0) - -
CSM - - - - -
P&L (58.5) 2.5 (56.0) (62.6) (118.7)
Future property
price growth reduces
by 0.5% FCF (50.1) 2.0 (48.1) - -
CSM - - - - -
P&L (50.1) 2.0 (48.1) (37.1) (85.2)
Credit default allowance
- increase by 10bps(1) FCF (170.3) 5.2 (165.1) - -
CSM - - - - -
P&L (170.3) 5.2 (165.1) - (165.2)
=============================== ============= ============ ============== =========== ===========
(1) over that included in the discount rate section in note 14(b).
15. Loans and borrowings
Carrying value Fair Value
30 30 30 30
June 2023 31 December 2022 June 2022 June 2023 31 December 2022 June 2022
GBPm GBPm GBPm GBPm GBPm GBPm
================= =========== =================
GBP250m 9.0% 10 year
subordinated debt 2026 (Tier
2) issued by Just Group plc
(GBP174m principal
outstanding) 176.2 173.6 249.3 187.2 187.8 278.7
===========
GBP125m 8.125% 10 year
subordinated debt 2029 (Tier
2) issued by Just Group plc 124.5 122.5 122.3 127.7 130.1 145.1
===========
GBP250m 7.0% 10.5 year
subordinated debt 2031
non-callable 5.5 years (Green
Tier 2) issued
by Just Group plc 252.3 248.5 248.5 244.7 244.7 252.0
===========
GBP230m 3.5% 7 year
subordinated debt 2025 (Tier
3) issued by Just Group plc
(GBP155m principal
outstanding) 156.9 154.7 154.6 146.5 141.6 147.1
================= =========== =================
Total loans and borrowings 709.9 699.3 774.7 706.1 704.2 822.9
================= =========== =================
The Group also has an undrawn revolving credit facility of up to
GBP300m for general corporate and working capital purposes
available until 13 June 2025. Interest is payable on any drawdown
loans at a rate of SONIA plus a margin of between 1.50% and 2.75%
per annum depending on the Group's ratio of net debt to net
assets.
16. Other financial liabilities
30 June 2022
30 June 2023 31 December 2022 (restated) (restated)
Note GBPm GBPm GBPm
Repurchase obligation (a) 1,943.5 - -
Derivative financial liabilities (b) 2,713.3 3,045.8 2,017.4
Obligations for repayment of cash collateral
received (c) 697.3 623.1 480.0
Total other financial liabilities 5,354.1 3,668.9 2,497.4
(a) Repurchase obligation
As described in Note 10, the Group has entered into a number of
repurchase agreements whereby a fixed amount is repayable at a
certain date. At the inception of these agreements they have
durations of between 12 and 21 months. The repurchase agreements
are measured at amortised cost in the financial statements. The
fair value of these agreements is GBP1,915.2m (2022 not
applicable).
(b) Derivative financial liabilities
Derivative financial liabilities are classified as mandatorily
fair value through profit and loss.
(c) Obligations to pay cash collateral
Obligations to pay cash flow is measured at amortised cost and
there is no material difference between the fair value and
amortised cost of the instruments.
The restatement of the 'Other financial liabilities' due to the
implementation of IFRS 17 is explained in Note 1.2.
17. Derivative financial instruments
The Group uses various derivative financial instruments to
manage its exposure to interest rates, counterparty credit risk,
inflation and foreign exchange risk.
31 December 2022
30 June 2023 (restated)
Asset fair Liability fair Asset Fair Liability fair
value value Notional amount value value Notional Amount
Derivatives GBPm GBPm GBPm GBPm GBPm GBPm
Foreign currency
swaps 407.6 1,244.8 14,590.6 412.9 1,320.3 12,662.5
Interest rate
swaps 1,366.4 1,376.6 14,041.3 1,407.6 1,580.0 13,647.9
Investment asset
derivatives 0.5 3.0 58.0 0.4 22.6 148.4
Inflation swaps 573.6 71.9 4,654.8 437.5 79.7 4,293.4
Forward swaps 14.7 0.1 461.5 5.0 10.5 546.3
Total return
swaps 2.8 2.8 - 13.6 13.5 -
Put options on
property index
(NNEG hedges) - 13.4 705.0 - 19.2 705.0
Interest rate
options - 0.7 115.4 - - -
Total 2,365.6 2,713.3 34,626.6 2,277.0 3,045.8 32,003.5
30 June 2022
Asset Fair value Liability fair value Notional Amount
Derivatives GBPm GBPm GBPm
Foreign currency swaps 359.7 837.1 11,328.0
Interest rate swaps 981.8 1,003.6 13,865.5
Inflation swaps 336.1 148.0 4,803.5
Forward swaps 0.3 17.6 318.5
Total return swaps 2.2 2.2 -
Put options on property index (NNEG hedges) - 8.9 705.0
Total 1,680.1 2,017.4 31,020.5
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 30 June 2023, the Company had pledged collateral of
GBP1,166.9m (31 December 2022: GBP1,286.2m / 30 June 2022:
GBP843.8m), of which GBP433.4m were corporate bonds and European
Investment Bank bonds (31 December 2022: GBP393.8m / 30 June 2022:
GBP108.0m) which continue to be recognised in their relevant asset
class in the statement of financial position and had received cash
collateral of GBP697.3m (31 December 2022: GBP623.1m / 30 June
2022: GBP480.0m).
