FINANCIAL STATEMENTS
STRATEGIC REPORT
GOVERNANCE
RISK
DESCRIPTION AND IMPACT
MITIGATION AND MANAGEMENT ACTION
The Group operates in a market where changes in pensions legislation can have a considerable effect on our strategy and could reduce our sales and profitability or require us to hold more capital. Our chosen market of helping people approaching and in-retirement is rightly highly regulated. While we maintain strong controls across our services, we could fail to meet these ever increasing standards and fail to deliver to our core purpose of helping people achieve a better later life. Likewise, customer needs and expectations continue to evolve and change in profile, and we may not optimise our professional services offering and distribution models to suit their requirements. Failures in these areas would raise the risk of losing one or more of our key partners on whomwe rely for customer introductions. Competitive pressure in the lifetime mortgage market is strong with lenders moving to control distribution as well as competing on rates and early repayment charges. The range of products available in this market has increased substantially in the last few years while average rates have reduced, squeezing margins. A significant fall in home prices, although not expected to occur, could affect customer appetite for equity release. Climate risk could affect Just Group’s financial risks due to its exposure to residential property through its lifetime mortgage portfolio and through its corporate bond and illiquid investment portfolio. For lifetime mortgages: (i) transition risk – government policy changes may impact the value of residential properties, such as through the introduction of minimum energy performance requirements at the time of sale; (ii) physical risks – such as increased flooding, resulting from severe rainfall, or more widespread subsidence due to extended droughts, may affect the value of properties not seen as having such an exposure at present. For corporate bond and illiquid investment portfolios, the impact of climate risk on assets or business models may affect the ability of corporate bond issuers and commercial borrowers to service their liabilities. The yields available from corporate bonds may also be affected by any litigation or reputational risks associated with the issuers’ environmental policies or adherence to emissions targets. The increased consideration of sustainability in investment decisions may restrict investment choice and the yields available; it may also create new opportunities to invest in assets that are perceived to be more sustainable.
The Group offers a range of retirement options, allowing it to remain agile in this changing environment, and flexes its offerings in response to market dynamics. Our approach to legislative change in our markets is to participate actively and engage with policymakers. We are well placed to adapt to changing customer demand, supported by our brand promise, innovation credentials, digital expertise and financial strength. The most influential factors in the successful delivery of the Group’s plans are closely monitored to help inform the business. The factors include market forecasts and market share, supported by insights into customer and competitor behaviour. Demand from scheme trustees for defined benefit de-risking solutions is expected to continue to grow, mitigating the impacts on Just of increased market competition. The automated advice service Destination Retirement is a strategic response by the distribution business to address changing needs in the retirement market. This service is targeted at people approaching or in-retirement with modest pension savings who may be unable to afford traditional financial advice. The risk of increased competition in the lifetime mortgage market is mitigated through continuing work to improve the customer appeal of the Group’s products, explore new product variants and meet distributors’ digital and service needs. We continue to develop stress testing capabilities to further improve monitoring of the potential impact of climate change on our investment and equity release portfolios. Government policy on the energy performance of residential properties is being monitored. We already take risks from flooding, coastal erosion and subsidence into account in our lending decisions, and are keeping the lifetime mortgage lending policy under review in light of climate risks, making adjustments as required. Just has enhanced its approach to ESG in its investment strategy as set out in its Responsible Investment Framework. This has resulted in new premium income being invested in bonds and illiquid investments with a lower carbon footprint.
Risk F RISKS FROM OUR CHOSEN MARKET ENVIRONMENT
STRATEGIC PRIORITIES
2. 3. 4. 5. 1.
CHANGE IN THE PERIOD
RISK OUTLOOK
The Group’s strategic priorities are explained in more detail on pages 16 and 17.
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