FINANCIAL STATEMENTS
STRATEGIC REPORT
GOVERNANCE
Investment and economic (losses)/profits
Movement in excess own funds 1 The table below analyses the movement in excess own funds, in the year ended 31 December 2021.
Year ended 31 December 2021
Year ended 31 December 2020
2021 £m
2020 £m 748
Unaudited
(226)
Change in interest rates
360
1,076
Excess own funds at 1 January
57 56
Credit spreads
(14) (34)
Operating In-force surplus net of TMTP amortisation 2
Property growth experience
191
174
–
House price inflation assumption change
(166) (136)
(40) (71) (29)
New business strain
(48) (66) (42)
(161)
Sale of LTM portfolio
Finance cost
23
Other
(1)
Group and other costs
Investment and economic (losses)/profits
(251)
9
Underlying organic capital generation
51 42 93
18
Other
203 221
Investment and economic losses for 2021 were £251m (2020: £9m profit). The main driver for the large difference compared to the prior year is the increase in risk-free rates during the year, which contributed losses of £226m compared to a gain of £360mwhen interest rates fell during 2020. The Group actively hedges its interest rate exposure to protect the Solvency II capital position, but in doing so we accept the accounting volatility that ensues. We have adjusted our hedging structure during 2022 to better balance hedging of the solvency position whilst minimising the cost in IFRS, should rates rise over 2022. Other movements cancelled each other as the £161m cost from the second in our planned programme of LTM portfolio sales has been offset by positives from narrower credit spreads (£57m), positive property growth experience (£56m) and minimal corporate bond defaults within our portfolio during the period (2020: no defaults). In the prior year, credit spreads widened, property growth was below our long term assumption, and we reduced the house price inflation assumption by 0.5% to 3.3%, which led to a £166m reserve strengthening. Further details and sensitivities to changes in property assumptions are given in notes 17 and 23 of the financial statements. Amortisation of acquired intangibles Amortisation mainly relates to the acquired in-force business asset relating to Partnership Assurance Group plc, which is being amortised over ten years in line with the expected run-off of the in-force business.
Total organic capital generation 3 Non-operating Accelerated TMTP amortisation
–
(24) (19)
(38)
Regulatory changes Economic movements
56
37
(19)
T2 and equity issuance, net of costs 4 Excess own funds at 31 December
113
1,168
1,076
1 All figures are net of tax, and reflect the estimated impact of a TMTP recalculation as at 31 December 2021. Figures for 2020 include a notional recalculation of TMTP where applicable. 2 The in-force line excludes the accelerated amortisation of a portion of TMTP which has been shown separately. 3 Organic capital generation includes surplus from in-force, new business strain, overrun and other expenses, interest and dividends and other operating items. It excludes economic variances, regulatory changes, accelerated TMTP amortisation, and capital issuance. 4 2020 figure is PLACL’s Tier 2 bond which was called in March 2020. Underlying organic capital generation £51m of underlying organic capital generation in 2021, whilst delivering new business premium growth of 25%, was an outstanding result. We more than achieved our target of doubling 2020 underlying organic capital generation of £18m by 2022, and did so a year early. At this level of underlying organic capital generation we believe the business is delivering sufficient on-going capital generation to support decisions on the deployment of capital between supporting further profitable growth, providing returns to our capital providers and further investment in the strategic growth of the business. The improvement in underlying organic capital generation has benefitted from the on-going focus across the business on minimising new business capital strain. In 2021, new business strain fell by a further £8m to £40m, which represents 1.5% of new business premium (2020: 2.2%). This outperformance was driven by continued pricing discipline and risk selection, together with an increased proportion of the DB deferred business within the sales mix, following enhancements to our proposition in 2020. Capital light DB deferred business represented 38% of total DB sales in 2021 (2020: 2%). In-force surplus has continued to increase as the size of the in-force book grows. Group and other costs includes £11m (2020 £10m) of non-life costs previously within in-force surplus. Finance costs have peaked and are expected to materially decline in future as we gradually refinance the outstanding debt to coupons more commensurate to our credit rating and representative of the progress made to reduce risks and improve capital generation over the past three years. We also completed our three year cost-base reduction programme, which contributed towards eliminating the cost overruns in line with our 2021 target (2020: £8m overruns). The £18m of expenses incurred include development (£6m) and non-recurring (£12m) costs. Management actions and other contributed £42m to the capital surplus, leading to a total of £93m from organic capital generation.
CAPITAL MANAGEMENT Just Group plc estimated Solvency II capital position
The Group’s coverage ratio was estimated at 164% at 31 December 2021 after recalculation of transitional measures on technical provisions (“TMTP”) (31 December 2020: 156% after a notional recalculation of TMTP). The Solvency II capital coverage ratio is a key metric and is considered to be one of the Group’s KPIs.
31 December 2021 £m
31 December 2020 £m
Unaudited
3,004
Own funds
3,014
(1,836) 1,168 164%
Solvency Capital Requirement
(1,938) 1,076 156%
Excess own funds
Solvency coverage ratio 1
1 This figure allows for a notional recalculation of TMTP as at 31 December 2020. In 2021, the figures include the estimated impact of the biennial reset of the TMTP as at 31 December 2021 and the TMTP has been calculated excluding the contribution from the LTMs that have been sold on 22 February 2022. The Group has approval to apply the matching adjustment and TMTP in its calculation of technical provisions and uses a combination of an internal model and the standard formula to calculate its Group Solvency Capital Requirement (“SCR”).
53
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