18. Financial and insurance risk management
This note presents information about the major financial and
insurance risks to which the Group is exposed, and its objectives,
policies and processes for their measurement and management.
Financial risk comprises exposure to market, credit and liquidity
risk.
(a) Insurance risk
The Group's insurance risks include exposure to longevity,
mortality and morbidity and exposure to factors such as withdrawal
levels and management and administration expenses. The writing of
long-term insurance contracts requires a range of assumptions to be
made and risk arises from these assumptions being materially
inaccurate. The Group's main insurance risk arises from adverse
experience compared with the assumptions used in pricing products
and valuing insurance liabilities.
Individually underwritten GIfL policies are priced using
assumptions about future longevity that are based on historic
experience information, lifestyle and medical factors relevant to
individual customers, and judgements about the future development
of longevity improvements. 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 writing long term insurance policies. In
the event that early repayments on LTMs in a given period are
higher than anticipated, less interest will have accrued on the
mortgages and the amount repayable will be less than assumed at the
time of sale. In the event of an increase in longevity, although
more interest will have accrued and the amount repayable will be
greater than assumed at the time of the sale, the associated cash
flows will be received later than had originally been anticipated.
In addition, a general increase in longevity would have the effect
of increasing the total amount repayable, which would increase the
LTV ratio and could increase the risk of failing to be repaid in
full as a consequence of the no-negative equity guarantee. There is
also exposure to morbidity risk as the LTM is repayable when the
customer moves into long-term care.
Management of insurance risk
Underpinning the management of insurance risk are:
-- the use of controls around the development of suitable products and their pricing ;
-- adherence to approved underwriting requirements;
-- the development and use of medical information including
PrognoSys(TM) for both pricing and reserving to provide detailed
insight into longevity risk;
-- the use of reinsurance to reduce longevity risk. The Group
retains oversight of the overall exposures and monitors that the
aggregation of risk ceded is within the reinsurance counterparty
risk appetite ;
-- the assessment and recalibration of adequacy of risk based capital
-- review and approval of assumptions used by the Board;
-- regular monitoring and analysis of actual experience; and
-- monitoring of expense levels.
Concentrations of insurance risk
Improved longevity arises from enhanced medical treatment and
improved life circumstances. Concentration risk to individuals
groups whose longevity may improve faster than the population is
managed by writing business across a wide range of different
medical and lifestyle conditions to avoid excessive exposure.
Reinsurance is also an important mitigant to concentrations of
insurance risk.
(b) Market risk
Market risk is the risk of loss or of adverse change in the
financial situation from fluctuations in the level and in the
volatility of market prices of assets, liabilities and financial
instruments, together with the impact of changes in interest rates.
Market risk is implicit in the insurance business model and arises
from exposure to interest rates, property markets, inflation and
exchange rates. The Group is not exposed to equity risk. Some very
limited equity risk exposure arises from investment into credit
funds which have a mandate which allows preferred equity to be
held. Changes in the value of the Group's investment portfolio will
also affect the Group's financial position. In addition, falls in
the financial markets can reduce the value of pension funds
available to purchase Retirement Income products and changes in
interest rates can affect the relative attractiveness of Retirement
Income products.
In mitigation, Retirement Income product 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.
Just has several EUR denominated bonds that have coupons linked
to EURIBOR, which are hedged into fixed GBP coupons. If EURIBOR
were no longer produced, there is a risk that the bond coupons
would not match the swap EUR leg payments. In mitigation, Just
would restructure the related cross currency asset swap to match
the new coupon rate.
For each of the material components of market risk, described in
more detail below, the Group's Market Risk Policy sets out the
Group's risk appetite and management processes governing how each
risk should be measured, managed, monitored and reported.
(i) Interest rate risk
The Group is exposed to interest rate risk arising from the
changes in the values of assets or liabilities as a result of
changes in risk-free interest rates. The Group seeks to limit its
exposure through appropriate asset and liability matching and
hedging strategies. The Group actively hedges its interest rate
exposure to protect balance sheet positions on both Solvency II and
IFRS bases in accordance with its risk appetite framework and
principles.
The Group's main exposure to changes in interest rates is
concentrated in the investment portfolio, loans secured by
mortgages and its insurance obligations. Changes in investment and
loan values attributable to interest rate changes are mitigated by
corresponding and partially offsetting changes in the value of
insurance liabilities. The Group monitors this exposure through
regular reviews of the asset and liability position, capital
modelling, sensitivity testing and scenario analyses. Interest rate
risk is also managed using derivative instruments e.g. swaps.
(ii) Property risk
The Group's exposure to property risk arises from the provision
of lifetime mortgages which creates an exposure to the UK
residential property market. A substantial decline or sustained
underperformance in UK residential property prices, against which
the Group's lifetime mortgages are secured, could result in the
mortgage debt at the date of redemption exceeding the proceeds from
the sale of the property.
