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Just Group plc

Just Retirement Limited

Partnership Life Assurance Company Limited

Solvency and Financial Condition Report

as at 31 December 2019

Just Group plc SFCR 31 December 2019

Just Group plc

Solvency and Financial Condition Report as at 31 December 2019

Contents Summary 1 A. Business and Performance 7 A.1 Business 7 A.2 Underwriting Performance 18 A.3 Investment Performance 20 A.4 Performance of other activities 22

B. System of Governance 24 B.1 General information on the system of governance 24 B.2 Fit and proper requirements 36 B.3 Risk management system including the own risk and solvency assessment 39 B.4 Internal control system 42 B.5 Internal audit function 44 B.6 Actuarial function 46 B.7 Outsourcing 47 B.8 Any other information 47

C. Risk Profile 50 C.1 Underwriting risk 51 C.2 Market risk 53 C.3 Credit risk 55 C.4 Liquidity risk 57 C.5 Operational risk 58 C.6 Other material risks 61 C.7 Any other information 61

D. Valuation for Solvency Purposes 64 D.1 Assets 67 D.2 Technical provisions 72 D.3 Other liabilities 81 D.4 Alternative methods for valuation 84 D.5 Reconciliations to IFRS statutory accounts 86

E. Capital Management 90 E.1 Basic own funds 92 E.2 Solvency Capital Requirement and Minimum Capital Requirement 100 E.3 Use of the duration-based equity risk sub-module in the calculation of the

Solvency Capital Requirement 103 E.4 Differences between the standard formula and any internal model used 103 E.5 Non-compliance with the MCR and non-compliance with the SCR 105

F. Other information F.1 Quantitative Reporting Templates (QRTs) 106 F.2 Directors’ statement 133 F.3 Approvals, determinations and modifications 134 F.4 Audit opinion 135 F.5 Glossary 142


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Summary

Introduction

This is the Solvency and Financial Condition Report (“SFCR”) for Just Group plc (referred to as “Just Group”)

as at 31 December 2019.

Just Retirement Limited (“JRL”) and Partnership Life Assurance Company Limited (“PLACL”), the UK

regulated insurers within the Group, received approval to prepare a single group-wide SFCR. Consequently

this report also contains the SFCR disclosures for JRL and PLACL.

The purpose of the SFCR report is to provide information required by the Solvency II regulatory

framework, and in particular the capital positions of the regulated entities and the Just Group as a whole.

A. Business and Performance

Just is 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.

The principal ‘Guaranteed Income for Life’ (“GIfL”) individual annuities and Defined Benefit buy-out (DB)

lines of business are written in JRL. PLACL focuses on Care products.

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. 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. We have taken steps to

reduce our cost base, including reducing our property footprint and simplifying our senior management

structure. We have transferred out our UK income drawdown service, closed PLACL’s loss-making US care

unit, and are working hard to improve results from our other Group companies, such as HUB.

Adjusted Group operating profit before tax of £218.6m increased by 4% in 2019 (2018: £210.3m), with continued growth in in-force operating profit and positive operating experience and assumption changes more than offsetting the reduced new business operating profit and higher financing costs.

IFRS profit before tax for 2019 was £368.6m (2018: loss of £85.5m), helped by investment and economic profits. In 2019 these included the benefit of a decrease in risk-free rates, and a narrowing of credit spreads, partly offset by an actual property growth rate lower than the expected rate. In contrast, during 2018, we experienced IFRS losses from increases in risk-free rates and widening credit spreads. The loss in 2018 also included the impact of changes to the Group’s IFRS property growth and volatility assumptions, in particular the reduction of the property growth assumption from 4.25% to 3.8% and an increase in volatility assumption from 12% to 13%.

Profit before tax in JRL was £322.6m (2018: £68.1m loss) and in PLACL £92.3m (2018: £11.2m).

Section A describes the business strategy, and performance on a statutory reporting basis (IFRS), which has been prepared on a consistent basis across the Group, JRL and PLACL statutory accounts for the year ended 31 December 2019. COVID-19 Just Group is closely monitoring the evolving situation in relation to the Covid-19 pandemic. Operationally, we continue to serve our customers and intermediaries and we have up-scaled our remote

working capability, enabling the vast majority of our colleagues to work from home.

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


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in long-term interest rates. The key areas which may affect the Group as a result of the economic impacts

of the pandemic are in relation to property prices and corporate bond downgrades or defaults. The

Solvency II capital coverage for the Group at 31 March 2020 is estimated at 143%, compared to the year-

end reported position of 141%.

Further details are included in Section A1.1.

