Just Annual Report and Accounts 2019

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ACHIEVE A BETTER LATER LIFE

Just group PLC Annual Report and accounts 2019

JUST GROUP PLC Annual Report and Accounts 2019

about us

We are a specialist UK financial services group focusing on attractive segments of the UK retirement income market. The Group is a leading and established provider of retirement income products and services to individual and corporate clients

All Just Group plc regulatory announcements, shareholder information and news releases can be found on our Group website, www.justgroupplc.co.uk Cross linking Throughout this document we have linked content together in order to provide amore comprehensive report inside the Strategic Report, Governance Report and Financial Statements. These sections, taken together, comprise the Strategic Report in accordance with the UK Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.

Contents

Strategic Report 1 Our purpose 2 Investment case 3 Financial and operational highlights 4 At a glance 6 Chair’s Statement 8 Chief Executive Officer’s Statement 10 Market context 14 Business model 16 Strategic priorities 18 Sustainable investment strategy 20 Developing new partnering propositions 22 Relationships with stakeholders 24 Key performance indicators 26 Financial Review 34 Risk management 36 Principal risks and uncertainties 40 People and culture 44 Investing in fulfilling our purpose 46 Environment 48 Section 172 Statement 52 Non-financial information statement

Governance 54 Chair’s introduction to Governance 56 Board of Directors 60 Senior leadership 62 Governance in operation 69 Nomination Committee Report 72 Audit Committee Report 78 Group Risk and Compliance Committee Report 80 Directors’ Remuneration Report 97 Directors’ Report 101 Directors’ Responsibilities

FInancial Statements 102 Independent Auditor’s Report 111 Consolidated statement of comprehensive income 112 Consolidated statement of changes in equity 113 Consolidated statement of financial position 114 Consolidated statement of cash flows 115 Notes to the consolidated financial statements 157 Statement of changes in equity of the Company 158 Statement of financial position of the Company 159 Statement of cash flows of the Company 160 Notes to the Company financial statements 164 Additional financial information 166 Information for shareholders 168 Directors and advisers 169 Glossary 171 Abbreviations

STRATEGIC REPORT

Our purpose

Individuals We provide guaranteed income for life to deliver security and peace of mind for our customers and we provide regulated advice, guidance and information services to help people make the most of their pensions and other savings.

Pension scheme trustees We provide improved security of income for members of defined benefit pension schemes by transferring the risk to Just.

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STRATEGIC REPORT

Financial and Operational Highlights

AWARDED FURTHER RECOGNITION FOR OUTSTANDING SERVICE

KEY PERFORMANCE INDICATORS

SOLVENCY II CAPITAL COVERAGE RATIO (ESTIMATED) 141 % 136% at 31 December 2018

ORGANIC CAPITAL GENERATION/ (CONSUMPTION) 1 36 m £(165)m at 31 December 2018 £

FINANCIAL ADVISER: 5 STAR SERVICE AWARD

RETIREMENT INCOME SALES 1

ADJUSTED OPERATING PROFIT BEFORE TAX 1

EUROPEAN PENSION AWARDS

1,918.1 m

218.6 m

2018: £2,173.5m, down 12%

2018: £210.3m, up 4%

NEW BUSINESS OPERATING PROFIT 1

IN-FORCE OPERATING PROFIT 1

PENSIONS AGE

£ 182.0 m 2018: £243.7m, down 25%

84.4 m

2018: £71.7m, up 18%

IFRS PROFIT BEFORE TAX

IFRS NET ASSETS

INSTITUTE OF CUSTOMER SERVICE

368.6 m

2,321.0 m

UK Customer Satisfaction Awards 2019 WINNER

2018: £(85.5)m

2018: £1,663.8m, up 39%

FINANCIAL STRENGTH AND OTHER INDICATORS

FITCH INSURER FINANCIAL STRENGTH RATING A + for Just Retirement Limited (2018: A+)

FITCH ISSUER DEFAULT RATING

MONEY AGE AWARDS

A for Just Group plc (2018: A)

1 Alternative performance measure (see glossary on page 169 for definition). Organic capital generation/(consumption) is reconciled to Solvency II excess own funds on page 27.

New business operating profit, in-force operating profit and adjusted operating profit are reconciled to IFRS profit before tax on page 29 and 30. Retirement Income sales are reconciled to gross premiums written in note 6 to the consolidated financial statements on page 125.

JUST GROUP PLC Annual Report and Accounts 2019

at a glance

Leaders in our markets. We positively disrupt markets where we can become a leader and deliver great outcomes for customers so we may deliver value for shareholders

We are a specialist in our chosen markets, serving four distinct groups…

Trustees and scheme sponsors: Providing member security and de-risking pension liabilities Defined benefit pension schemes de-risking their liabilities by securing member benefits with an insurance contract.

