Governance Financial Statements
Strategic Report
69
risk outlook
how this risk effects just just’s exposure to risk
outlook and how we manage or mitigate the risk
6 Liquidity risk
Trend: INCREASING strategic priorities
Exposure to liquidity risk arises from: • short term cash flow volatility leading to mismatches between cash flows from assets and liabilities, particularly servicing collateral requirements of financial derivatives and reinsurance agreements; • the liquidation of assets to meet liabilities during stressed market conditions; • higher-than-expected funding requirements on existing LTM contracts, lower redemptions than expected; and • liquidity transferability risk across the Group.
Liquidity risk is ever present therefore the Group manages liquidity to ensure sufficient levels to withstand historic events. Controls are in place to maintain liquidity risk within preset limits including the use of corporate bond collateral agreements to assist in liquidity risk mitigation. Financial markets are expected to remain volatile into the foreseeable future resulting in an increased level of liquidity risk. At the same time, Just is experiencing strong market demand for defined benefit de-risking solutions from pension schemes. The Group’s use of derivative positions is planned to increase in proportion to its planned growth. Throughout any period of heightened volatility, Just maintains robust liquidity stress testing and holds a high level of liquidity coverage above stressed projections. The Group maintains a robust short term liquidity stress testing process and holds a high level of liquidity coverage above stressed requirements. Medium and long term liquidity risk projections are used to support planning for future liquidity requirements.
Having sufficient liquidity to meet our financial obligations as they fall due requires ongoing management and the availability of appropriate liquidity cover. The liquidity position is stressed to reflect the most extreme market conditions.
7 Strategic risk
Trend: STABLE
strategic priorities
Risks to the Group’s strategy arise from regulatory change as the Group operates in regulated markets and has partners and distributors who are themselves regulated. Actions by regulators may change the shape and scale of the market or alter the attractiveness of markets. Changes in the nature or intensity of competition may impact the Group and increase the risk the business model is not able to be maintained. The actions of our competitors may increase the exposure to the risk from regulation should they fail to maintain appropriate standards of prudence.
Regulation changes have been significant in recent years. It is unlikely that Group’s regulators will make any significant change until these have been embedded, however the government has asked them to propose change to grow UK competitiveness and hence the economy. At the time of writing, it is not possible to judge the impact of these further changes on the Group overall. A range of governmental initiatives from the review of the pensions landscape may change the operation of existing DB pension schemes and workplace pensions. The Government is keen for the development of Collective Defined Contributions (“CDC") Schemes. The Group believes that CDC would likely be complementary to the existing decumulation market rather than replace it. Both the ABI and the Group continue to actively contribute to ongoing discussions specific to this matter. The FCA will further consult on draft rules and guidance in 2025 following the Advice Guidance Boundary Review, the outcome of which could impact the financial advice landscape. The risks to the Group from selection of strategies to compete are mitigated through a strategic review process examining the competitive environment, the Group’s capabilities, and ability to deploy resources to take advantage of opportunities.
The choices we make about the markets in which we compete and the demand for our product and service offering may be affected by external risks including changes to regulation, competition, or social changes.
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