B. System of Governance

The Just Group’s system of governance is applied across all UK regulated subsidiaries of the Group,

including the insurance regulated entities JRL and PLACL. The Just Group plc Board aspires to high

standards of corporate governance, and focuses primarily on strategic, policy and governance issues,

acting in accordance with the best interests of policyholders and shareholders as a whole. The Group and

Life Company Boards delegate a number of matters to Committees to ensure efficient governance, in line

with best practice.

The terms of reference of the various committees are clearly defined, ensuring an appropriate

segregation of governance responsibilities to support decision making. Oversight of the risk management

and compliance activities across the Just Group including within JRL and PLACL is provided by the Risk

and Compliance Committee. Accounting and audit activities are overseen by separate Audit Committees

for each of Just Group, JRL and PLACL, with the latter two committees established in 2019.

The Group operates a ‘Three lines of defence’ model. The first line of defence is line management who

devise and operate the controls over the business. The second line functions are Risk Management,

Compliance and Actuarial Assurance, which oversee the first line, ensure that the system of controls is

sufficient and is operated appropriately, and also measure and report on risk to the Group Risk and

Compliance Committee. The third line is Internal Audit who provide independent assurance to the Board

and its Committees that the first and second lines are operating appropriately.

The Risk Management Framework enables risk management to be integrated into Just’s organisational

and decision making processes, with the regular preparation of Just’s group-wide Own Risk and Solvency

Assessment (“ORSA”) documents providing comprehensive appraisals of the regulated group companies’

risk and solvency positions.

In April 2019 the CEO Rodney Cook stepped down as part of his longer term retirement plans. The Group

commenced a formal search for a successor, and from this date, David Richardson assumed the role of

Interim Group Chief Executive Officer in addition to his existing duties. On 19 September 2019, David

Richardson was appointed on a permanent basis.

In June 2019 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 2020. Michelle Cracknell

joined the Group Board as a Non-Executive Director on 1 March 2020. Nick Poyntz-Wright, Non-Executive

Director of JRL and PLACL, was appointed as Chair of JRL and PLACL on 30 April 2019 and Mary Kerrigan

joined the Boards of JRL and PLACL on 1 November 2019 as a Non-Executive Director. On 12 March 2020,

Chris Gibson Smith informed the Board of his intention to retire as Chair of the Group’s Board as soon as

a suitable successor has been identified. A search for a replacement has commenced, led by Senior

Independent Director Keith Nicholson. In the interim, Chris will stand for re-election at the Group’s AGM

in May 2020.

Sadly, Michael Deakin passed away in July 2019 having made an invaluable contribution in his role as an

Independent Non-Executive Director of the Company and Chair of the Company’s Investment

Committee.

Section B of this report describes the Group’s system of governance by which the operations of JRL and

PLACL and other group companies are overseen, and explains compliance with Solvency II requirements.


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C. Risk Profile

We evaluate our principal and emerging risks and decide how best to manage them within our risk appetite. Risk identification is performed continuously, and is embedded in the ORSA process. The primary risks to which Just is exposed arise through its regulated insurance entities JRL and PLACL. Financial risk modelling is used to assess the amount of each risk type against our capital risk appetite. This modelling is principally aligned to our regulatory capital metrics. This modelling allows the Board to understand both the risks included in the Solvency Capital Requirement (“SCR”) and those not included in the SCR, such as liquidity and strategic risks, and how they translate into regulatory capital needs. By applying stress and scenario testing, we gain insights into how risks might impact the Group in different circumstances. The key risks are:

• Market risk, comprising exposure to interest rate risk affecting the current value of future cash flows,

credit risk, and residential property risk which affects the value of no negative equity guarantees

(“NNEG”) provided within lifetime mortgages (Captured in the SCR).

• Underwriting risk arising through the exposure to longevity, mortality and morbidity risks (Captured

in the SCR).

Risks from Regulatory Changes:

• A key focus for the Group is addressing the expectations of the updated SS3/17, which came into effect

on 31 December 2019 (subject to a two year phase-in period) whilst maintaining the confidence of

our stakeholders (the PRA published PS19/19, which follows on from PS31/18, both of which updated

SS3/17 – in respect of the valuation of NNEG in equity release mortgages).

• The PRA has published CP22/19 which consults on their expectations of firms’ compliance to the

prudent person principle with regard to managing investment risk. The Group is currently assessing

the full implications and has responded to the consultation.

• The PRA also published CP23/19, consulting on their expectations of firms to undertake a robust risk

identification exercise in respect of income producing real estate (“IPRE”) lending and for the

credibility of insurance firms’ internal credit ratings of IPRE loans and other illiquid, unrated assets.