Individuals: Providing retirement income People who have built up pension savings throughout their career and want a guaranteed income, flexible income or a combination in retirement.

ADDRESSABLE MARKET

MARKET VALUE OF DEFINED CONTRIBUTION PENSION SAVINGS > £ 1 trillion

600 billion

> £

Homeowners: Accessing property wealth People aged 60+ who want to access wealth locked up in their property.

Corporate clients: Solving problems for companies

We develop scalable retirement-focused solutions for banks, building societies, life assurance companies, pension scheme trustees, other corporate clients and for their customers, clients and members.

PROPERTY WEALTH OWNED BY PEOPLE AGED 55 +

3.2 trillion

> £

STRATEGIC REPORT

Competitive position: A leader

Developing

…WITH PRODUCTS AND SERVICES

SERVICES

BENEFIT AND COMPETITIVE POSITION

Just’s innovative approach and underwriting expertise in this segment delivers better prices for trustees.

Defined Benefit De-risking Solutions (“DB”) Solutions for pension scheme trustees to reduce the financial risks of operating pension schemes and increase certainty that members’ pensions will be paid in the future.

marketed products 1

By using our unrivalled intellectual property, Just provides an individually tailored solution providing customers typically with double- digit percentage increases in income compared to standard products. Just’s pioneering Secure Lifetime Income product enables customers to select a guaranteed income from within a Self- Invested Personal Pension. This enables a customer to manage and blend their total pension assets tax efficiently within a single technology platform. Just’s Care Plans can be tailored to the individual and offer a tax-efficient solution to making payments to residential care providers.

Guaranteed Income for Life (“GI f L”)

A solution for individuals/couples who want the security of knowing they will receive a guaranteed income for life.

SECURE LIFETIME INCOME (“SLI”) Launched in 2019, SLI is a tax-efficient solution for individuals who want the security of knowing they will receive a guaranteed income for life and the flexibility to make changes in the early years of the plan. Care Plans A solution for people moving to residential care who want the security of knowing a regular payment will be made to the care provider for the rest of their life.

Just provides a range of lifetime mortgages, enabling people to meet a variety of needs in later life.

Lifetime Mortgages (“LTM”) Solutions designed for people who want to release some of the value of their home.

1 Reported in our

Insurance segment.

SERVICES

BENEFIT AND COMPETITIVE POSITION

HUB Financial Solutions offers an innovative approach that provides affordable regulated advice to people with modest pension savings. It also delivers face-to-face nationwide advice at a time and place to suit the client, and enables pension schemes to deliver efficient and robust scheme-led defined benefit transfer programmes. + Provides a range of business services tailored to the needs of the organisation, ranging from consultancy and software development to fully outsourced customer service delivery and marketing services.

HUB Group Our professional services and distribution businesses delivering technology, broking and advice solutions for corporate clients and pension schemes. We also provide regulated financial advice on how people should use pension savings, or release some of the value from their home. + Support for organisations wanting to deliver whole-of-market shopping around services to source retirement income products for their customers, employees or pension scheme members. HUB Financial Solutions is the UK’s largest GIfL broker.

Professional services 2

2 Reported in our Other segment.

JUST GROUP PLC Annual Report and Accounts 2019

Chair’s statement

The Board has enhanced the strength of the Group’s executive team and is focused on building the capital base and delivering value for customers and shareholders

COMPELLING PURPOSE, CLEAR FOCUS

Chris Gibson-Smith Chair

STRATEGIC REPORT

I am pleased to introduce Just Group plc’s

We have established our own internal target that 33% of senior leadership roles should be held by women by the end of 2023. More detail on this theme can be found on page 55. I take great pride in leading the Board and the Group’s governance function, and my introduction to the Corporate Governance Report provides further information on our governance and decision making processes. I would like to thank the entire Board for their significant contribution, and look forward to working with them in 2020. ENGAGEMENT WITH OUR STAKEHOLDERS The Board engages directly and indirectly with our customers, shareholders, colleagues, regulators, legislators, professional bodies and wider society to promote the interests of our customers more broadly. We place great importance on working effectively with these groups and actively seeking their feedback. We work hard to ensure our customers benefit from our services and our shareholders receive the benefit of long-term value creation. Throughout this report you can read how the Board takes into consideration feedback from the Company’s stakeholders and how the Board and colleagues across the Group promote the success of the Company. OUR PURPOSE Just has a strong social purpose: we help people achieve a better later life by providing financial advice, guidance, competitive products and services. We help our customers achieve security, certainty and the peace of mind in retirement. OUTLOOK The fundamental drivers for growth in our core markets continue to be strong and whilst further progress needs to made on our capital position, the commercial outlook remains favourable for our Group. I remain confident that our disciplined participation in these markets will result in excellent outcomes for our customers and value creation for our shareholders. We have further work to do to address the regulatory challenges of the last few years, although we now have greater clarity and have taken significant steps to strengthen our capital base. Our results in the year demonstrate our proven expertise in selecting the most appropriate risks, combined with our focus on deploying our capital wisely. I want to emphasise the Board’s focus on reviewing all strategic and business options to maximise shareholder value. This can now be done from a position of increased regulatory clarity, greater capital certainty, and a valuable new business franchise, all under the leadership of a strengthened management team. On behalf of the Board I would like to close by thanking all of our colleagues across the Group for their hard work, creativity and dedication to our purpose. With their positive energy and commitment to providing the best service possible to our customers and business partners, we are building a stronger, Just company that can be increasingly optimistic about the future.

