Strategic Report | Governance | Financial Statements | 23
The Group is well positioned in attractive markets with strong structural growth drivers. This enables us to benefit from the significant boost in demand for our products, now and into the future. We innovate, risk select and price with discipline, ensuring our business model delivers long-term value for customers and shareholders. The Business Review presents the results of the Group for the year ended 31 December 2023, including IFRS and unaudited Solvency II information. These are the first audited results under IFRS 17, which has prompted some modification of the Group’s key performance indicators including restatement of comparatives where applicable, as set out below. The continued growth and success of the business is built on the foundation of our low capital intensity new business model, supported by a strong and resilient capital base. We are focused on cost control across the business whilst specifically targeting investment in proposition development, and to enable the business to scale efficiently as we take advantage of the multiple growth opportunities in our markets. We continue to diversify the asset portfolio by originating a greater proportion of illiquid assets to back the new business in line with our investment strategy. SALES The DB business continues to go from strength to strength as rising interest rates have accelerated the closure of scheme funding gaps, enabling a market shift towards full scheme Buy-ins. During 2023, we wrote a record amount of DB new business, up 21% to £3,415m from 80 transactions (2022: £2,827m, 56 transactions), in a buoyant market estimated by LCP and WTW to be c£50bn (2022: £28bn). Heightened and consistent demand throughout 2023 allowed Just to increasingly risk select as the year progressed with strong pricing discipline, a wider panel of reinsurers, market insight and business mix driven by our streamlined bulk quotation service all contributing towards higher margins. The drivers behind this momentum remain and we expect a busy 2024 and beyond, as we execute on small, medium and larger transactions, while maintaining capital flexibility. We estimate that 15% of the £1.2tn DB market opportunity has transferred across to insurers thus far. LCP are forecasting that c.£600bn of DB Buy-in/ Buy-out transactions could transact over the decade to 2033, of which up to £360bn could transact in the next five years. This compares to £180bn in the last five years. Our GIfL business had a very strong 2023, following a competitive year in 2022, where we demonstrated our pricing discipline by reducing volumes. During 2023, we wrote £894m of GIfL new business, up 59% year on year (2022: £564m). The UK individual GIfL market grew by 46% to £5.3bn (2022: £3.6bn), its highest level since Pension Freedoms in 2014. Quote activity levels remain elevated as higher interest rates directly increase the customer rate on offer, thus increasing the attractiveness of a guaranteed income relative to other forms of retirement income. The customer rate can be further improved through bespoke medical underwriting, in which Just is a market leader. The introduction of the FCA’s Consumer Duty in July 2023 and findings from the FCAs thematic review into retirement income advice, expected shortly, are likely to lead to increased adviser conversations on the importance of considering guaranteed solutions to help customers achieve their objectives.
PROFIT During 2023, underlying operating profit was £377m (2022: £257m), up 47%, and substantially ahead of our 15% operating profit growth target. Strong demand for our products provided the opportunity to write a greater volume of new business at an efficient capital strain. Shareholder funded Retirement Income sales of £3,893m were 24% higher than 2022. New business profit, which includes the DB Partner origination fee, was up 33% at £355m (2022: £266m), translating to a new business margin of 9.1% (2022: 8.5%) on shareholder funded premiums as buoyant markets supported active risk selection. Higher and rising interest rates during 2023 boosted the return on surplus assets, thereby increasing in-force operating profit, up 22% to £191m. Finance costs have reduced following the November 2022 tender offer and subsequent cancellation of £100m tier 2 debt, thus optimising the capital structure and providing future capital flexibility. Operating experience and assumption changes, primarily related to longevity, were a combined £52m positive (2022: £104m positive) impact on profit. Total investment and economic profits of £92m (2022: £537m losses) combined with other items led to an adjusted profit before tax of £520m (2022: £167m loss). Of this £520m, £348m of profit is deferred to the CSM reserve in the balance sheet, leaving an IFRS Profit before tax of £172m (2022: Loss before tax of £494m after deferral of £327m to CSM). CAPITAL The Group’s estimated Solvency II capital position remains at a very healthy and robust level of 197% (31 December 2022: 199%) as we benefited from organic capital generation and regulatory changes, specifically a large reduction in the risk margin, as part of the ongoing Solvency UK reforms. Through our targeted management actions, property and interest rate sensitivities have much reduced in recent years. Underlying organic capital generation (“UOCG”) grew strongly to £57m (2022: £34m), delivering a fourth consecutive year of positive UOCG, a key metric to delivering a sustainable business model. Within this, the £35m capital strain from writing the increased level of new business was substantially lower year on year at 0.9% of premium (2022: £60m and 1.9% of premium). This low new business strain, materially inside our target of less than 2.5%, reflects strong pricing discipline, risk selection, development of reinsurance optionality and our ability to originate increasing quantities of high-quality illiquid assets. Lower finance costs also contributed. During the year, we paid a £19m shareholder dividend, well covered by UOCG. We continue to closely monitor and prudently manage our risks, including interest rates, inflation, currency, residential property and credit. The Solvency II sensitivities are set out below. The 2023 Financial Services and Markets Act contains new powers to set the direction for financial services following the UK’s exit from the European Union, including reforms to the Solvency II capital regime. As part of the proposed new Solvency UK regime, last June, HM Treasury and the Prudential Regulation Authority (“PRA”) set out their proposals to implement the more straightforward items, including simplification measures and reforms which have led to a c.60% reduction in risk margin for life insurance business. Industry and the regulator were very much aligned on these objectives. A consultation paper on the more complex changes to matching adjustment (“MA”) rules and the associated investment flexibility was launched in September, with reforms to take effect in 2024. We expect these MA changes to support the role HM Treasury is expecting from the industry, whereby appropriate reforms could increase insurer investment by tens of billions of pounds in long-term finance to the broader economy, including infrastructure, decarbonisation, social housing and increased investment in science and technology.
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