The Group is currently assessing the full implications and has responded to the consultation.

• There has been an increase in regulatory focus on the issue of sustainable finance, particularly the

impacts that climate change risks could have on the safety and soundness of firms and stability of

the financial system. The PRA supervisory statement SS3/19 set out regulatory expectations about the

management of the financial risks linked to climate change. The related PRA policy statement PS11/19

requires firms to set out plans for identifying and managing financial risks from climate change. Just

is enhancing its ESG approach in its investment strategy. Just is implementing a plan to ensure that

the potential impacts of climate change on the Group’s financial risks are identified, assessed and

monitored. The plan will also ensure the Group’s risk management framework appropriately

accommodates and reports on climate change-related risks.

• The PRA and FCA have issued several consultation papers on new requirements to strengthen

operational resilience in the financial services sector. This is a key priority for the regulators and builds

on the discussion paper issued last year. The Group is currently reviewing the latest papers.

For further information see Sections C.6.1, D.2.5, E.1.1 and E.2.2.

Section C describes the risks to which the insurance and other operations are exposed, and how those

risks are mitigated.

D. Valuation for Solvency Purposes

Assets, technical provisions and liabilities are valued in the Solvency II balance sheets according to the

Solvency II Directive and related guidance. Asset and liability valuations other than technical provisions,

reinsurance recoverable, subordinated liabilities, and goodwill and intangibles, are based on IFRS values,

representing accounting fair values.


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At 31 December 2019, Just Group’s excess of assets over liabilities on a Solvency II basis amounted to

£1,913m (31 December 2018: £1,700m), and those of JRL and PLACL were £1,092m and £740m

respectively (31 December 2018: £950m and £630m respectively).

At Group and JRL levels, Solvency II excess assets over liabilities were £408m and £341m lower

respectively than on the IFRS basis after having been higher in previous years. This change reflects new

business written since the commencement of SII in 2016 and the amortisation of transitional relief.

The updated regulatory framework set out in SS3/17 and PS19/19 prompted Just to restructure and

update its internal LTM securitisation (which had been designed prior to SS3/17) to better meet the

revised regulatory expectations. This included a significant undertaking in the second half of 2019 to

update the methodology used to determine the internal rating, amount and spread on the LTM notes

used to enable LTM assets to be eligible for matching adjustment. The restructure removes much of the

uncertainty on the level of MA relating to LTMs in the regulatory balance sheet. Following the restructure

Just passes the PRA EVT with a material buffer (0.67%) over the minimum deferment rate of zero required

at 31 December 2019 and volatility of 13% in line with the requirement. The restructuring has led to a

reduction in MA which has resulted in an increase in technical provisions of approximately £300m of

which approximately 44% relates to pre-2016 business and hence is partly offset by an increase in the

TMTP and tax effects. The restructure has effectively accelerated recognition of some of the expected

impact of complying with the new regulations applicable in 2021. The expected cost of satisfying the EVT

at a parameterisation of 13%/1% (which includes a 0.5% buffer over the PRA’s ultimate expectation of

0.5% as published in September 2019) rather than our current level of 13%/0.67% depends on economic

conditions but would have been £80m at 31 December 2019, after allowing for the TMTP and tax offset.

Section D of this report provides further details on the methods and main assumptions used for the

valuation of items in the Solvency II balance sheet, and a comparison with IFRS reporting.

E. Capital Management

Just ensures that Own Funds items within JRL, PLACL and the Just Group as a whole are of sufficient

quality, and are structured and managed in such a way as to support coverage of the Solvency Capital

Requirement (“SCR”). The annual business planning process includes a forward-looking view of the

adequacy of Own Funds to cover the SCR at entity and group levels, along with assessment of potential

management actions that could be deployed to restore capitalisation in the event of a deterioration.

Regular monitoring of capital strength enables any deterioration in coverage to be identified rapidly.

JRL obtained approval for its internal model in December 2015. PLACL currently uses the Solvency II

standard formula to calculate its SCR. The Group has an approved partial internal model to calculate a

Group Solvency Capital Requirement, and intends to progress an internal model major change application

for Partnership Life Assurance Company Limited to enable the whole Group to use an internal model.

At 31 December 2019, Just Group held £748m (2018: £695m) of Excess Own Funds representing a capital

coverage ratio of 141% (2018: 144%) of SCR. Excess Own Funds and coverage ratios were £282m (2018:

£347m) and 122% (2018: 133%) for JRL, and £397m (2018: £226m) and 178% (2018: 144%) for PLACL

respectively.