2019 Annual Report. We have strengthened the capital position of the Group and delivered an encouraging operating performance.

OUR PRIORITY IN 2019 In the 2018 Annual Report I set out the uncertainty presented to Just and other companies in the industry resulting from the Prudential Regulation Authority’s (“PRA”) consultation into the treatment of equity release mortgages. During 2019 the PRA published the second part of its conclusions on the treatment of equity release mortgages being held to back annuity liabilities. The impact has been significant, but I am pleased to report that it was in line with our planning assumptions. During the year we have made good progress implementing management actions in response to the regulatory changes. We have identified a range of further management actions to continue to maintain and strengthen the Group’s capital base as we finalise our compliance with the rules by the end of 2021. We continue to work closely with the PRA as we stabilise our capital position and reflect the regulatory changes in our capital models. In light of the changes in capital requirements, the Board has continued to actively review and adapt the Group’s business model to ensure that we can continue to provide products that are valuable for our customers, with appropriate levels of capital security and to ensure that we can deliver a good return for our shareholders. This has resulted in targeted reductions in new business, changes to product pricing and re-insurance that have successfully halved new business strain in 2019. The Board’s focus on this will continue in 2020. Delivering capital self-sufficiency is without question our principal commitment to shareholders, because it signals the on-going rigour of our capital management and will deliver a sustainable business. This is why the Board has instigated a less capital intensive strategy. The Group’s financial strength and performance is explained in detail in the Financial Review. DIVIDEND Whilst the Group continues to build its capital base to accommodate the new regulations on equity release mortgages, the Board believes it would not be appropriate to recommend recommencing dividend payments. The Board will continue to keep this situation under review. Chief Executive Officer. I would like to take this opportunity to thank him again for leading the Group through a period of significant change over the past nine years. In September we announced that, following an extensive search, David Richardson (formerly Deputy Chief Executive Officer) had been appointed as the Company’s new Chief Executive Officer. David’s leadership is already transforming the Group, and making his interim CEO role permanent was a natural step for us to take. In June we announced that Andy Parsons would be joining as the Group’s new Chief Financial Officer. Andy was appointed to the Board and started his new role on 1 January. Michelle Cracknell joined the Group Board on 1 March 2020 and Mary Kerrigan joined the Boards of Just Retirement Limited and Partnership Life Assurance Company Limited, the Group’s life insurance subsidiaries on 1 November 2019. I am delighted to welcome all three of them to the Group. It was with great sadness we announced that Michael Deakin passed away in July. Michael made an invaluable contribution in his role as a Non-Executive Director of the Company and Chair of the Investment Committees for the Group’s life insurance subsidiaries and will be greatly missed. The Board remains committed to achieving the Hampton–Alexander targets and improving diversity in the boardroom. The appointments of Michelle and Mary demonstrate our progress towards this goal. BOARD COMPOSITION AND GOVERNANCE In April we announced that Rodney Cook would be retiring as

chris gibson-smith Chair

ANNUAL GENERAL MEETING 2020 10.00 am 14 May 2020

at Just Group plc Enterprise House Bancroft Road Reigate Surrey RH2 7RT

JUST GROUP PLC Annual Report and Accounts 2019

chief executive officer’s statement

The changes we made to our business model have delivered positive organic capital generation in 2019 – a significant milestone on our journey to build a sustainable capital trajectory for the Group

focusing on capital and value

capital is the group’s number one priority

DAVID RICHARDSON Group Chief Executive Officer

Solvency ii capital coverage ratio (estimated) 141 % 2018: 136% (after notional recalculation of TMTP)

