Just Group plc | Annual Report and Accounts 2024
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Business Review continued
Each year, the upfront profit delivered from new business increases the Contractual Service Margin (“CSM”) reserve, offset by the profits earned as we pay the customer pensions due on business written in prior years. Our CSM store of value (post-tax) grows strongly as the volume of new business added each year far outweighs the amount of customer payments. When added to equity attributable to shareholders (excluding intangible assets), Just’s Adjusted Equity or Tangible Net Assets is 254p per share (31 December 2023: 224p per share), on which we are earning a 15.3% return (2023: 13.5%), greater than our 12% Return on Equity target. The internal rate of return (“IRR”) on shareholder capital invested in new business remains above our “mid-teen” target, as available capital is tactically allocated to exploit the opportunities available – both today and in the future. CAPITAL The Group’s estimated Solvency II capital coverage ratio has increased to 204%³ (31 December 2023: 197%) as the capital position benefited from management actions and rising interest rates. In- force surplus after TMTP amortisation was up 6% to £178m (2023: £168m), and over the medium term is expected to grow in line with asset growth. Underlying organic capital generation (“UOCG”) was £23m (2023: £57m), as we continue to invest the majority of cash generation into funding new business growth. Within this, the £71m capital strain from writing the increased level of new business was 1.3% of premium (2023: £35m and 0.9% of premium), well within our target of 2.5% of premium and ahead of the 1.5% average over the past five years. This low new business strain reflects continued strong pricing discipline, focused risk selection and our ability to originate increasing quantities of high-quality illiquid assets. Management actions and other items contributed a further £58m (2023 £69m), leading to £81m of organic capital generation (2023: £126m). In 2024, we paid a £23m shareholder dividend. 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 in the Capital Management section of the Business Review. Following the UK’s exit from the European Union, over the past two years, all proposed stages of the new Solvency UK capital regime have been fully implemented. The Prudential Regulation Authority (“PRA”) implemented the more straightforward items including a significant reduction in risk margin for life insurance business at the end of 2023, with revisions to the matching adjustment (“MA”) rules to increase investment flexibility and the reforms in relation to fundamental spread applied during 2024. In the second half of 2025, we expect the PRA to publish the results of an industry wide life insurance stress test (“LIST”). LIST will apply to a shortlist of UK life insurers and include one core scenario and two additional exploratory scenarios that build on the first. The results of the core scenario will be published at an individual firm level. OUTLOOK The trajectory of central bank interest rates will be dependent on how new government policies and wider macro and geopolitical forces impact the future level of inflation. These external forces have a negligible impact on the Group’s business model, with the normalisation of long-term interest rates continuing to drive demand for our products. Our positioning, reputation and capabilities, including investments in our people enable us to continue to strongly execute as we take advantage of the multiple growth opportunities in our chosen markets. 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 progressive shareholder dividend that is expected to grow over time.
ALTERNATIVE PERFORMANCE MEASURES AND KEY PERFORMANCE INDICATORS
The Group uses a combination of alternative performance measures (“APMs”) and IFRS statutory performance measures. The Board believes that the use of APMs gives a useful insight into the underlying performance of the Group. The Directors have concluded that the principles used as a basis for the calculation of the APMs remain appropriate. 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 a performance measure which includes the value of profits deferred for recognition in future periods is a useful alternative to IFRS profits under IFRS 17 which exclude the deferred profits from new business sales. Further information on our APMs can be found in the glossary, together with a reference to where the APM has been reconciled to the nearest statutory equivalent. KPIs are regularly reviewed against the Group’s strategic objectives, no changes have been made in 2024. The Group’s KPIs are discussed in more detail on the following pages. The Group’s KPIs are shown below:
2024
2023
Change
Retirement Income sales (shareholder funded) 1
£5,308m £3,893m 36% £460m £355m 30% £504m £377m 34%
New business profit 1
Underlying operating profit 1
IFRS profit before tax
£113m £172m
(34)%
15.3% 13.5% +1.8pp
Return on equity 1
Tangible net asset value per share 1 New business strain 1 (as % of premium) Underlying organic capital generation 1
254p
224p
+30p
1.3% 0.9% +0.4pp
£23m £57m (60)% 204% 197% +7pp
Solvency capital coverage ratio 2,3
1 Alternative performance measure, see glossary for definition. 2 Solvency capital coverage ratios as at 31 December 2024 (estimated) and 31 December 2023 include a recalculation of TMTP at the respective dates. 3 2024 capital position is presented on a proforma basis after the impact of the February 2025 repayment of Tier 3 subordinated debt.
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