During 2019 the Group and JRL focused on risk selection and conserving capital. The Group and JRL

continue to implement steps to reduce the capital strain, such as changes to pricing, asset mix

optimisation and cost reduction. However, the inclusion of the EVT and the EVT in stress required a

strengthening of the Solvency II balance sheet. To offset these increased regulatory requirements, and

support the Group’s new business franchise, in March 2019, Just issued £300m of Restricted Tier 1 capital,

and raised a further £75m in equity. In October 2019 the Group raised further new capital through the

issue of £125m Tier 2 loan notes and completed a tender for £37m of the existing £100m Partnership


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Tier 2 notes. PLACL called the remaining £67m Partnership tier 2 notes at their first call date in March

2020, resulting in a net increase in tier 2 capital of £25m (before costs).

In order to better manage its capital position the Group has taken out additional mortality reinsurance

in relation to post-2016 DB de-risking reserves, and taken steps to reduce exposure to property risk

through no-negative equity guarantee hedges, entered into at the end of 2018, and in early 2020. Given

that the Group continues to experience a high level of regulatory activity and intense regulatory

supervision, there is also the risk of PRA intervention, not limited to the matters described in the

paragraphs above, which could negatively impact on the Group’s capital position.

Section E of this report provides further information on the capital positions of the companies, and on the

Internal Model.

Just Group SFCR Report 31 December 2019

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Chapter A contents

A Business and Performance ............................................................................................. 7 A.1 Business .............................................................................................................................. 7

A.1.1 Significant events in the year to 31 December 2019 ....................................... 8 A.1.2 Business objectives .............................................................................................. 10 A.1.3 Material lines of business ................................................................................... 12 A.1.4 New business sales .............................................................................................. 13 A.1.5 Current business performance .......................................................................... 14 A.1.6 Other information................................................................................................. 17

A.2 Underwriting Performance .......................................................................................... 18 A.3 Investment Performance ............................................................................................ 20

A.3.1 Income and expenses by asset class .............................................................. 20 A.3.2 Gains and losses recognised directly in equity .............................................. 21 A.3.3 Investments in securitisation ............................................................................ 21

A.4 Performance of other activities ................................................................................. 22


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A Business and Performance (Unaudited)

The Business and performance section of the report explains the business objectives, key operations and financial performance of the Group as a whole and of its two principal insurance subsidiaries.

A.1 Business

Just Group plc is a specialist UK financial services group focussing 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.

Just Group plc is a public company limited by shares incorporated and registered in England and Wales on 13 June 2013.

The principal insurance subsidiaries of Just Group plc are Just Retirement Limited (“JRL”) and Partnership Life Assurance Company Limited (“PLACL”). JRL focuses on providing Retirement income products to individual and corporate clients and lifetime mortgages. PLACL focuses on Care products, and ceased writing new Protection business from March 2018.

The chart below provides a simplified view of the group structure; information on the Group’s subsidiaries is included in public disclosure template S.32.01 ‘Undertakings in scope of the Group’ in section F.2.

The activities of other companies in the Group are:

• Just Retirement Holdings Limited and Partnership Assurance Group Limited - Intermediate holding companies

• HUB group of companies - provision of services and distribution of products for the at-and-in retirement market

• Just Retirement Money Limited and Partnership Home Loans Limited – Mortgage lending

• Just Retirement Management Services Limited and Partnership Services Limited

• Just Retirement South Africa – insurance underwriting

The Group’s business in South Africa is out of scope for regulatory reporting to the PRA due to its limited materiality (see section D). Just Group IFRS statutory reporting basis figures and commentary in this document include South Africa; Solvency II regulatory reporting figures exclude South Africa.

The scope of the entities which make up the Group is otherwise consistent between the IFRS statements and Solvency II, however there are differences in the consolidation approach, as noted in Section D. All of the principal group entities are 100% held, and all are incorporated in the United Kingdom with the exception of Just Retirement South Africa (South Africa) and Partnership Life US Company (United States). A full listing of all companies is included on schedule S.32 in section F.2.

The Group organisational structure is explained in Section B.


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A.1.1 Significant events in the year to 31 December 2019

At the end of April 2019, the Group’s Chief Executive Officer announced his plans for retirement and stepped down from the Board on 30 April 2019. The Group commenced a formal search for a successor, and David Richardson assumed the role of Interim Group Chief Executive Officer, in addition to his existing duties from this date. On 19 September 2019, David Richardson was appointed on a permanent basis.