Organic capital generation 1

36 m

2018: £(165)m

adjusted operating profit before tax 1 £ 218.6 m 2018: £210.3m

1 Alternative performance measure.

STRATEGIC REPORT

I am delighted to present my first

The significant reduction in new business strain helped the Group to achieve positive organic capital generation of £36m in 2019. This is an excellent achievement, that I am committed to building on in future periods. OUR CUSTOMERS We are reviewing and adapting our business model to ensure that we continue to provide value to our customers, with appropriate levels of capital security. During 2019 we helped more than 70,000 new customers achieve a better later life. We continue to view LTMs as a highly valuable product for borrowers who want to use the value of their house to support a higher standard of living in retirement. They also remain an important component of the assets that we invest in, enabling us to provide competitive pricing to our GIfL and DB De-risking customers. We are delighted that our innovative customer-focused solutions and excellent customer service were again recognised in 2019. In the defined benefit market we were named “Risk Management Provider of the Year” at the Pensions Age Awards, and “Pensions Insurance Firm of the Year” at the European Pensions Awards. In the retail market we were awarded the outstanding achievement award and we achieved 5 stars in both the “Life & Pensions” and “Mortgage Lenders & Packagers” categories at the Financial Adviser Service Awards. Our new “Just for You” mortgage product was awarded “Best Innovation in Retail Finance” at the Retail Asset Management Awards. INNOVATION Although we are managing our costs carefully, we continue to invest selectively in developing new disruptive solutions that meet customer needs. We are piloting two exciting developments in 2020; one is to help close the financial advice gap for people in middle Britain with more modest pension savings; and the second is a highly innovative solution to deliver guaranteed income to retail investors who manage their portfolios on modern investment platforms. COLLEAGUES We are rightly proud of our award-winning service, and of our strong social purpose, which together deliver a “Just” experience to our customers day after day. Our colleagues are at the heart of this and I am grateful for the immense contribution they make to our business. CORONAVIRUS Just Group is paying close attention to the epidemiology of the COVID-19 outbreak, which is now spreading in countries outside of China. If this occurs in the UK, we anticipate widespread disruption, which may affect our ability to deliver services from our existing office space. We are therefore upscaling our ability to deliver core business services from home, reducing the possibility of staff-to-staff transmission. We are also making plans to minimise the likelihood of transmission within our office space. Although the virus has not yet become widespread across the UK, it has already had a significant impact on financial markets. The impact on the Group’s financial and capital position to date has been limited as we do not hold equity investments and the Solvency II capital position is actively hedged to minimise the impact of movements in long-term interest rates. achieving organic capital generation. We recognise that the regulatory landscape will continue to evolve and remain committed to ensuring that our business model continues to adapt to deliver optimum results for our customers and shareholders. In parallel, we remain open to all options that maximise shareholder value. On a personal note, I was delighted to be asked to lead the Just Group at this challenging but exciting time. AND FINALLY… During 2019 we have prioritised capital, particularly our goal of

Chief Executive Officer’s Statement, since I assumed the role in May 2019.

CAPITAL We have a clear strategy focused on improving the Group’s capital position and we are making good progress in adapting our business model to achieve our strategic goals. Despite operating in a tough environment we took big strides in improving our organic capital generation and reducing balance sheet risks in 2019. We have halved the new business capital strain, reduced our property sensitivity, signed our first DB partnering deal and released capital through longevity reinsurance. We achieved organic capital generation in the second half of the year and at the same time accelerated our adoption of the new regulatory requirements on LTMs. We recognised £219m of regulatory strengthening, sooner than we previously indicated. The Solvency II capital coverage ratio has grown from 136% in 2018 to 141% in 2019 due to a significant boost from the £400m of new capital raised during the year. This more than offset the effect of the regulatory changes relating to LTMs. The ratio would have grown to 156%, if we had not recognised the £219m of regulatory capital strengthening. We estimate the remaining cost of fully implementing the revised regulatory requirements for LTMs by 2021 to be £80m. We are committed to creating a sustainable capital trajectory, and during 2019 we have taken decisive action to help achieve this. We have taken steps to reduce our cost base, including reducing our property footprint and simplifying our senior management structure. We have outsourced our UK income drawdown service and closed our loss making US care unit. We are also working hard to improve results from our other Group companies, such as HUB. We have now executed two pioneering property risk transactions which provide protection against prolonged, long-term property underperformance. This reduces the amount of regulatory capital we hold for the LTMs covered by the transactions. These two transactions reduce our property risk on c.£900m of LTMs. We have a range of further capital tools to use, including additional de-risking through reinsurance and NNEG hedging, as well as utilising our debt capacity in due course, and increasingly from retaining the capital we are beginning to generate organically. We are also making progress in creating a capital-light partnering model for DB de-risking transactions larger than £250m. Writing these larger transactions using mainly external capital provided by reinsurers enables us to play a part in this huge market and take fuller advantage of the strength of our award winning new business franchise. We have completed our first such transaction with the AA Pension Scheme (see page 20). During the year we restructured our internal LTM securitisation to meet the revised regulatory requirements of PS19/19 and PS31/18. We are working closely with the PRA and although our regulatory position is much clearer than a year ago, regulatory scrutiny remains high and some uncertainty and risk remains. PERFORMANCE REVIEW We took decisive action to moderate and refocus sales in 2019, in order to reduce new business strain. Retirement Income sales for 2019 were £1,918.1m, a reduction of 12% from the prior year (2018: £2,173.5m). This led to a corresponding decrease in new business operating profit, from £243.7m to £182.0m. The IFRS profit before tax for 2019 was £368.6m (2018: IFRS loss before tax of £85.5m) helped by falls in interest rates. Capital is our focus, but this is a strong IFRS result. Our new business pricing discipline, the decision to reduce new business volumes and a focus on more capital efficient products more than halved our new business capital strain from £160m in 2018 to £74m in 2019.

