Just Group's solvency ratio skyrockets to 199%

Published in: Risk, Capital, Corporate strategy, Financial results, Solvency II, UK

Companies: Just Group

Just Group grew its solvency ratio to 199% by the end of 2022, an annual increase of 35 percentage points (pp), driven by the rise in interest rates and revisions to assumptions about the rate of longevity improvement among its annuity policyholders.

This is a record level for the UK life insurer, which was battling to restore its capital position four years ago after changes to regulations on the valuation of equity-release mortgages.

Just Group's year-end solvency capital requirement ratio (%), 2016-2022

Source: Insurance Risk Data, Just Group

Interest rate increases accounted for around 30pp, while lower longevity assumptions added 4pp.

“We’re obviously very comfortable at this [solvency ratio] level which provides both security and additional flexibility particularly at a time of economic uncertainty,” said Andy Parsons, group chief financial officer at Just Group, in an investor presentation earlier today.

“Whilst we were very comfortable two years ago at 156%, having a significantly higher ratio can help to provide us with more financial freedom. The higher solvency ratio reflects lower solvency capital requirements and risk margin which leads to lower unwind of these items through the future organic capital generation as we’ve received the benefit into surplus already,” he added.

During the investor call Parsons was asked whether 199% was too high, if the firm had a target range and what would be done if the ratio remained elevated in the long term.

“We have been boosted a lot by interest rates and clearly these can be volatile, so they could go down as well as up,” said Parsons.

“In terms of where we’ve moved our hedging to, we now have sensitivity in that Solvency II position so that is certainly in our thinking.”

Parsons added Just would look at ways to bring “the IFRS and Solvency II interest rate positions closer [together] so that we’d have less of a differentiator” but this is a longer-term strategy.

Just Group reported a 19% increase in operating profit to £249m ($299m) and a 17% rise in new business premium to £3.1bn, driven by higher sales of bulk annuities. It also revealed a full-year dividend of £1.73 per share, an increase of 15% and in line with its medium-term operating profit target.

The firm said it had updated its longevity reserving using the CMI 2021 mortality tables and noted its mortality assumptions were factoring in the long-term impact of Covid-19 on the population, longer NHS waiting lists and inflation pressures.

Paul Walsh