Demand for lifetime mortgage products may also be impacted by a
fall in property prices. It may diminish consumers' propensity to
borrow and reduce the amount they are able to borrow due to
reductions in property values.
The risk is managed by controlling the loan value as a
proportion of the property's value at outset and obtaining
independent third party valuations on each property before initial
mortgages are advanced. Lifetime mortgage contracts are also
monitored through dilapidation reviews. House prices are monitored
and the impact of exposure to adverse house prices (both regionally
and nationally) is regularly reviewed. Further mitigation is
through management of the volume of Lifetime Mortgages, including
disposals, in the portfolio in line with the Group's LTM backing
ratio target, and the establishment of the NNEG hedges. The Group
has managed its property risk exposure in the year via a reduction
in the LTM backing ratio.
A sensitivity analysis of the impact of residential property
price movements is included in Note 11 and Note 14. These notes
also mention the Group's consideration of the possible impacts of
Brexit, the COVID-19 pandemic and a higher interest and inflation
rate economic environment on property assumptions at 30 June
2023.
The Group is also exposed to commercial property risk indirectly
through the investment in loans secured by commercial mortgages.
Mitigation of such risk is covered by the credit risk section
below.
(iii) Inflation risk
Inflation risk is the risk of change in the value of assets or
liabilities arising from changes in actual or expected inflation or
in the volatility of inflation. Exposure to long term inflation
occurs in relation to the Group's own management expenses and its
writing index-linked Retirement Income contracts. Its impact is
managed through the application of disciplined cost control over
management expenses and through matching inflation-linked assets
and inflation-linked liabilities for the long term inflation
risk.
(iv) Currency risk
Currency risk arises from changes in foreign exchange rates
which affect the value of assets denominated in foreign
currencies.
Exposure to currency risk could arise from the Group's
investment in non-sterling denominated assets. The Group invests in
fixed income securities denominated in US dollars and other foreign
currencies for its financial asset portfolio. All material Group
liabilities are in Sterling. As the Group does not wish to
introduce foreign exchange risk into its investment portfolio,
derivative or quasi-derivative contracts are entered into to
mitigate the foreign exchange exposure as far as possible.
(c) Credit risk
Credit risk arises if another party fails to perform its
financial obligations to the Group, including failing to perform
them in a timely manner.
Credit risk exposures arise from:
-- Holding fixed income investments. The risk of default (where
the counterparty fails to pay back the capital and/or interest on a
corporate bond) is mitigated by investing only in higher quality or
investment grade assets. Concentration of credit risk exposures is
managed by placing limits on exposures to individual
counterparties, sectors and geographic areas.
-- 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 16).
-- Reinsurance treaties. Reinsurance is used to manage longevity
risk and to fund new business but, as a consequence, credit risk
exposure arises should a reinsurer fail to meet its claim repayment
obligations. Credit risk on reinsurance balances is mitigated by
the reinsurer depositing back more than 100% of premiums ceded
under the reinsurance agreement and/or through robust collateral
arrangements.
-- 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 residential 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 30 June 2023, 31 December 2022 and 30 June
2022:
BB or
AAA AA A BBB below Unrated Total
30 June 2023 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======= ======= ======= ======= ====== ======= ========
Units in liquidity funds 1,200.0 5.6 - - - - 1,205.6
======= ======= ======= ======= ====== ======= ========
Investment funds - - - - - 439.8 439.8
======= ======= ======= ======= ====== ======= ========
Debt securities and other
fixed income securities 810.9 1,939.1 3,779.6 5,087.5 163.3 - 11,780.4
======= ======= ======= ======= ====== ======= ========
Deposits with credit institutions - 109.0 640.4 - - - 749.4
======= ======= ======= ======= ====== ======= ========
Loans secured by residential
mortgages - - - - - 5,176.7 5,176.7
======= ======= ======= ======= ====== ======= ========
Loans secured by commercial
mortgages - - - - - 629.2 629.2
======= ======= ======= ======= ====== ======= ========
Loans secured by ground
rents - - - - - 647.1 647.1
======= ======= ======= ======= ====== ======= ========
Infrastructure loans 67.2 95.3 133.9 748.6 12.0 - 1,057.0
======= ======= ======= ======= ====== ======= ========
Other loans - - - - 27.0 112.4 139.4
======= ======= ======= ======= ====== ======= ========
Derivative financial assets - 0.4 1,665.5 699.2 - 0.5 2,365.6
======= ======= ======= ======= ====== ======= ========
Gilts - subject to repurchase
agreements - 1,970.6 - - - - 1,970.6
======= ======= ======= ======= ====== ======= ========
Reinsurance(1) - 233.4 184.1 - - 199.7 617.2
======= ======= ======= ======= ====== ======= ========
Other receivables - - - - - 48.1 48.1
======= ========
Total 2,078.1 4,353.4 6,403.5 6,535.3 202.3 7,253.5 26,826.1
(1) This is the net reinsurance asset position.
