Just group PLC | Annual Report and accounts 2022
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
34 CAPITAL Group capital position The Group’s estimated capital surplus position at 31 December 2022 was as follows:
Solvency Capital Requirement
Minimum Group Solvency Capital Requirement
2022 1 £m
2022 £m
2021 2 £m
2021 £m
2,757
2,152 (388) 3 1,764 3 555% 3
Eligible Own Funds
3,004
2,263 (482) 1,781 469%
(1,387) 3 1,370 3 199% 3
(1,836)
Solvency Capital Requirement
Excess Own Funds
1,168 164%
Solvency coverage ratio
1 Estimated regulatory position. Solvency II capital coverage ratios as at 31 Dec 2021 and 31 Dec 2022 include a recalculation of transitional measures on technical provisions (“TMTP”) as at the respective dates. 2 This is the reported regulatory position as included in the Group’s Solvency and Financial Condition Report as at 31 December 2021. 3 Unaudited. Further information on the Group’s Solvency II position, including a reconciliation between the regulatory capital position to the reported capital surplus, is included in the Business Review. This information is estimated and therefore subject to change. It is also unaudited. The Group and its regulated insurance subsidiaries are required to comply with the requirements established by the Solvency II Framework directive as adopted by the Prudential Regulation Authority (“PRA”) in the UK, and to measure and monitor its capital resources on this basis. The overriding objective of the Solvency II capital framework is to ensure there is sufficient capital within the insurance company to protect policyholders and meet their payments when due. They are required to maintain eligible capital, or “Own Funds”, in excess of the value of their Solvency Capital Requirements (“SCR”). The SCR represents the risk capital required to be set aside to absorb 1-in-200 year stress tests over the next one year time horizon of each risk type that the Group is exposed to, including longevity risk, property risk, credit risk and interest rate risk. These risks are all aggregated with appropriate allowance for diversification benefits. The capital requirement for Just Group plc is calculated using a partial internal model. Just Retirement Limited (“JRL”) uses a full internal model and Partnership Life Assurance Company Limited (“PLACL”) capital is calculated using the standard formula. Group entities that are under supervisory regulation and are required to maintain a minimum level of regulatory capital include: • JRL and PLACL – authorised by the PRA, and regulated by the PRA and FCA. • HUB Financial Solutions Limited, Just Retirement Money Limited and Partnership Home Loans Limited – authorised and regulated by the FCA. The Group and its regulated subsidiaries complied with their regulatory capital requirements throughout the year. Capital management The Group’s objectives when managing capital for all subsidiaries are: • to comply with the insurance capital requirements required by the regulators of the insurance markets where the Group operates. The Group’s policy is to manage its capital in line with its risk appetite and in accordance with regulatory expectations; • to safeguard the Group’s ability to continue as a going concern, and to continue to write new business; • to ensure that in all reasonably foreseeable circumstances, the Group is able to fulfil its commitment over the short term and long term to pay policyholders’ benefits; • to continue to provide returns for shareholders and benefits for other stakeholders; • to provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk; and • to generate capital from in-force business, excluding economic variances, management actions, and dividends. The Group regularly assesses a wide range of actions to improve the capital position and resilience of the business. To improve resilience to property risk, we have significantly reduced the exposure related to LTMs by selling three blocks of LTMs and transacting three no-negative equity guarantee (“NNEG”) hedges since 2018. In managing its capital, the Group undertakes stress and scenario testing to consider the Group’s capacity to respond to a series of relevant financial, insurance, or operational shocks or changes to financial regulations should future circumstances or events differ from current assumptions. The review also considers mitigating actions available to the Group should a severe stress scenario occur, such as raising capital, varying the volumes of new business written and a scenario where the Group stops writing new business. EVT compliance At 31 December 2022, Just passed the PRA EVT with a buffer of 1.53% (unaudited) over the current minimum published deferment rate of 2.0% (allowing for volatility of 13%, in line with the requirement for the EVT). At 31 December 2021, the buffer was 0.75% (unaudited) compared to the minimum deferment rate of 0.5%. The buffer increased primarily due to rise in risk free rates. Management regularly assesses the level of buffer above the minimum deferment rate and considers appropriateness of the buffer against an established framework. Regulatory developments The PRA approved the Group’s major model change application on 28 November 2022. We are planning to apply to the PRA to bring the PLACL SCR calculation onto the internal model.
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