Just Annual Report and Accounts 2021

JUST GROUP PLC Annual Report and Accounts 2021

BUSINESS REVIEW CONTINUED

Non-operating items Included within regulatory changes is the impact of the major model change (£33m) and the transition of the Solvency II prescribed risk- free rates from LIBOR to SONIA, offset by the positive impact of the corporation tax rate changes, which increases the Group’s deferred tax assets. Economic movements included a positive property variance of £82m due to actual property price growth of over 9% during 2021 being in excess of our 3.3% long-term growth assumption, offset by an adjustment to move to individual updated property prices calculated across our portfolio, rather than using the ONS index. This gain was offset by a negative £76m from higher interest rates (though largely neutral for the solvency ratio) and the net £19m upfront cost of the RT1 refinancing, which will benefit the Group’s underlying organic capital generation in the longer term through lower financing costs. The cost of credit migration during the year was £13m, significantly less than 1% reduction in the Solvency II capital coverage ratio, as credit conditions remained benign. The property sensitivity has reduced to 11% on a pro forma basis, taking into account the third LTM portfolio sale completed post year end (31 December 2020: 14% and a peak of 20% on 30 June 2019). We expect that by maintaining a reduced LTM backing ratio of c.20% on new business and selective NNEG hedges where commercially attractive, we will contain the Solvency II sensitivity to house prices to at or below this level over time. Note that the credit quality step downgrade sensitivity below, as well as being a severe stress requiring a significant downgrade in credit quality for 20% of our credit portfolio, does not allow for the positive impact from credit portfolio management during a time of stress. Sensitivities to economic and other key metrics are shown in the table below. Estimated Group Solvency II sensitivities 1

Reconciliation of IFRS total equity to Solvency II own funds

31 December 2021 1 £m

31 December 2020 £m

Unaudited

Shareholders’ net equity on IFRS basis

2,440

2,490

(34) (86)

Goodwill

(34)

Intangibles

(100) (846)

(759)

Solvency II risk margin

1,657

Solvency II TMTP 1

2,106

Other valuation differences and impact on deferred tax

(987)

(1,391)

(3)

Ineligible items

(5)

781

Subordinated debt Group adjustments

795

(5)

(1)

Solvency II own funds 1

3,004

3,014

(1,836)

Solvency II SCR 1

(1,938)

Solvency II excess own funds 1

1,168

1,076

1 These figures allow 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. Reconciliation from regulatory capital surplus to reported capital surplus 31 December 2021 £m 31 December 2021 % 31 December 2020 £m 31 December 2020 % Regulatory capital surplus 1,168 164 1,071 155 Notional recalculation of TMTP – – 5 1 Reported capital surplus 1,168 164 1,076 156

Unaudited

£m

Solvency coverage ratio/excess own funds at 31 December 2021 2 -50 bps fall in interest rates (with TMTP recalculation)

164 1,168

(4)

+100 bps credit spreads

Credit quality step downgrade (with TMTP recalculation) 3

(8)

(156)

+10% LTM early redemption

(12)

(197)

-10% property values (with TMTP recalculation) 4 -10% property values post LTM sale (with TMTP recalculation) 4,5

(11) (12)

(178) (210)

-5%mortality

1 In all sensitivities the Effective Value Test (“EVT”) deferment rate is maintained at the level consistent with base balance sheet, except for the interest rate sensitivity where the deferment rate reduces in line with the reduction in risk-free rates but is subject to the minimum deferment rate floor of 0.50% as at 31 December 2021 (0% as at 31 December 2020). 2 Sensitivities are applied to the reported capital position which includes a TMTP recalculation. 3 Sensitivity shows the impact of an immediate full letter downgrade on 20% of assets where the capital treatment depends on a credit rating (including corporate bonds, commercial mortgages and infrastructure loans), but excludes lifetime mortgage senior notes. All credit assets were grouped into rating class, then 20% of each group were downgraded. 4 After application of NNEG hedges. 5 Including the impact of the February 2022 LTM portfolio sale.