BB or
31 December 2022 AAA AA A BBB below Unrated Total
(restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======= ======= ======= ======= ====== ======= ========
Units in liquidity funds 1,169.8 - - - 4.6 - 1,174.4
======= ======= ======= ======= ====== ======= ========
Investment funds - - - - - 421.0 421.0
======= ======= ======= ======= ====== ======= ========
Debt securities and other
fixed income securities 698.2 1,888.5 3,260.6 5,105.0 400.6 - 11,352.9
======= ======= ======= ======= ====== ======= ========
Deposits with credit institutions - 99.4 773.0 20.0 15.1 0.1 907.6
======= ======= ======= ======= ====== ======= ========
Loans secured by residential
mortgages - - - - - 5,305.9 5,305.9
======= ======= ======= ======= ====== ======= ========
Loans secured by commercial
mortgages - - - - - 583.7 583.7
======= ======= ======= ======= ====== ======= ========
Loans secured by ground
rents - - - - - 246.9 246.9
======= ======= ======= ======= ====== ======= ========
Infrastructure loans 71.2 97.4 141.7 625.3 12.2 - 947.8
======= ======= ======= ======= ====== ======= ========
Other loans - - - - 22.3 111.9 134.2
======= ======= ======= ======= ====== ======= ========
Derivative financial assets - - 1,669.9 607.1 - - 2,277.0
======= ======= ======= ======= ====== ======= ========
Reinsurance - 126.9 197.1 3.7 - 204.4 532.1
======= ======= ======= ======= ====== ======= ========
Other receivables - - - - - 32.7 32.7
======= ======= ======= ======= ====== ======= ========
Total 1,939.2 2,212.2 6,042.3 6,361.1 454.8 6,906.6 23,916.2
======= ======= ======= ======= ====== ======= ========
A BB or
30 June 2022 AAA AA BBB below Unrated Total
(restated) GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======= ======= ======= ====== ======= ========
Units in liquidity funds 953.7 - - - 5.0 - 958.7
======= ======= ======= ======= ====== ======= ========
Investment funds - - - - - 315.1 315.1
======= ======= ======= ======= ====== ======= ========
Debt securities and other
fixed income securities 811.8 2,067.1 3,055.0 4,965.9 338.9 - 11,238.7
======= ======= ======= ======= ====== ======= ========
Deposits with credit institutions - - 696.6 39.2 14.7 - 750.5
======= ======= ======= ======= ====== ======= ========
Loans secured by residential
mortgages - - - - - 5,897.3 5,897.3
======= ======= ======= ======= ====== ======= ========
Loans secured by commercial
mortgages - - - - - 616.0 616.0
======= ======= ======= ======= ====== ======= ========
Loans secured by ground
rents - - - - - 236.6 236.6
======= ======= ======= ======= ====== ======= ========
Infrastructure loans 74.5 128.5 148.4 603.3 14.1 - 968.8
======= ======= ======= ======= ====== ======= ========
Other loans - - - - 14.7 112.1 126.8
======= ======= ======= ======= ====== ======= ========
Derivative financial assets - - 1,197.8 482.3 - - 1,680.1
======= ======= ======= ======= ====== ======= ========
Reinsurance - 214.8 250.0 5.1 - 0.4 470.3
======= ======= ======= ======= ====== ======= ========
Other receivables - - - - - 22.5 22.5
======= ========
Total 1,840.0 2,410.4 5,347.8 6,095.8 387.4 7,200.0 23,281.4
There are no financial assets that are either past due or
impaired.
The credit rating for Cash available on demand at 30 June 2023
was between a range of AA and BB
(31 December 2022 and 30 June 2022: 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
Liquidity risk is the risk of loss because the Group, although
solvent, does not have sufficient financial resources available to
it in order to meet its obligations as they fall due.
The investment of cash received from Retirement Income sales
into corporate bonds, gilts and lifetime mortgages, and commitments
to pay policyholders and other obligations, requires liquidity
risks to be taken.
Exposure to liquidity risk arises from:
-- maintaining and servicing collateral requirements arising
from the changes in market value of financial derivatives used by
the Group;
-- needing to realise assets to meet liabilities during stressed market conditions;
-- increasing cash flow volatility in the short-term giving rise
to mismatches between cash flows from assets and requirements from
liabilities;
-- needing to support liquidity requirements for day-to-day operations; and
-- ensuring financial support can be provided across the Group.
Liquidity risk is managed by holding assets of a suitable
maturity and marketability to meet liabilities as they fall due.
The Group's short-term liquidity requirements to meet annuity
payments are predominantly funded by investment coupon receipts,
and bond principal repayments. There are significant barriers for
policyholders to withdraw funds that have already been paid to the
Group in the form of premiums. Cash outflows associated with
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 to a range
of "worst case" to 1-in-200 historic liquidity events on the
Group's long term liquidity and the minimum cash and cash
equivalent levels required to cover enhanced stresses. Derivative
stresses have been revised to take into account market volatility
and focus on the worst observed movements over the last 40 years,
in shorter periods from one day up to and including one month.