DAVID RICHARDSON Group Chief Executive Officer

JUST GROUP PLC Annual Report and Accounts 2019

market context

Structural drivers in our markets mean we can grow profits while delivering better outcomes for customers

UK markets

DEFINED BENEFIT DE-RISKING SOLUTIONS Introduction

Defined benefit pension schemes have an obligation to pay a pre- determined monthly retirement income based on an employee’s earnings history, tenure of employment and age. Operating these schemes has become unattractive and more costly for employers over the last decade and this has created an opportunity for guaranteed income providers to de-risk, fully or partially, an employer’s existing defined benefit obligations to its members. Taking the risk out of paying company pensions Defined benefit de-risking can occur via a Buy-in, whereby a pension scheme pays a single premium to an insurance company to purchase an income stream that matches its obligations to its members, but retains legal responsibility for those obligations. An alternative is a Buy-out, where a pension scheme removes its obligations by purchasing individual insurance policies to replicate its obligations to some or all of its pension scheme members, who then become customers of the de-risking provider. Current market and outlook There are an estimated £1.8tn of UK defined benefit pension scheme liabilities (source: PPF), which is driving high demand for de-risking solutions with total transactions forecast to total £700bn between 2017 and 2032 (source: Hymans Robertson). The defined benefit de-risking market has achieved strong growth year on year since 2017 and annual flows are now expected to exceed £40bn over the next decade (source: Aon, Hymans Robertson). Even this level of activity will only result in 2% of total defined benefit assets being de-risked each year. 2019 has been a record year for the defined benefit de-risking market, where transactions are expected to exceed £40bn (source: Aon), ahead of the previous record in 2018 of £24.2bn (source: LCP). There were 11 transactions written over £1bn and the largest transaction to date, written in 2019, was £4.7bn. While insurer capacity to write a higher volume of individual transactions will increase in the long term, over the medium term we believe the demand for the number of de-risking transactions exceeds the current supply available from providers. The defined benefit de-risking market is usually characterised as starting slowly in the early part of the year and building pace, with a peak of activity often seen in the final quarter. For a market with traditional peaks and troughs, 2019 was different, with high levels of activity and demand throughout the year. Employee benefits consultants are predicting another busy year in 2020 based on the pipelines of new business expected from their clients. The Department for Work and Pensions collected views on a new legislative framework for authorising and regulating defined benefit superfund (or consolidation) vehicles of the type envisaged by the White Paper – Protecting defined benefit pension schemes – published in March 2018. These consolidation vehicles, which are effectively still subject to government legislation, are seeking to provide a new de-risking solution for schemes and sponsors that cannot achieve a Buy-out from an insurance company. These so-called consolidators are proposed to be regulated outside of the insurance regime and so are not subject to the more robust capital requirements of the Solvency II Directive. If these new arrangements are regulated as proposed they would provide a cheaper solution to a Buy-out of liabilities for some pension schemes, although at the cost of reduced protection for members compared to an insurance solution.

delivering better outcomes for customers

STRATEGIC REPORT

Just Group and our peers in the industry are actively engaging with government to ensure any new arrangements are created in a regulated environment that does not allow members of defined benefit pension schemes to receive a poor deal and that regulatory arbitrage is eliminated.

