FINANCIAL STATEMENTS
STRATEGIC REPORT
GOVERNANCE
RISK
DESCRIPTION AND IMPACT
MITIGATION AND MANAGEMENT ACTION
The premiums paid by the Group’s customers are invested to enable future benefits to be paid when expected with a high degree of certainty. The economic environment and financial market conditions have a significant influence on the value of assets and liabilities the Group holds and on the income the Group receives. A deterioration in the economic environment could impact the availability and attractiveness of certain securities and increase the risk of credit downgrades and defaults in our asset portfolio. A fall in residential property values could reduce the amounts received from lifetime mortgage redemptions and may affect the relative attractiveness of the LTM product to customers. The regulatory capital needed to support the possible shortfall on the redemption of lifetime mortgages also increases if property values drop. Conversely, significant rises in property values could increase the incidence of early mortgage redemptions, leading to an earlier receipt of anticipated cash flows with the consequential reinvestment risk. It remains possible that the Bank of England could maintain negative real interest rates as a policy tool to stimulate the economy. The effect that this would have on customer behaviour or on the market for credit investments or lifetime mortgages is unclear. Most defined benefit pension schemes link member benefits to inflation through indexation. As the Group’s defined benefit de-risking business volumes grow, its gross exposure to inflation risk increases. The conflict in Ukraine is expected to impact energy prices and hence increases our expectations of inflation in the near term. Depending on how the conflict is resolved, it may have implications for certain of the investments in our investment portfolio. Market risks may affect the liquidity position of the Group by, for example, having to realise assets to meet liabilities during stressed market conditions or to service collateral requirements due to the changes in market value of financial derivatives. A lack of market liquidity is also a risk to any need that the Group may have to raise capital or refinance existing debt. Just’s asset and derivative counterparties have climate risk exposure which may impact their creditworthiness in due course. Our purpose is to help people achieve a better later life. Our Group’s brands reflect the way we aim to conduct our business and treat our customers and wider stakeholder groups. The Group’s reputation could be damaged if the Group is perceived to be acting, even unintentionally, below the standards we set for ourselves. This could include, for example, failing to achieve the goals we have set for enhancing our sustainability framework and contributing to global efforts to reduce climate change risk. The Group’s reputation could also be threatened by external risks such as a cyber attack, a data protection breach, or regulatory enforcement action. Such regulatory action could result directly from the Group’s actions or through contagion from other companies in the sectors in which we operate. Damage to our reputation may adversely affect our underlying profitability, through reducing sales volumes, restricting access to distribution channels and attracting increased regulatory scrutiny.
Economic conditions are actively monitored, and alternative scenarios modelled to better understand the potential impacts of significant economic changes on the amount of capital required to be held to cover risks, and to informmanagement action plans. The Group’s strategy is to buy and hold high-quality, investment grade assets in its investment portfolio to ensure that it has sufficient income to meet outgoings as they fall due. Portfolio credit risk is managed by a combination of Just’s internal investment team and specialist external fund managers, overseen by Just’s own credit specialists, executing a diversified investment strategy in assets within concentration risk limits. Improved returns are sought by increasing the types, geographies, industry sectors and classes of assets into which the Group invests. This creates exposures to foreign exchange risk, which is controlled using derivative instruments. Derivative instruments are also used to reduce exposures to interest rate volatility. The counterparty exposure arising from transacting in these instruments is mitigated by collateral arrangements and managed to avoid concentration exposures wherever practical. For lifetime mortgages, the Group underwrites the properties against which it lends using valuations from expert third parties. The Group’s property risk is controlled by limits to the initial Loan-to-value ratio, supported by product design features and limiting specific property types and exposure in each region. We also monitor the exposure to adverse house price movements and the accuracy of our indexed valuations. While the Group’s capital models accommodate negative interest rates, there is no historical data to validate the behaviour of the economy in such an environment. The Group manages its exposure to inflation risk using inflation hedges and index-linked securities. The Group closely monitors inflationary pressures, including energy prices, and other factors that may have implications for our investments. Liquidity risk is managed by ensuring that assets of a suitable maturity and marketability are held to meet liabilities as they fall due. There can be some short-term volatility in the Group’s cash position, which is a consequence of its derivative hedging. Regular cash flow forecasts predict liquidity levels over both the short-term and long-term and stress tests help us determine the required liquidity to hold. The Group monitors market conditions to ensure appropriate liquid resources are held at all times to cover extreme stresses such as those seen in March 2020. The Group’s liquidity requirements have been met over the past year and forecasting indicates that this position can reasonably be expected to continue for both investments and business operations. The monitoring of climate risk exposures of counterparties is an evolving area as climate disclosures and regulatory expectations are developing. Assessing such exposure includes consideration of climate risk disclosures, alongside any associated public reporting and the actions of credit rating agencies and where appropriate regulators. The Group actively seeks to differentiate its business from competitors by investing in brand enhancing activities. Fairness to customers and high service standards are at the heart of the Just brand, and we encourage our colleagues to take pride in the quality of service they provide. Engaging our colleagues in the Just brand and its associated values has been, and remains, a critical part of our internal activity. Just is proactive in pursuing its sustainability responsibilities and recognises the importance of its social purpose. We have set sustainability targets aiming for our operations to be carbon net zero by 2025 and for emissions from our investment portfolio to be net zero by 2050, with a 50% reduction in emissions from the portfolio by 2030. Performance against these targets will be carefully monitored and reported. Protecting the personal data of our customers and colleagues remains a key priority. This is achieved both by high standards of information security and keeping the use of such data under tight control. We also take care to ensure that all data subjects can exercise their rights under GDPR, such as the ability to make subject access requests to obtain the data we hold about them and the right to be forgotten.
Risk b RISKS FROM
THE ECONOMIC AND POLITICAL ENVIRONMENT
STRATEGIC PRIORITIES
2. 3. 4. 5. 1.
CHANGE IN THE PERIOD
RISK OUTLOOK
Risk C RISKS TO THE
GROUP’S BRAND AND REPUTATION
STRATEGIC PRIORITIES
2. 3. 4. 5. 1.
CHANGE IN THE PERIOD
RISK OUTLOOK
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