During 2022 the Group replaced the existing revolving credit
facility with a new and undrawn revolving credit facility of up to
GBP300m for general corporate and working capital purposes
available until 13 June 2025.
Interest is payable on any drawdown loans at a rate of SONIA
plus a margin of between 1.00% and 2.75% per annum depending on the
Group's ratio of net debt to net assets.
19. Capital
Group capital position
The Group's estimated capital surplus position at 30 June 2023
was as follows:
30 June 31 December
2023(1) 2022(2)
GBPm GBPm
Capital resources
Eligible Own funds 2,698 2,757
(1,323)
Solvency Capital Requirement (3) (1,387)(3)
Excess own funds 1,375 (3) 1,370(3)
Solvency coverage ratio 204% (3) 199%(3)
(1) Solvency II capital coverage ratios as at 30 June 23
includes a notional recalculation of TMTP and 31 December 2022
includes a formal recalculation of TMTP.
(2) This is the reported regulatory position as included in the
Group's Solvency and Financial Condition Report as at 31 December
2022.
(3) Not covered by PwC's independent review opinion.
Further information on the Group's Solvency II position,
including a reconciliation between the regulatory capital position
to the reported capital surplus, is included in the Business
Review. This information is estimated and therefore subject to
change.
The Group and its regulated insurance subsidiaries are required
to comply with the requirements established by the Solvency II
Framework directive as adopted by the Prudential Regulation
Authority ("PRA") in the UK, and to measure and monitor its capital
resources on this basis. The overriding objective of the Solvency
II capital framework is to ensure there is sufficient capital
within the insurance company to protect policyholders and meet
their payments when due. They are required to maintain eligible
capital, or "Own Funds", in excess of the value of their Solvency
Capital Requirements ("SCR"). The SCR represents the risk capital
required to be set aside to absorb 1-in-200 year stress tests over
the next one year time horizon of each risk type that the Group is
exposed to, including longevity risk, property risk, credit risk
and interest rate risk. These risks are all aggregated with
appropriate allowance for diversification benefits.
The capital requirement for Just Group plc is calculated using a
partial internal model. Just Retirement Limited ("JRL") uses a full
internal model and Partnership Life Assurance Company Limited
("PLACL") capital is calculated using the standard formula.
Group entities that are under supervisory regulation and are
required to maintain a minimum level of regulatory capital
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 first half of the
year.
Capital management
The Group's objectives when managing capital for all
subsidiaries are:
-- to comply with the insurance capital requirements required by
the regulators of the insurance markets where the Group operates.
The Group's policy is to manage its capital in line with its risk
appetite and in accordance with regulatory expectations;
-- to safeguard the Group's ability to continue as a going
concern, and to continue to write new business;
-- to ensure that in all reasonably foreseeable circumstances,
the Group is able to fulfil its commitment over the short term and
long term to pay policyholders' benefits;
-- to continue to provide returns for shareholders and benefits for other stakeholders;
-- to provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk; and
-- to generate capital from in-force business, excluding
economic variances, management actions, and dividends, that is
greater than new business strain.
The Group regularly assesses a wide range of actions to improve
the capital position and resilience of the business.
To improve resilience, the Group purchased long-term gilts in
the first half of 2023 to reduce the Group's capital exposure to
interest rate risk.
In managing its capital, the Group undertakes stress and
scenario testing to consider the Group's capacity to respond to a
series of relevant financial, insurance, or operational shocks or
changes to financial regulations should future circumstances or
events differ from current assumptions. The review also considers
mitigating actions available to the Group should a severe stress
scenario occur, such as raising capital, varying the volumes of new
business written and a scenario where the Group does not write new
business.
EVT Compliance
At 30 June 2023, Just passed the PRA EVT with a buffer of 1.7%
(unreviewed) over the current minimum deferment rate of 3.0%
(allowing for volatility of 13%, in line with the requirement for
the EVT). At 31 December 2022, the buffer was 1.5% (unaudited)
compared to the minimum deferment rate of 2.0%. The recent interest
rate changes may lead to uncertainty in the PRA's minimum deferment
rate review in September 2023. Just will continue to monitor
long-term rate changes closely and expects to maintain sufficient
headroom.
Regulatory developments
The Group is preparing to apply to the PRA to include the PLACL
lifetime mortgages in the matching adjustment portfolio (via a
securitisation) and to calculate the PLACL SCR using the internal
model. This will not be applied for the year ended 31 December
2023.
We continue to engage in the various developments (including
Subject Expert Groups and Consultation Papers) relating to the UK
Solvency II Reforms. Later in 2023 we expect to participate in the
PRA's consultation relating to the matching adjustment and
investment flexibility, and will implement the Risk Margin reforms
on or before 31 December 2023, as agreed in final legislation.
20. Related parties
The nature of the related party transactions of the Group has
not changed from those described in the Group's annual report and
accounts for the year ended 31 December 2022.
There were no transactions with related parties during the six
months ended 30 June 2023 which have had a material effect on the
results or financial position of the Group.