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 2020. Michelle Cracknell joined the Group Board on 1 March 2020. Nick Poyntz-Wright was appointed as chair of JRL and PLACL on 30 April 2019 and Mary Kerrigan joined the Boards of JRL and PLACL on 1 November 2019. On 12 March 2020, Chris Gibson Smith informed the Board of his intention to retire as Chair of the Group’s Board as soon as a suitable successor has been identified. A search for a replacement has commenced, led by Senior Independent Director Keith Nicholson. In the interim, Chris will stand for re-election at the Group’s AGM in May 2020.

Sadly Michael Deakin passed away in July 2019 having made an invaluable contribution in his role as a Non-Executive Director of the Company and Chair of the Company’s Investment Committee.

On 1 November 2019, the Group announced that PricewaterhouseCoopers LLP ("PwC") had been selected, subject to shareholder approval at the 2020 AGM, as external auditor for the Group and its subsidiaries for the financial year ending 31 December 2020.

Capital is our number one priority. We are realigning the business so that we focus on becoming capital self-sufficient. We have a clear strategy focussed 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 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 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.

The Solvency II capital coverage ratio has grown from 136% in 2018 (allowing for a notional recalculation of TMTP as at 31 December 2018) to 141% in 2019 due to a significant boost from the £400m of new capital raised during 2019. This more than offset the effect of the regulatory changes relating to the LTMs. In March 2019 we issued a £300m Restricted Tier 1 bond together with an equity share placement of £75m (before issue costs). The majority of this new capital was on-lent to the Group’s life companies through the issue of a £250m Restricted Tier 1 internal loan to JRL and a £50m Restricted Tier 1 internal loan to PLACL, and through the issue of £50m new ordinary share capital by JRL. In October 2019 the Group raised further new capital through the issue of £125m 8.125% Tier 2 loan notes (before issue costs) and completed a tender for £37m (nominal value) of the existing £100m 9.5% Partnership Tier 2 notes. The Group called the remaining £67m Partnership Tier 2 notes at their first call date in March 2020, resulting in a net increase in Tier 2 capital of £25m (before costs).

Further strengthening of the Group’s capital position has been achieved through taking out additional mortality reinsurance in relation to post-2016 DB de-risking reserves. We have executed two pioneering property risk transactions, firstly in December 2018, and secondly in March 2020, 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 have taken steps to reduce our cost base, including reducing our property footprint and simplifying our senior management structure. We have transferred out 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 and Just South Africa.

The regulatory environment for Lifetime Mortgages (“LTMs”) has evolved since the start of Solvency II, with the publication of SS 3/17 “Solvency II: Equity Release Mortgages” as amended by PS 31/18, and PS 19/19 “Solvency II: Equity release mortgages – Part 2”. The regulatory expectations set out in SS 3/17 and PS 19/19, to be met by firms over a phasing period from 2018 to 2021, meant that Just needed to restructure and update its internal LTM securitisation to better meet the revised regulatory expectations. This included a significant undertaking in the second half of 2019 to update the methodology used to determine the internal rating, amount and spread on the LTM notes used to enable LTM assets to be eligible for matching adjustment (“MA”).


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The restructure removes much of the uncertainty on the level of MA relating to LTMs in the regulatory balance sheet. Following the restructure, Just passes the PRA EVT with a material buffer (0.67%) over the minimum deferment rate of zero required at 31 December 2019 and volatility of 13% in line with the requirement.

The Group and JRL continue to engage in discussion with the PRA around the SCR methodology treatment, including the requirements for how the EVT would be applied in stress scenarios as set out in PS 19/19. The PRA expects firms’ SCR treatments to be updated for EVT under stress by 2021. At year-end 2019, our calculations indicate that the SCR currently held should be sufficient to pass an EVT in stress validation test.

Overall, the impact of these regulatory changes was a reduction in capital resources of £219m in 2019. We estimate the remaining cost of meeting the ultimate EVT requirement of 13% volatility and 1% deferment rate by 2021 to be c.£80m.

More details are given in section E. COVID-19 Just Group is closely monitoring the evolving situation in relation to the Covid-19 pandemic. Operationally, we continue to serve our customers and intermediaries and we have up-scaled our remote working capability, enabling the vast majority of our colleagues to work from home. We have published regular updates on our website to keep existing and new customers informed of our response to Covid-19 and to answer any questions they may have. We anticipate there may be some slow-down in our markets in line with economic activity generally, and whilst advisers become used to virtual and telephone, rather than face-to-face, appointments. 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. The Solvency II capital coverage for the Group at 31 March 2020 using property and mortality

assumptions consistent with 31 December 2019, is estimated at 143% (after notional recalculation of TMTP),

compared to the year-end reported position of 141%.

