Just group PLC | Annual Report and accounts 2022
BUSINESS REVIEW continued
Non-operating items Within the surplus, property value movements led to a £18m negative due to actual property price growth of c.2% (compared to our annual 3.3% long term growth assumption) on our individually updated portfolio. Other economic movements included a positive £137m to the surplus as both the SCR (£436m) and the Own Funds (£299m) fell due to higher interest rates. This interest rate movement led to a strengthening of the capital coverage ratio by 30 percentage points, with asset trading and various positive other economic variances having minimal impact on the coverage ratio. This includes a lower than anticipated impact from the third LTM portfolio sale as we reinvested the proceeds in other illiquid assets and the positive impact from high inflation indexation and no corporate bond defaults during the year. The Tier 2 debt buyback in November 2022 led to a £33m reduction in capital surplus as the £76m nominal that was bought back was partially offset by the release of capital tiering restrictions. In 2022, the Group recommenced a shareholder dividend, which cost a total of £16m during the year.
Reconciliation of IFRS total equity to Solvency II own funds
31 December 2022 £m
31 December 2021 £m
Unaudited
Shareholders’ net equity on IFRS basis
2,178
2,440
(34) (70)
Goodwill
(34) (86)
Intangibles
(456)
Solvency II risk margin
(759)
874
1,657
Solvency II TMTP 1
Other valuation differences and impact on deferred tax
(304)
(987)
(50)
Ineligible items
(3)
619
Subordinated debt Group adjustments
781
–
(5)
Sensitivities to economic and other key metrics are shown in the table below.
2,757
Solvency II own funds 1
3,004
Estimated Group Solvency II sensitivities 1,5
(1,387)
Solvency II SCR 1
(1,836)
1,370
Solvency II excess own funds 1
1,168
%
£m
Unaudited
Solvency coverage ratio/excess own funds at 31 December 2022 2 -50 bps fall in interest rates (with TMTP recalculation) +50 bps increase in interest rates (with TMTP recalculation) +100 bps credit spreads (with TMTP recalculation)
1 Solvency II capital coverage ratios as at 31 December 2021 and 31 December 2022 include a recalculation of transitional measures on technical provisions (“TMTP”) as at the respective dates.
199
1,370
(13)
(88)
Reconciliation from regulatory capital surplus to reported capital surplus
13
79 31
31 December 2022 %
31 December 2022 £m
31 December 2021 %
31 December 2021 £m
8
(8)
(107)
Credit quality step downgrade 3 +10% LTM early redemption
Regulatory capital surplus Notional recalculation of TMTP
1
13
1,370
199
1,168
164
(12) (10)
(135)
-10% property values (with TMTP recalculation) 4
–
–
–
–
-5% mortality (136) 1 In all sensitivities the Effective Value Test (“EVT”) deferment rate is allowed to change subject to the minimum deferment rate floor of 2.0% as at 31 December 2022 (0.50% as at 31 December 2021) except for the property sensitivity where the deferment rate is maintained at the level consistent with base balance sheet. 2 Sensitivities are applied to the reported capital position which includes a TMTP recalculation. 3 Credit migration stress covers the cost of an immediate big letter downgrade (e.g. AAA to AA or A to BBB) on 10% of all assets where the capital treatment depends on a credit rating (including corporate bonds, ground rents/income strips; but lifetime mortgage senior notes are excluded). Downgraded assets are assumed to be traded to their original credit rating, so the impact is primarily a reduction in Own Funds from the loss of value on downgrade. The impact of the sensitivity will depend upon the market levels of spreads at the balance sheet. 4 After application of NNEG hedges. 5 The results do not include the impact of capital tiering restriction.
Reported capital surplus
1,370
199
1,168
164
28
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