21. Post balance sheet events
Subsequent to 30 June 2023, the Directors approved an interim
dividend for 2023 of 0.58 pence per ordinary share amounting to
GBP6m (2022: GBP5m) in total, which will be paid on 4 October
2023.
There are no other material post balance sheet events that have
taken place between 30 June 2023 and the date of this report.
Additional financial information
The following additional financial information is not covered by
PwC's independent review opinion on pages 27 and 28.
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
Unaudited GBPm % GBPm GBPm GBPm GBPm GBPm GBPm
====== ===== ===== ============= ============== ============== ============== ==========
Basic materials 207 1.0 - - 66 132 9 -
====== ===== ===== ============= ============== ============== ============== ==========
Communications and
technology 1,289 6.1 125 233 241 688 2 -
====== ===== ===== ============= ============== ============== ============== ==========
Auto manufacturers 180 0.8 - - 154 19 7 -
====== ===== ===== ============= ============== ============== ============== ==========
Consumer (staples
including
healthcare) 1,245 5.9 122 232 400 363 47 81
====== ===== ===== ============= ============== ============== ============== ==========
Consumer (cyclical) 245 1.2 10 4 28 167 36 -
====== ===== ===== ============= ============== ============== ============== ==========
Energy 424 2.0 - 132 65 189 38 -
====== ===== ===== ============= ============== ============== ============== ==========
Banks 1,374 6.5 33 60 805 476 - -
====== ===== ===== ============= ============== ============== ============== ==========
Insurance 660 3.1 6 141 126 377 10 -
====== ===== ===== ============= ============== ============== ============== ==========
Financial - other 1,123 5.3 65 152 339 119 283 165
====== ===== ===== ============= ============== ============== ============== ==========
Real estate including
REITs 510 2.4 29 15 104 329 33 -
====== ===== ===== ============= ============== ============== ============== ==========
Government 1,412 6.6 370 561 240 241 - -
====== ===== ===== ============= ============== ============== ============== ==========
Industrial 599 2.8 - 66 46 412 43 32
====== ===== ===== ============= ============== ============== ============== ==========
Utilities 2,216 10.4 - 109 729 1,328 50 -
====== ===== ===== ============= ============== ============== ============== ==========
Commercial mortgages 629 3.0 118 169 169 171 2 -
====== ===== ===== ============= ============== ============== ============== ==========
Ground rent 847 4.0 157 20 194 316 160 -
====== ===== ===== ============= ============== ============== ============== ==========
Infrastructure loans 1,868 8.8 67 161 598 996 46 -
====== ===== ===== ============= ============== ============== ============== ==========
Other 42 0.2 - - 42 - - -
Corporate/government
bond
total 14,870 69.9 1,102 2,055 4,346 6,323 766 278
Lifetime mortgages 5,177 24.4
====== ===== ===== ============= ============== ============== ============== ==========
Liquidity funds 1,205 5.7
Investments portfolio 21,252 100.0
====== ===== ===== ============= ============== ============== ============== ==========
Derivatives and
collateral 3,099
====== ===== ===== ============= ============== ============== ============== ==========
Gilts (interest rate
hedging) 1,970
Total 26,321
Glossary
Acquisition costs - comprise the direct costs (such as
commissions and new business processing team costs) of obtaining
new business, together with associated indirect costs.
Adjusted earnings per share (adjusted EPS) - this measures
earnings per share based on underlying operating profit after
attributed tax, rather than IFRS profit before tax. This measure is
calculated by dividing underlying operating profit after attributed
tax by the weighted average number of shares in issue by the Group
for the period. 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 before tax - this is the sum of the
new business profit and in-force operating profit, operating
experience and assumption changes, other Group companies' operating
results, development expenditure and financing costs. The Board
believes the combination of both future profit generated from new
business written in the year and additional profit from the
in-force book of business, provides a better view of the
development of the business. The net underlying CSM increase is
added back as the Board considers the value of new business is
significant in assessing business performance. Adjusted operating
profit before tax excludes the following items that are included in
profit before tax: strategic expenditure, investment and economic
profits and amortisation and impairment costs of acquired
intangible assets. In addition, it includes Tier 1 interest (as
part of financing costs) which is not included in profit before tax
(because the Tier 1 notes are treated as equity rather than debt in
the IFRS financial statements). Adjusted operating profit is
reconciled to IFRS profit before tax in the Business Review.
Adjusted profit/(loss) before tax - an APM, this is the
profit/(loss) before tax before deferral of profit in CSM and
includes non operating items (investment and economic movement,
strategic expenditure, and interest adjustment to reflect IFRS
accounting for Tier 1 notes as equity).
Alternative performance measure ("APM") - in addition to
statutory IFRS performance measures, the Group has presented a
number of non-statutory alternative performance measures within the
Annual Report and Accounts. The Board believes that the APMs used
give a more representative view of the underlying performance of
the Group. APMs are identified in this glossary together with a
reference to where the APM has been reconciled to its nearest
statutory equivalent. APMs which are also KPIs are indicated as
such.
Buy-in - an exercise enabling a pension scheme to obtain an
insurance contract that pays a guaranteed stream of income
sufficient to cover the liabilities of a group of the scheme's
members.