We do not yet have a view of the likely mortality impact from the pandemic, although it is probable that there will be higher than assumed rates of annuity and mortgage mortality. Market volatility in the second half of March 2020, in reaction to the developing COVID-19 pandemic situation in the UK, led to a significant temporary increase in the Group’s collateral requirements, which have subsequently largely reversed. The Group experienced collateral calls for an additional c. £500m, which it was able to meet from existing available liquidity balances and facilities. The key areas which may affect the Group as a result of the economic impacts of the pandemic are in relation to

property prices and corporate bond downgrades or defaults. However, it is difficult to gauge the likely impacts on

these areas, and in particular it is difficult to predict how the property market will respond as the lockdown

restrictions begin to be removed. The sensitivity of the Group’s capital position as at 31 December 2019 to different

economic and demographic factors is shown below.


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Group Solvency II sensitivities 31 December 2019 %

Solvency coverage ratio/excess own funds 141

-50 bps fall in interest rates (with TMTP recalculation) (3)

+100 bps credit spreads 1

Credit quality step downgrade1 (13)

+10% LTM early redemption 2

-10% property values (with TMTP recalculation)2 (15)

-5% mortality (10)

1 Sensitivity shows the impact of an immediate full letter downgrade on 20% of all assets where the capital treatment depends on a credit rating (including corporate bonds, lifetime mortgage senior notes, commercial mortgages and Infrastructure loans). All credit assets were grouped into rating class, then 20% of each group were downgraded.2 After application of NNEG hedges entered into in December 2018 and March 2020

A.1.2 Business objectives

The Group focusses on some of the most attractive markets in the retirement sector using hard-to-replicate intellectual property. The Group has a strong social purpose and by providing people with guidance, products and services, helps them achieve security, certainty and peace of mind in later life.

Strategic priorities 2019 progress 2020 focus

1. Improve our capital position

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

• 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 focussing 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 (organic capital generation is the net increase in solvency II excess own funds over the year, excluding the impacts of equity and debt capital raised, economic variances and regulatory changes).

• 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

• We will make progress on organic capital generation.

• Continue to de-risk our balance sheet to reflect economic and regulatory challenges.


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implementing the regulatory requirements for LTMs estimated to be £80m.

• Capital raised during the year benefitted capital resources by a net amount of £452m.

2. Transform how we work

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

• 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 transferred out our UK income drawdown service to a third party provider.

• Continue to optimise our business processes.

• Review our operating model to maximise efficiency.

3. Get closer to our customers and partners

As we transition our business model we will continue to ensure the customer is at the heart of everything we do.

• Through DB de-risking partnering we are pairing our highly effective new business franchise with third party capital to this high growth market.

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

4. Generate growth in new markets

We will improve returns on new business by working to grow market demand.

• 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.

• Maximise value from long term growth in later life lending.

• Leverage expertise and intellectual property in core retirement markets.


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5. Be proud to work at Just

Building the right organisational culture, strengthening our capabilities and developing an engaging employee experience.

• 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.

• 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.

A.1.3 Material lines of business

The Group's current product offering comprises the following, all of which are classified as 'Other life' products for Solvency II reporting purposes:

JRL PLACL

Defined Benefit De-risking Solutions (“DB”) 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.

Care Plans (“CP”) 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.

Guaranteed Income for Life (“GIfL”) For individuals/couples who want the security of knowing they will receive a guaranteed income for life in retirement.

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


13

A.1.4 New business sales

The table below shows sales in the 12 months to 31 December:

New business sales Partnership Life

Just Group plc Just Retirement Assurance Company

Limited Limited

To 31 December 2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m

Defined Benefit De-risking Solutions (DB)

1,231.3 1,314.2 1,231.0 1,314.2 0.3 -

Guaranteed Income for Life Solutions (GIfL)

615.7 786.5 585.0 757.3 - -

Care Plans (CP) 71.1 72.8 - - 71.1 72.8

Retirement Income sales 1,918.1 2,173.5 1,816.0 2,071.5 71.4 72.8

Drawdown 26.7 51.0 26.7 51.0 - -

Protection - 0.8 - - - 0.8

Total new business sales 1,944.8 2,225.3 1,842.7 2,122.5 71.4 99.0

Note: New business sales for Just Group plc in the table above also includes sales from the Group’s subsidiary Just Retirement South Africa (“JRSA”).

Retirement Income sales As part of the Group’s commitment to making capital our number one priority, and to achieving capital self-sufficiency, during 2019 there has been a planned reduction in new business sales in order to reduce new business capital strain. Retirement Income sales decreased by 12%, from £2,173.5m in 2018 to £1,918.1m in 2019.