89% o dfnd bnft pnin s hms a e coe t nw mme s ad ic esnl t ftr a c ul (%)

100

INDIVIDUAL RETIREMENT INCOME MARKET Introduction

Guaranteed Income for Life (“GIfL”) products are bought by individual customers to convert some or all of their accumulated pension savings into a guaranteed lifetime retirement income. The solution provides people with peace of mind from the security of knowing the income will continue to be paid for as long as the customer and, where relevant, for as long as they or, typically, their spouse lives. In the UK, GIfLs traditionally offered an income payable without reference to the individual’s health or lifestyle, and were differentiated only by reference to a limited number of factors such as age, postcode, premium size and, prior to 31 December 2012, gender. An individually underwritten GIfL takes into account an individual’s medical conditions and lifestyle factors to determine their life expectancy. People who are eligible and purchase an individually underwritten GIfL typically achieve double-digit percentage increases in income compared to purchasing a GIfL which is not individually underwritten. Pension customers are encouraged to compare the GIfL offer provided by their existing pension company to those offered on what is the open or external market. In March 2018 the Financial Conduct Authority (“FCA”) introduced rules requiring pension companies to provide customers with an external GIfL quotation showing the best quote available from the external market alongside the quotation from the incumbent firm. They have subsequently announced rules which firms must have implemented between November 2019 and January 2020 to strengthen this requirement and, where the customer is eligible, require firms to provide a medically underwritten comparison. This should provide new opportunities for Just Group as we compete in the open market when these customers choose to shop around; this is our addressable market as we do not have an existing base of pension savings customers. The open market maintained a 50% share of the total GIfL market, unchanged from 2018 (source: ABI). Providing security and peace of mind

2018 2019 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Closed to new members (open to benefit accrual)

Source: The Purple Book 2019, PPF Closed to future accrual

Epce got i D d-r sig tascin (£b)

Buy-in/Buy-out Source: Just analysis, Hymans Robertson, LCP Backbook acquisition 2011 2012 2013 2014 2015 2016

2017 2018 2019

(forecast)

Etra Gf mre (£m)

2,500

2,000

1,500

1,000

500

2015

2016

2017

2018

2019

Source: Just analysis, ABI

JUST GROUP PLC Annual Report and Accounts 2019

market context continued

LIFETIME MORTGAGES Introduction

A lifetime mortgage (“LTM”) allows homeowners to borrow money secured against the equity in their home. The amount borrowed is repayable together with accrued interest on the death of the last remaining homeowner or their move into permanent residential care. This product can be used by retirees to supplement savings, top up retirement income or to settle any outstanding indebtedness. The typical lifetime mortgage customer is around 70 years old, has a house valued at around £200,000 and agrees a facility to borrow up to 30% of the house value. Enabling people to improve their later-life living standards People are becoming increasingly positively disposed to accessing some of the equity in their homes to improve the quality of their later lives or to help their family. The compound annual growth rate of the lifetime mortgage market between 2011 and 2019 was 22.5% and this has attracted new providers to enter the market in the last few years. Just Group is a leading product provider of lifetime mortgages. Our HUB Financial Solutions business is a leading distribution business providing consumers with regulated advice on equity release solutions from across the market. Current market and outlook Homeowners aged over 55 are estimated to own property wealth of over £3.2tn (source: ONS). We estimate that the existing industry loan book including interest is just £29bn. Increased competition stemming from the new entrants to the marketplace has increased the availability of product variants, resulting in greater product choice and flexibility for customers. Despite this, market growth has stalled in 2019, driven by the uncertainty created by Brexit. Looking forward, the structural growth drivers in retirement lending remain compelling, the market remains under-penetrated and there is significant headroom for growth. Just is forecasting that the LTM market will grow to around £6.5bn per annum by the end of 2023, which is a compound annual growth rate of 13.5% from 2019. The primary drivers of growth are: • households wanting to top up their retirement income to improve their standard of living in later life; • an increase in the number of people with outstanding interest-only mortgages who are entering retirement and require a solution to settle the debt with the existing mortgage company; • strong demographic growth. The number of people aged 65 and over is forecast to increase from around 12 million today to over 18 million by 2040; and • an increase in new entrants who spend money on advertising which results in people becoming aware of LTMs, combined with people becoming more disposed to using some of their housing equity.

People are becoming increasingly positively disposed to accessing some of the equity in their homes to improve the quality of their later lives or to help their family

Continuing developments are driving growth in our addressable market: • the structural drivers of growth in the retirement income market are strong and assets accumulating in defined contribution (“DC”) pension schemes are projected to increase consistently over the next decade. This growth arises from an increase in the number of people joining workplace pension schemes as a result of the successful state auto-enrolment policy and the increase in contribution rates implemented in 2018; • growth in DC pension assets also arises as companies close down final salary or defined benefit pension schemes and offer their employees DC pensions instead; • some people are transferring out of defined benefit pension schemes into DC pension schemes to take advantage of Pension Freedoms. When transferring, many people are choosing to secure a guaranteed income for life, by using some of the transfer value to purchase an individually underwritten GIfL; and • many life and pension companies are choosing to put in place broking solutions to offer their pension savings customers access to the best individually underwritten GIfL deals in the market. Some are choosing to transfer their obligations to provide a guaranteed GIfL rate to their customers to an alternative product provider or broking solution. This grows our addressable market and provides customers with better outcomes. Our HUB group of companies is providing many of these corporate services. The number of individual retail customers transferring their pension benefits into defined contribution pensions from their final salary (defined benefit) pension has reduced significantly in 2019. This reduction follows a review and introduction of remediation measures by the FCA into the quality of advice provided to individual retail customers exploring transferring their benefits. A proportion of the proceeds from these transfers are used to secure a guaranteed income by investing in a GIfL. This reduction in activity will be a drag on the positive growth factors above.

