Just Group plc | Annual Report and Accounts 2024
38
business review continued
Illiquid assets To support new business pricing, optimise back book returns, and further diversify its investments, the Group originates illiquid assets including infrastructure, real estate investments, private placements and lifetime mortgages. Income producing real estate investments are typically much longer duration and hence the cash flow profile is beneficial, especially to match DB deferred liabilities. In 2024, we funded £2.4bn of illiquid assets, which represents a 45% new business backing ratio. Over the past two years, we have invested in our Investments function, and are now directly originating illiquids from particular asset classes (e.g. social housing, private placements and commercial ground rents), in addition to lifetime mortgages. These amounted to £1.0bn and £0.3bn respectively. In parallel, we originated the remaining £1.1bn of illiquid assets via a panel of 13 specialist external asset managers, each carefully selected based on their particular area of expertise. Our illiquid asset origination strategy allows us to efficiently scale origination of new investments, and to flex allocations between sectors depending on market conditions and risk adjusted returns. To date, Just has invested £6.6bn in illiquid assets (excluding LTMs), representing 24% of the investments portfolio (31 December 2023: 21%), spread across more than 360 investments (average £18m), 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 Solvency UK and wider government reforms in pensions and planning will increase the investment opportunities available to us through wider matching adjustment (“MA”) eligibility criteria, such as callable bonds, or assets with a construction phase, where the commencement of cashflows is not entirely certain. These changes to the MA are part of a package, that when fully implemented are designed to support the pledge made by the insurance industry to generate £100bn of productive investments over the next decade to support UK economic growth. Lifetime mortgages at £5.6bn represent 21% of the investments portfolio, which we expect to continue reducing over time as we originate fewer new LTMs and diversify the portfolio with other illiquid assets. The loan-to-value ratio of the in-force lifetime mortgage portfolio was 39.0% (31 December 2023: 38.2%), reflecting the gradual seasoning of the mortgages across our geographically diversified portfolio, as house price growth partially offset the interest roll-up during the year. In 2024, shareholder funded LTM advances were £326m (2023: £164m). We continue to be selective and use our market insight to target sub-segments of the market. The following table provides a breakdown by credit rating of financial investments, including privately rated investments allocated to the appropriate rating.
On 9 November 2023, the previous government published a consultation seeking views on capping the maximum ground rent that residential leaseholders can be required to pay, but did not implement any reform of residential ground rent before dissolution of parliament ahead of the election. The Group continues to closely monitor developments as leasehold reform was included in the new government’s manifesto and subsequent King’s Speech, and any adverse impact this may have on the Group’s £157m by market value (2023: £176m market value) portfolio of residential ground rents. Reflecting the uncertainty associated with the Consultation, an adjustment was made at year end 2023 and the same approach to that adjustment has been followed at year end 2024. For further information on the Group’s approach to the valuation of residential ground rents, see Note 16. Sector 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 2023 £m
31 December 2023 %
31 December 2024 £m
31 December 2024 %
Basic materials Communications and technology
109
0.4
149
0.6
1,154
4.3 1,334
5.6 0.5
Auto manufacturers Consumer staples (incl healthcare)
85
0.3
130
1,226
4.5 1,167
4.9 0.8 1.6 6.7 3.1 2.4 2.8 7.4 2.3
Consumer cyclical
178 278
0.7 1.0
197 378
Energy Banks
1,469
5.4 1,606
Insurance
745 590 630
2.8 2.2 2.3
735 583 660
Financial – other
Real estate incl REITs
Government
3,081
11.4 1,767
Industrial
524
1.9
543
Utilities
2,452
9.1 2,637 11.0
809
3.0
764
3.2
Commercial mortgages 1
Long income real estate 2 Infrastructure
1,808 3,512
6.7 1,154
4.8
13.0 2,473 10.3
Other
43
0.2
42
0.2
Bond total Other assets
18,693
69.2
16,319 68.1
31 December 2024 £m
31 December 2024 %
31 December 2023 £m
31 December 2023 %
888
3.3
822
3.4
Lifetime mortgages
5,637 1,792
20.9 5,681 23.7
AAA 1
2,766 8,354 8,853 7,826
8 2,252
8
Liquidity funds
6.6 1,141
4.8
AA 1 and gilts
24 26
5,327 7,239
18 24 27
Investments portfolio 27,010 100.0
23,963
100
A 1,2
Derivatives, collateral
3,564
3,083
BBB 1,2
23 8,083
Gilts (interest rate hedging)
195
1
176
1
BB or below 1,2
3,951
2,549
Total
34,525
Lifetime mortgages
5,637
16 5,681
19
29,595
894
2
837
3
Unrated 1 Total 1,2,3
1 Includes investment in trusts which are included in investment properties in the IFRS Consolidated statement of financial position. 2 Includes direct long income real estate and where applicable, investment in trusts of £135m which are primarily included in investments accounted for using the equity method in the IFRS Consolidated statement of financial position. Long income real estate includes £1,651m commercial ground rents/income strips and £157m residential ground rents.
34,525 100 1 Includes liquidity funds, derivatives, collateral and gilts (interest rate hedging). 2 Includes investment in trusts which holds long income real estate assets that are included in investment properties and investments accounted for using the equity method in the IFRS Consolidated statement of financial position. 3 The residential ground rent portfolio market value is £157m, and is rated AAA (2023: £164m rated AAA and £12m rated AA). 100 29,595
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