JRL retirement income sales decreased by 12% to £1,816.0m in 2019 from £2,071.5m in 2018 whilst PLACL retirement income sales decreased by 2% to £71.4m in 2019 from £72.8m in 2018. PLACL stopped selling new GIfL and DB contracts on becoming part of the Just Group in 2016, and is now solely focused on Care Plans on behalf of the Group. The main reasons for these movements are explained below: Defined Benefit De-risking sales DB sales were £1,231.3m in 2019 (2018: £1,314.2m), a decrease of 6%. The reduction in DB sales compared to the prior year is as a result of our planned reduction in new business volumes. The defined benefit de-risking market remains strong, almost doubling in 2019 and we estimate exceeded £44bn (2018: £24.2bn), driven by a number of very large transactions. The market is expected to be in a £30-£40bn range in 2020. GIfL sales GIfL sales decreased by 22% to £615.7m in 2019, compared to £786.5m in 2018 and reflecting the planned reduction in our new business volumes. Care Plan sales Care Plan sales for the year ended 31 December 2019 were £71.1m, slightly lower than 2018 sales of £72.8m. The Group remains a leading provider in the sector, but closed its US care business, which had been loss-making, in April 2019. Other new business sales Drawdown sales Drawdown sales were £26.7m for the year (2018: £51.0m) and represented sales of the Group’s Flexible Pension Plan (“FPP”). The FPP product was closed to new business from July 2019 and existing customers have been migrated to a third party platform.


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Protection sales The decision was made to close the protection product to new business during the last quarter of 2017; the sales of £0.8m in 2018 related to the completion of pipeline applications up to March 2018. Lifetime mortgage loans Lifetime mortgage advances were £415.8m in 2019 (2018: £602.1m), a decrease of 31%. This reflected our strategic priority of reducing new business volumes to conserve capital, and to manage down the LTM backing ratio following changes to the capital rules. During 2019, the lifetime mortgage market paused for breath due to political and Brexit uncertainty, meaning customers deferred decisions, while we also experienced increased competition in the first half of the year.

Following the publication of PS 13/18, we chose to be more selective in the mortgages we advanced during 2019, with a focus on shorter duration loans to older borrowers, lower LTV business and customers with sufficient income to service interest on their borrowings. Given these changes, we continue to believe that these assets are a good match for our DB and GIfL liabilities.

A.1.5 Current business performance

Partnership Life Assurance Company

Limited

Just Group plc Just Retirement

Limited

To 31 December 2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m

New business operating profit 182.0 243.7 183.2 245.4 3.8 0.5

In-force operating profit 82.6 69.2 56.8 45.3 25.3 23.1

Underlying operating profit 264.6 312.9 240.0 290.7 29.1 23.6

Operating experience and assumption changes

42.2 (33.5) 26.0 (106.4) 18.3 44.8

Development expenditure (7.1) (6.4) (7.0) (5.9) (0.1) (0.5)

Reinsurance and financing costs (61.5) (45.8) (48.9) (36.3) (12.6) (9.5)

Profit on underwriting activity - A.2 238.2 227.2 210.1 142.1 34.7 58.4

Investment and economic profits - A.3 173.8 (252.0) 117.3 (206.1) 52.5 (44.7)

Other operating activities (19.6) (16.9) - - - -

Non-recurring and project expenditure (8.3) (19.6) (3.7) (4.1) - (0.2)

Implementation of cost saving initiatives

(13.5) - (12.8) - (0.5) -

Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity

16.8 - 11.7 - 2.3 -

Amortisation and impairment costs (18.8) (24.2) - - (0.7) (2.3)

Other activities - A.4 (43.4) (60.7) (4.8) (4.1) 1.1 (2.5)

Profit before tax 368.6 (85.5) 322.6 (68.1) 88.3 11.2

Notes:

Profit before tax for Just Group plc is shown on a consolidated basis including the results of all Group subsidiary undertakings, as set out in Section D, Valuation for Solvency Purposes, Method of consolidation.

The analysis in this presentation followed the prescribed EIOPA format and therefore departs from the format in Just’s published accounts.