STRATEGIC REPORT

LONG-TERM CARE SOLUTIONS Introduction

Lftm mrgg mre sz ad go t rt (£m)

Care Plans, or immediate needs annuities, are a segment of purchased life annuities. A Care Plan offers a guaranteed income paid directly to a registered care provider or an individual for the life of the insured, in exchange for an up-front lump sum premium. Under current rules this income is tax free when paid directly to the registered care provider. Care Plans are available to individuals entering care facilities or receiving domiciliary support. As such, Care Plans provide a form of longevity insurance to the individual against the costs of receiving care until their death. Just has a strong pedigree in the market, having been one of the market leaders for 18 years. Two new companies have entered the market in 2019 and whilst their activity has been limited we would expect them to make a greater impact in 2020. Current market and outlook There is a substantial market for care in the UK. The drivers of the need for care are strong because: • there are currently around 1.6 million people aged 85 or over in the UK – this is the average age at which people go into care homes. It is expected that this number will more than double over the next two decades, suggesting a growth rate in excess of 2.7%; • around 33% of women aged 65 and 20% of men aged 65 are likely to enter a care home at some point in the future; and • there is uncertainty over government policy for long-term social care. The government has withdrawn the cap on care fees that was due to become effective in 2020 and planned to publish a Green Paper on care and support for older people by summer 2018, which has been delayed. This will set out how the government proposes to improve care and support for older people and tackle the challenge of an ageing population.

4,000

3,000

2,000

1,000

2011 2012 2013 2014 2015 2016

2017 2018 2019

Lump sum mortgage sales

Existing drawdown mortgages – further advances Source: Equity Release Council New drawdown mortgages – initial advance

Nme o pol (mlin) a e 65 +

% of UK population over age 65

20 18.3% 18.7% 19.9% 21.7% 23.2% 23.9%

2018

2020

2025

2030

2040

2035

Source: Oce for National Statistics

18 as a leader in UK long-term care

years

JUST GROUP PLC Annual Report and Accounts 2019

business model

Just is a leading and established provider of retirement income products and services to both individual and corporate clients

We are adapting our business model to ensure it is economically attractive in a challenging regulatory environment.

What sets us apart

Creating long- term value in the retirement market

LATER LIFE FOCUS We are specialists in retirement, focused on helping people achieve a better later life. This is our purpose.

UNDERWRITING EXPERTISE We invest in our proprietary intellectual property (“IP”) to increase profitability through superior risk selection. Our in-house medical team is made up of epidemiologists, doctors and bio-statistical modellers. This team enables us to develop superior pricing and reserving processes and maintain the latest medical and longevity developments.

SUPERIOR SERVICE We are experts in what we do and this is reflected in our service to customers and partners. We are known and trusted for delivering outstanding service. We have a consistent record of achieving Financial Adviser 5 Star service awards.

STRATEGIC REPORT

How we create value

Outcomes

Risk selection Selecting the right risks and pricing our products appropriately. PrognoSys™ is a powerful proprietary tool for pricing and reserving. It allows the Group to identify and price for the risks we want and improve customer outcomes.

Investors By managing our resources effectively we generate profits in excess of our cost of capital. We manage our capital conservatively and are focused on delivering capital self-sufficiency.

Customers

INDIVIDUALS We help our customers enjoy a better quality of life in retirement by making their savings and property wealth go further through medical underwriting. CORPORATE CLIENTS We solve problems for companies through scalable retirement focused solutions. TRUSTEES AND SCHEME SPONSORS We provide member security and de-risk pension liabilities.

Our products and services are distributed via our multi-channel model

investment Strategy Continuous improvements in our investment strategy to generate value for shareholders and better value for customers. The asset portfolio is selected to match the cash flows we pay to Retirement Income customers, seeking an appropriate balance between risk and expected return. Lifetime mortgages we originate are key in providing matching cash flows for longer durations and achieve a higher return than liquid financial assets. We also invest in private placements, commercial property mortgages and infrastructure loans, as well as investment grade fixed income securities such as government and corporate bonds.

Innovation Innovatively utilising funding and reinsurance tools to improve our capital position. This includes: • development of a capital light origination business via a new DB de-risking partnering model; • further reinsurance options on the front and back book; and • a pioneering no-negative equity guarantee risk transfer solution.