Buy-out - an exercise that wholly transfers the liability for
paying member benefits from the pension scheme to an insurer which
then becomes responsible for paying the members directly.
Capped Drawdown - a non-marketed product from Just Group
previously described as Fixed Term Annuity. Capped Drawdown
products ceased to be available to new customers when the tax
legislation changed for pensions in April 2015.
Care Plan ("CP") - a specialist insurance contract contributing
to the costs of long-term care by paying a guaranteed income to a
registered care provider for the remainder of a person's life.
Confidence interval - the degree of confidence that the
provision for future cash flows plus the risk adjustment reserve
will be adequate to meet the cost of future payments to
annuitants.
Contractual Service Margin ("CSM") - represents deferred profit
earned on insurance products. CSM is recognised in profit or loss
over the life of the contracts.
CSM amortisation - represents the net release from the CSM
reserve into profit as services are provided. The figures are net
of accretion (unwind of discount), and the release is computed
based on the closing CSM reserve balance for the period.
Deferral of profit in CSM - the total movement on CSM reserve in
the year. The figure represents CSM recognised on new business,
accretion of CSM (unwind of discount), transfers to CSM related to
changes to future cash flows at locked-in economic assumptions,
less CSM release in respect of services provided.
Defined benefit deferred ("DB deferred") business - the part of
DB de-risking transactions that relates to deferred members of a
pension scheme. These members have accrued benefits in the pension
scheme but have not retired yet.
Defined benefit de-risking partnering ("DB partnering") - a DB
de-risking transaction in which a reinsurer has provided
reinsurance in respect of the asset and liability side risks
associated with one of our DB Buy-in transactions.
Defined benefit ("DB") pension scheme - a pension scheme,
usually backed or sponsored by an employer, that pays members a
guaranteed level of retirement income based on length of membership
and earnings.
Defined contribution ("DC") pension scheme - a work-based or
personal pension scheme in which contributions are invested to
build up a fund that can be used by the individual member to
provide retirement benefits.
De-risk/de-risking - an action carried out by the trustees of a
pension scheme with the aim of transferring investment, inflation
and longevity risk from the sponsoring employer and scheme to a
third party such as an insurer.
Development expenditure - relates to development of existing
products, markets, technology, and transformational projects.
Drawdown (in reference to Just Group sales or products) -
collective term for investment products including Capped
Drawdown.
Employee benefits consultant - an adviser offering specialist
knowledge to employers on the legal, regulatory and practical
issues of rewarding staff, including non-wage compensation such as
pensions, health and life insurance and profit sharing.
Equity release - products and services enabling homeowners to
generate income or lump sums by accessing some of the value of the
home while continuing to live in it - see Lifetime mortgage.
Finance costs - represent interest payable on the Group's Tier 2
and Tier 3 debt.
Gross premiums written - total premiums received by the Group in
relation to its Retirement Income and Protection sales in the
period, gross of commission paid.
Guaranteed Income for Life ("GIfL") - retirement income products
which transfer the investment and longevity risk to the company and
provide the retiree a guarantee to pay an agreed level of income
for as long as a retiree lives. On a "joint-life" basis, continues
to pay a guaranteed income to a surviving spouse/partner. Just
provides modern individually underwritten GIfL solutions.
IFRS profit before tax - one of the Group's KPIs, representing
the profit before tax attributable to equity holders.
In-force operating profit - represents profits from the in-force
portfolio before investment and insurance experience variances, and
assumption changes. It mainly represents release of risk adjustment
for non-financial risk and of allowance for credit default in the
period, investment returns earned on shareholder assets, together
with the value of the (net) CSM amortisation.
Investment and economic movements - reflect the difference in
the period between expected investment returns, based on investment
and economic assumptions at the start of the period, and the actual
returns earned. Investment and economic profits also reflect the
impact of assumption changes in future expected risk-free rates,
corporate bond defaults and house price inflation and
volatility.
Key performance indicators ("KPIs") - KPIs are metrics adopted
by the Board which are considered to give an understanding of the
Group's underlying performance drivers. The Group's KPIs are Return
on equity, Retirement income sales, Underlying organic capital
generation, New business profit, Underlying operating profit, IFRS
profit before tax, New business strain, Solvency II capital
coverage ratio and Tangible net asset value per share.
Lifetime mortgage ("LTM") - an equity release product that
allows homeowners to take out a loan secured on the value of their
home, typically with the loan plus interest repaid when the
homeowner has passed away or moved into long-term care.
LTM note s - structured assets issued by a wholly owned special
purpose entity, Just Re1 Ltd. Just Re1 Ltd holds two pools of
lifetime mortgages, each of which provides the collateral for
issuance of senior and mezzanine notes to Just Retirement Ltd,
eligible for inclusion in its matching portfolio.
Medical underwriting - the process of evaluating an individual's
current health, medical history and lifestyle factors, such as
smoking, when pricing an insurance contract.
Net asset value ("NAV") - IFRS total equity, net of tax, and
excluding equity attributable to Tier 1 noteholders.
