Just group PLC | Annual Report and accounts 2022
BUSINESS REVIEW continued
market backdrop through our low strain new business model, which enables us to fund our ambitious growth plans through underlying organic capital generation, and utilising various forms of reinsurance through DB partnering. When combined with our proven ability to originate high quality illiquid assets, shareholder capital invested in new business adds substantially to increasing the existing shareholder value. GIfL sales fell by 24% to £520m (2021: £688m), due to a competitive market and a decrease in the value of pension pots, which resulted in smaller case sizes. Falling equity and bond markets, and economic uncertainty demonstrate to customers the importance and security of a guaranteed income. We maintained pricing discipline and used our insight to select the most profitable risks in a competitive market, while deploying the available capital budget towards the heightened activity in the DB market. The rise in long term interest rates has translated into increased customer rates which has stimulated interest in guaranteed income relative to other forms of retirement income. Year to date, quotation volumes are substantially higher than 2022, which provides us with further optionality to deploy available capital. We continue to invest in our distribution capability, with online applications now available, which contributed towards our 18th consecutive Five Stars at November’s Financial Advisor Service Awards. Care sales were down 14% at £44m (2021: £51m) and remain subdued due to customer behaviour changes post pandemic, with a further delay to October 2025 in relation to proposed government initiatives on health and social care funding. Other new business sales 2022 internally funded lifetime mortgage advances were £519m (2021: £488m), an increase of 6%, with these in part used to replace an increased level of back book LTM early redemptions. Going forward, our target LTM backing ratio for new business has been revised downwards to 10-15%. Relative to the spreads available on other illiquid assets, LTMs remain an attractive asset class, however, in a higher interest rate environment, the capital charge attaching to the NNEG risk becomes onerous. We continue to be selective in the mortgages we originate, as we use our market insight and distribution to target certain sub-segments of the market. During 2021, we introduced medical underwriting across the entire lifetime mortgage range and also signed an exclusive distribution agreement with Saga, both of which are contributing to increasing volumes within the mix. Increased investment in LTM digital capabilities and proposition has been well received by financial advisers. ADJUSTED EARNINGS PER SHARE Adjusted EPS (based on underlying operating profit after attributed tax) has increased to 19.6 pence (2021: 16.4 pence). Year ended 31 December 2022 Year ended 31 December 2021 Adjusted earnings (£m) 202 170 Weighted average number of shares (million) 1,032 1,034 Adjusted EPS1 (pence) 19.6 16.4 1 Alternative performance measure, see glossary for definition. The adjusted earning calculation has been updated to be consistent with the 15% medium term growth metric, based on underlying operating profit.
EARNINGS PER SHARE
Year ended 31 December 2022
Year ended 31 December 2021 1
(245)
Earnings (£m)
(82)
1,032
Weighted average number of shares (million)
1,034
(23.7)
EPS (pence)
(8.0)
1 Restated as explained in note 1.
RECONCILIATION OF OPERATING PROFIT TO STATUTORY IFRS RESULTS The tables on the following pages present the Group’s results on a statutory IFRS basis.
Year ended 31 December 2022 £m
Year ended 31 December 2021 £m
Adjusted operating profit before tax Non-recurring and project expenditure Investment and economic losses
336
238
(12)
(15)
(639)
(251)
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity
16
25
(18)
Amortisation costs IFRS loss before tax
(18) (21)
(317)
Non-recurring and project expenditure Non-recurring and project expenditure was £12m for the year ended 31 December 2022 (2021: £15m). This included the business process transformation and increasing efficiency by investing in automation and new systems, across DB, retail and finance, which will lead to improved customer service and long-term cost and control benefits. This also includes the support for Group internal model updates and other items. Investment and economic losses Year ended 31 December 2022 £m Year ended 31 December 2021 £m Change in interest rates (510) (226) (Wider)/narrower credit spreads (112) 57 Property growth experience (22) 56 Sale of LTM portfolio (49) (161) Asset timing variance (95) 51 Other 149 (28) Investment and economic losses (639) (251) Investment and economic losses for the year ended 31 December 2022 were £639m (2021: £251m loss). Losses from the increase in risk-free rates during the period contributed £510m. The Group takes an active approach to hedging its interest rate exposure. In the second half of 2021 and across 2022, as rates rose and our solvency position strengthened, we gradually reduced the interest rate hedging to a broadly economically neutral position. Our modified approach will allow the solvency position to fluctuate as interest rates move, but minimise the economic cost should rates rise further. As noted above, the cumulative net interest rate loss from hedging the Solvency II balance sheet since 2018 has been a net loss (pre-tax) of £226m. Rising rates over the second half of 2022 helped the Solvency II capital coverage ratio strengthen by a further 15 percentage points to 199%.
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