People We develop, recognise and reward our colleagues to secure a skilled and motivated team.

JUST GROUP PLC Annual Report and Accounts 2019

strategic priorities

In 2019, capital has been the Group’s number one priority

IMPROVE OUR CAPITAL POSITION

Our purpose is crystal clear. We help people achieve a better later life. Every colleague across the Group contributes to this purpose, whether they are serving the customer or providing support to someone who is

FOCUS We need to deliver a sustainable capital model to maximise opportunities available to us.

2019 PROGRESS • Pricing actions and controlling new business volumes have contributed to a significant reduction in new business strain. • We have improved our capital efficiency through originating a greater proportion of shorter-dated GIfL policies, helping customers with more severe medical conditions, and through focusing on shorter duration Lifetime Mortgage loans to older borrowers and lower LTV business. • In August, we increased the amount of longevity reinsurance from 70% to 100% on our existing post-Solvency II DB de-risking business. • We will reinsure 90% of longevity risk on future DB de-risking new business. • Positive organic capital generation of £36m in 2019. • We have made progress towards meeting regulatory capital changes for LTMs and have restructured our internal LTM securitisation to meet revised regulatory requirements, a cost of £219m in 2019 with the remaining cost of fully implementing the regulatory requirements for LTMs estimated to be £80m. • Capital raised during the year benefited capital resources by a net amount of £452m. 2020 FOCUS • We will make progress on organic capital generation. • Continue to de-risk our balance sheet to reflect economic and regulatory challenges.

The regulatory changes introduced by the PRA during 2018 and 2019 in relation to equity release mortgages have had a significant impact on the Group’s capital position. In response to the changes the Group raised new equity and debt capital over 2019 as well as completing management actions to de-risk the balance sheet and restructuring the Group’s new business to be less capital intensive. The progress we have made in facing up to these challenges is testament to our colleagues’ adaptability and dynamism. The changing regulatory environment means we continue to be focused on capital management, which should both improve policyholder security and reduce risk. We are also reviewing other strategic and business options to enhance shareholder value.

Principal risks and uncertainties

A Risks from regulatory changes B Risks from the economic environment C Risks from our pricing assumptions D Risks arising from operational processes and IT systems

E Risks from our chosen market environment f Risks to the Group’s brands and reputation

Link to risks and uncertainties:

a b c d e f

STRATEGIC REPORT

2. 3. 4. 5.

TRANSFORM HOW WE WORK

GET CLOSER TO OUR CUSTOMERS & PARTNERS FOCUS As we transition our business model we will continue to ensure the customer is at the heart of everything we do. partnering we are pairing our highly effective new business franchise with third party capital to this high growth market. See page 20 for further details. 2019 PROGRESS • Through DB de-risking

GENERATE GROWTH IN NEW MARKETS FOCUS We will improve returns on new business by working to grow market demand. 2019 PROGRESS • We have shifted our focus to capital efficient opportunities. Our markets are attractive and we have strong access to markets through our wide distribution network. • Our new Secure Lifetime Income solution provides guaranteed income that can be blended with a customer’s investment funds within a self invested personal pension. A modern and innovative way to meet the needs of customers. • Continue efforts to increase share of GIfL new business which is transacted in the open market.

BE PROUD TO WORK AT JUST

FOCUS To improve our capital position we will enhance our processes to become more efficient and productive.

FOCUS Building the right organisational culture, strengthening our capabilities and developing an engaging employee experience. 2019 PROGRESS • Achieved our highest level of employee engagement since becoming Just. • Delivered a successful programme of activities to ensure employees felt well led and well managed, with opportunities for growth and development. • Particular progress was achieved with an enhanced leadership communication and engagement programme, including CEO quarterly town halls and conversations with the Board. • People manager capabilities were further improved through internal programmes/activities such as Just Lead, Just Engage and external training including a Charted Management Institute accredited management qualification.

2019 PROGRESS • Given our shift to a less

capital intensive and lower new business volume model, we have re-examined the cost base. • We have consolidated our property footprint in Reigate and have moved our London location. • We closed our United States operation to new care business and outsourced our UK income drawdown service.

2020 FOCUS • Continue to optimise our business processes. • Review our operating model to maximise efficiency.

2020 FOCUS • Create value by introducing

2020 FOCUS • Maximise value from long-term growth in later life lending. • Leverage expertise and intellectual property in core retirement markets.

2020 FOCUS • Ensure employees continue to feel well led and well managed, with opportunities for growth and development. • Enhance our support/ programmes for employee wellbeing. • Offer further growth and development opportunities for all employees. • Strengthen and diversify our leadership population and talent pipeline.

solutions to reduce the growing financial advice gap amongst those with more modest pension savings.

Link to risks and uncertainties:

a b c d e f

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