Strategic Report | Governance | Financial Statements | 231
GLOSSARY
Acquisition costs comprise the direct costs (such as commissions and new business processing team costs) of obtaining new business, together with associated indirect costs. Adjusted operating profit before tax this is the sum of the new business profit and in-force operating profit, operating experience and assumption changes, other Group companies’ operating results, development expenditure and financing costs. The Board believes the combination of both future profit generated from new business written in the year and additional profit from the in-force book of business, provides a better view of the development of the business. The net underlying CSM increase is added back as the Board considers the value of new business is significant in assessing business performance. Adjusted operating profit before tax excludes the following items that are included in profit before tax: strategic expenditure, investment and economic profits and amortisation and impairment costs of acquired intangible assets. In addition, it includes Tier 1 interest (as part of financing costs) which is not included in profit before tax (because the Tier 1 notes are treated as equity rather than debt in the IFRS financial statements). Adjusted operating profit is reconciled to IFRS profit before tax in the Business Review. Adjusted profit/(loss) before tax an APM, this is the profit/(loss) before tax before deferral of profit in CSM and includes non operating items (investment and economic movement, strategic expenditure, and interest adjustment to reflect IFRS accounting for Tier 1 notes as equity). Alternative performance measure (“APM”) in addition to statutory IFRS performance measures, the Group has presented a number of non- statutory alternative performance measures within the Annual Report and Accounts. The Board believes that the APMs used give a more representative view of the underlying performance of the Group. APMs are identified in this glossary together with a reference to where the APM has been reconciled to its nearest statutory equivalent. APMs which are also KPIs are indicated as such. Buy-in an exercise enabling a pension scheme to obtain an insurance contract that pays a guaranteed stream of income sufficient to cover the liabilities of a group of the scheme’s members. Buy-out an exercise that wholly transfers the liability for paying member benefits from the pension scheme to an insurer which then becomes responsible for paying the members directly. Capped Drawdown a non-marketed product from Just Group previously described as Fixed Term Annuity. Capped Drawdown products ceased to be available to new customers when the tax legislation changed for pensions in April 2015. Care Plan (“CP”) a specialist insurance contract contributing to the costs of long-term care by paying a guaranteed income to a registered care provider for the remainder of a person’s life. Cash Generation underlying organic capital generation before the impact of new business strain. Confidence interval the degree of confidence that the provision for future cash flows plus the risk adjustment reserve will be adequate to meet the cost of future payments to annuitants. Contractual Service Margin (“CSM”) represents deferred profit earned on insurance products. CSM is recognised in profit or loss over the life of the contracts. CSM amortisation represents the net release from the CSM reserve into profit as services are provided. The figures are net of accretion (unwind of discount), and the release is computed based on the closing CSM reserve balance for the period. Deferral of profit in CSM the total movement on CSM reserve in the year. The figure represents CSM recognised on new business, accretion of CSM (unwind of discount), transfers to CSM related to changes to future cash flows at locked-in economic assumptions, less CSM release in respect of services provided. Defined benefit deferred (“DB deferred”) business the part of DB de-risking transactions that relates to deferred members of a pension scheme. These members have accrued benefits in the pension scheme but have not retired yet.
Defined benefit de-risking partnering (“DB partnering”) a DB de-risking transaction in which a reinsurer has provided reinsurance in respect of the asset and liability side risks associated with one of our DB Buy-in transactions. Defined benefit (“DB”) pension scheme a pension scheme, usually backed or sponsored by an employer, that pays members a guaranteed level of retirement income based on length of membership and earnings. Defined contribution (“DC”) pension scheme a work-based or personal pension scheme in which contributions are invested to build up a fund that can be used by the individual member to provide retirement benefits. De-risk/de-risking an action carried out by the trustees of a pension scheme with the aim of transferring investment, inflation and longevity risk from the sponsoring employer and scheme to a third party such as an insurer. Development expenditure relates to development of existing products, markets, technology, and transformational projects. Drawdown (in reference to Just Group sales or products) collective term for investment products including Capped Drawdown. Employee benefits consultant an adviser offering specialist knowledge to employers on the legal, regulatory and practical issues of rewarding staff, including non-wage compensation such as pensions, health and life insurance and profit sharing. Equity release products and services enabling homeowners to generate income or lump sums by accessing some of the value of the home while continuing to live in it – see Lifetime mortgage. Finance costs represent interest payable on the Group’s Tier 2 and Tier 3 debt. Gross premiums written total premiums received by the Group in relation to its Retirement Income and Protection sales in the period, gross of commission paid. Guaranteed Income for Life (“GIfL”) retirement income products which transfer the investment and longevity risk to the company and provide the retiree a guarantee to pay an agreed level of income for as long as a retiree lives. On a “joint-life” basis, continues to pay a guaranteed income to a surviving spouse/partner. Just provides modern individually underwritten GIfL solutions. IFRS profit before tax one of the Group’s KPIs, representing the profit before tax attributable to equity holders. In-force operating profit represents profits from the in-force portfolio before investment and insurance experience variances, and assumption changes. It mainly represents release of risk adjustment for non- financial risk and of allowance for credit default in the period, investment returns earned on shareholder assets, together with the value of the (net) CSM amortisation. Investment and economic movements reflect the difference in the period between expected investment returns, based on investment and economic assumptions at the start of the period, and the actual returns earned. Investment and economic profits also reflect the impact of assumption changes in future expected risk-free rates, corporate bond defaults and house price inflation and volatility. Key performance indicators (“KPIs”) KPIs are metrics adopted by the Board which are considered to give an understanding of the Group’s underlying performance drivers. The Group’s KPIs are Return on equity, Retirement income sales, Underlying organic capital generation, New business profit, Underlying operating profit, IFRS profit before tax, New business strain, Solvency II capital coverage ratio and Tangible net asset value per share. Lifetime mortgage (“LTM”) an equity release product that allows homeowners to take out a loan secured on the value of their home, typically with the loan plus interest repaid when the homeowner has passed away or moved into long-term care.
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