Just Annual Report and Accounts 2021

JUST GROUP PLC Annual Report and Accounts 2021

PRINCIPAL RISKS AND UNCERTAINTIES

STRATEGIC PRIORITIES

No change/stable Increasing Decreasing CHANGES IN THE PERIOD/RISK OUTLOOK

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RISK

DESCRIPTION AND IMPACT

MITIGATION AND MANAGEMENT ACTION

The financial services industry continues to see a high level of regulatory activity and regulatory supervision. This is shown in the Business Plans of the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”). The PRA has retained its focus on the use of illiquid assets in matching adjustment portfolios (including equity release mortgages) as insurers continue their asset allocations in this area. The PRA is carrying out a quantitative impact study (“QIS”) to assess the financial impact of a variety of potential reforms to the Solvency II regime, including most notably for Just, reform of the matching adjustment and the risk margin. The Group remains exposed to the changes following SS3/17, notably to the PRA changing the parameters used to determine compliance with the Effective Value Test, limiting the matching adjustment available from equity release mortgages. These changes are partially offset by TMTP for business written prior to the introduction of Solvency II. The Treasury is undertaking a review of the future regulatory framework in the UK post-Brexit. This covers the general regulatory framework and roles of the UK regulators as well as a review focused on adapting Solvency II to fit the UK insurance market. The impact on the risk of regulatory change remains uncertain. The PRA required firms to have fully implemented their plans for identifying and managing the financial risks from climate change by the end of 2021. The FCA expected premium-listed firms (including Just Group plc) to comply with the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (“TCFD”) in their annual reports for financial years starting from 1 January 2021. The PRA and FCA have issued requirements to strengthen operational resilience in the financial services sector. This is a key priority for the regulators. The risk of a negative impact on the Group’s capital position from broader financial services regulatory change is not limited to the matters described in the paragraphs above. The change in accounting standard to IFRS 17 due to be implemented in 2023 will produce a different profit recognition profile to which market participants will take time to adjust.

Just monitors and assesses regulatory developments on an on-going basis. We seek to actively participate in all regulatory initiatives which may affect or provide future opportunities for the Group. Our aims are to implement any changes required effectively, and deliver better outcomes for our customers and competitive advantage for the business. We develop our strategy by giving consideration to planned political and regulatory developments and allowing for contingencies should outcomes differ from our expectations. The Group also keeps under review the possible need for capital management actions, such as reducing new business volumes. Just has an approved partial internal model to calculate the Group Solvency Capital Requirement, which it keeps under review for continued appropriateness. Just received approval for changes proposed as part of a Major Model Change in December 2021 incorporating the requirements of SS3/17 for JRL’s internal model and a regulatory treatment for the no-negative equity guarantee risk transfer transactions already completed. Further steps to manage our exposure to UK residential property and the amount of capital we have to hold for lifetime mortgages continue, with a range of actions building on the no-negative equity guarantee hedging and lifetime mortgage portfolio sale transactions completed to date. A revised investment risk framework and limits was adopted by the Board in support of the Group’s on-going compliance with the Prudent Person Principle following the PRA’s supervisory statement. The Group operates a number of governance committees to ensure continuing compliance with the framework and limits. Just is reviewing the potential implications of the Treasury review of Solvency II and the opportunities it presents. Just has participated in the QIS related to the potential Solvency II reforms to understand the financial impacts of the scenarios requested by the PRA. The trade deal agreed between the UK and the EU following UK’s withdrawal from the EU did not address the issue of UK insurers continuing payments to EU/EEA resident customers from 1 January 2021 after the end of the transition period. However, following engagement with EU/EEA regulators, permanent or interim solutions are in place for jurisdictions where material numbers of our customers reside. Just will engage with national regulators to ensure any further measures are taken as required to allow policyholder payments to continue. We have identified the potential impacts of climate change on the Group’s risks. The Group’s risk management framework has been developed to accommodate and report on climate risks and make appropriate disclosures in line with TCFD recommendations. Climate and environmental considerations have been embedded in the Group’s governance and decision making. Just has carried out a programme of development of its operational resilience approach to meet the regulators’ expectations ahead of the implementation deadline at the end of March 2022. We will endeavour to educate investors on the changes resulting from IFRS 17 ahead of full implementation.

Risk A RISKS FROM REGULATORY CHANGES AND SUPERVISION

STRATEGIC PRIORITIES

2. 3. 4. 5. 1.

CHANGE IN THE PERIOD

RISK OUTLOOK