Net claims paid - represents the total payments due to
policyholders during the accounting period, less the reinsurers'
share of such claims which are payable back to the Group under the
terms of the reinsurance treaties.
Net investment income - comprises interest received on financial
assets and the net gains and losses on financial assets designated
at fair value through profit or loss upon initial recognition and
on financial derivatives and interest accrued on financial assets
which are measured at amortised cost.
New business margin - the new business profit divided by
Retirement Income sales. It provides a measure of the profitability
of Retirement Income sales.
New business profit - an APM and one of the Group's KPIs,
representing the profit generated from new business written in the
year after allowing for the establishment of reserves and for
future expected cash flows and risk adjustment and allowance for
acquisition expenses and other incremental costs on a marginal
basis. New business profit is reconciled to adjusted profit before
tax, and adjusted profit before tax is reconciled to IFRS profit
before tax in the Business Review.
New business strain - one of the Group's KPIs, representing the
capital strain on new business written in the year after allowing
for acquisition expense allowances and the establishment of
Solvency II technical provisions and Solvency Capital
Requirements.
No-negative equity guarantee ("NNEG") hedge - a derivative
instrument designed to mitigate the impact of changes in property
growth rates on both the regulatory and IFRS balance sheets arising
from the guarantees on lifetime mortgages provided by the Group
which restrict the repayment amounts to the net sales proceeds of
the property on which the loan is secured.
Operating experience and assumption changes - represents changes
to cash flows in the current and future periods valued based on end
of period economic assumptions.
Organic capital generation/(consumption) - calculated in the
same way as Underlying organic capital generation/(consumption),
but includes impact of management actions and other operating
items.
Other Group companies' operating results - the results of Group
companies including our HUB group of companies, which provides
regulated advice and intermediary services, and professional
services to corporates, and corporate costs incurred by Group
holding companies and the overseas start-ups.
Pension Freedoms/Pension Freedom and Choice/Pension Reforms -
the UK government's pension reforms, implemented in April 2015.
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.
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. DB partner premium is not included
in Retirement Income sales. Retirement Income sales are reconciled
in Note 2 to the consolidated financial statements, to premiums
included in the analysis of movement in insurance liabilities in
Note 14 to the consolidated financial statements.
Return on equity - an APM and one of the Group's KPIs. Return on
equity is underlying operating profit after attributed tax for the
period divided by the average tangible net asset value for the
period and expressed as an annualised percentage. Tangible net
asset value is reconciled to IFRS total equity in the Business
Review.
Risk adjustment for non-financial risk ("RA") - allowance for
longevity, expense, and insurance specific operational risks
representing the compensation required by the business when
managing existing and pricing new business.
Secure Lifetime Income ("SLI") - a tax efficient solution for
individuals who want the security of knowing they will receive a
guaranteed income for life and the flexibility to make changes in
the early years of the plan.
Solvency II - an EU Directive that codifies and harmonises the
EU insurance regulation. Primarily this concerns the amount of
capital that EU insurance companies must hold to reduce the risk of
insolvency.
Solvency II capital coverage ratio - one of the Group's KPIs.
Solvency II capital is the regulatory capital measure and is
focused on by the Board in capital planning and business planning
alongside the economic capital measure. It expresses the regulatory
view of the available capital as a percentage of the required
capital.
Strategic expenditure - Costs incurred for major strategic
investment, new products and business lines, and major regulatory
projects.
Tangible net asset value ("TNAV") - IFRS total equity
attributable to ordinary shareholders, excluding goodwill and other
intangible assets, and after adding back contractual service
margin, net of tax.
Tangible net asset value per share - an APM and one of the
Group's KPIs, representing tangible net asset value divided by the
closing number of issued ordinary shares excluding shares held in
trust.
Trustees - individuals with the legal powers to hold, control
and administer the property of a trust such as a pension scheme for
the purposes specified in the trust deed. Pension scheme trustees
are obliged to act in the best interests of the scheme's
members.
Underlying operating profit - an APM and one of the Group's
KPIs. Underlying operating profit is calculated in the same way as
adjusted operating profit before tax but excludes operating
experience and assumption changes. Underlying operating profit is
reconciled to adjusted operating profit before tax, and adjusted
operating profit before tax is reconciled to IFRS profit before tax
in the Business Review.
Underlying organic capital generation/(consumption) - an APM and
one of the Group's KPIs. Underlying organic capital
generation/(consumption) is the net increase/(decrease) in Solvency
II excess own funds over the year, generated from ongoing business
activities, and includes surplus from in-force, net of new business
strain, cost overruns and other expenses and debt interest. It
excludes strategic expenditure, economic variances, regulatory
adjustments, capital raising or repayment and impact of management
actions and other operating items. The Board believes that this
measure provides good insight into the ongoing capital
sustainability of the business. Underlying organic capital
generation/(consumption) is reconciled to Solvency II excess own
funds, and Solvency II excess own funds is reconciled to
shareholders' net equity on an IFRS basis in the Business
Review.
Value at Risk - a quantification of the extent of possible
insurance losses within a portfolio over a specific time frame.
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