New business operating profit Group new business operating profit has decreased by 25%, from £243.7m in 2018 to £182.0m in 2019. This mainly reflects the planned decrease in the level of Retirement Income sales written, in order to reduce new business strain as part of the Group’s commitment to improving capital efficiency. Retirement Income sales for 2019 were


15

£1,918.1m (year ended 31 December 2018: £2,173.5m). The overall margin achieved on Retirement Income sales in 2019 was 9.5%, down from 11.2% in 2018. The reduction in margin for 2019 was expected, following the changes to IFRS property assumptions made at 31 December 2018, and the reduction in the LTM backing ratio for new business in order to reduce capital strain. Margins have improved slightly over the course of the year, with good resilience shown in light of the price increases to accommodate the LTM regulatory changes. In-force operating profit Group in-force operating profit has increased by 19% compared to the prior year, from £69.2m to £82.6m, reflecting growth in profit from the Group’s growing in-force book of business, and the return on the Group’s surplus assets. Underlying operating profit Group Underlying operating profit, which is the sum of new business operating profit and in-force operating profit, has decreased from £312.9m to £264.6m, reflecting the reduction in new business operating profit described above, partly offset by the increase in in-force profit. Operating experience and assumption changes Group operating experience and assumption changes contributed a positive variance of £42.2m for 2019, compared to a negative variance of £33.5m in the prior year. Operating experience variances: Operating experience variances resulted in a charge of £8.9m for 2019 (2018: £1.4m charge), of which £8.4m has arisen from adverse mortality and redemption experience on mortgages (after allowance for early redemption charges). Small negative variances emerged for GIfL and Care mortality, and for mortgage mortality and redemptions. These were partly offset by a small positive variance for expense experience. The Group updated its expense assumptions in 2018 to take into account the reduced per-policy running costs following the delivery of integration synergies post-merger, but delivered maintenance expenses below its IFRS assumption. Operating assumption changes: Group Operating assumption changes and other operating items were £51.1m positive overall. The Group has updated its maintenance and investment expense assumptions, leading to a positive contribution at 31 December 2019 of £55.4m, of which £26.1m relates to maintenance expense assumptions. The Group has also modelled allowances for LTM early redemption charges, which has given rise to a further positive contribution of £97.0m. These have been offset by a strengthening of the Group’s LTM voluntary redemption assumptions to reflect recent adverse experience which has led to a £116.5m charge at 31 December 2019. Other items include improvements made to data, models and minor assumptions. The prior year operating experience and assumption changes charge of £33.5m was mainly in relation to updates to the Group’s mortality assumptions and mortgage voluntary redemptions assumptions at 31 December 2018, following completion of the integration of the Group’s underwriting IP from the legacy Just Retirement and Partnership businesses. Development expenditure Group development expenditure mainly relates to product development and new initiatives. These include the Just for You Lifetime Mortgage range, which gives additional flexibility to take a cash lump sum, or release cash as and when it is needed from a pre-agreed facility, or to choose to service some or all of the monthly interest. The Secure Lifetime Income solution for investment platforms enables financial advisers to offer their clients a guaranteed income for life solution within a self invested personal pension. Both of these are now available to new customers. The development costs of less capital-intensive products, such as our new DB De-risking partnership business is also included here. Reinsurance and finance costs The increase in reinsurance and finance costs for the period relates to the coupon on the Group’s £300m Restricted Tier 1 notes issued in March 2019, and the coupon on the Group’s £125m Tier 2 notes issued in October 2019. On a statutory IFRS basis the Restricted Tier 1 coupon is accounted for as a distribution of capital, consistent with the classification of the Restricted Tier 1 notes as equity, but the coupon is included as an interest cost on an adjusted operating profit basis.

JRL’s increase in reinsurance and finance costs for the period relates to the coupon on the Company’s £250m Restricted Tier 1 notes received in April 2019, and the coupon on the Company’s £25m Tier 2 notes received in


16

October 2019. Reinsurance and finance costs during 2019 also includes a full year of interest on the £100m Tier 3 debt issued in May 2018 and £50m Tier 3 debt issued in December 2018.

PLACL’s reinsurance and bank finance costs increased reflecting interest payable on Restricted Tier 1 and Tier 2 financing. £50m of the Group’s RT1 capital and £100m of the new Tier 2 capital were on-lent as internal loans to PLACL. The 2019 £100m Tier 2 internal loan funded a tender offer for PLACL’s existing £100m of Tier 2 subordinated debt of which £37.5m was accepted for purchase in October 2019. The remaining £62.5m of the 2015 debt was called in March 2020.

Changes in economic and investment conditions Group Investment and economic profits for 2019 were £173.8m (2018: losses of £252.0m). Investment and economic losses for 2019 include the benefit of a decrease in risk-free rates and a narrowing of credit spreads, partly offset by an actual property growth rate lower than the long-term expected rate. In contrast, during 2018, we experienced IFRS losses from increases in risk-free rates and widening credit spreads.

Investment and economic losses for 2018 included the impact of changes to the Group’s IFRS property growth and volatility assumption, in particular the reduction of the property growth assumption from 4.25% to 3.8% and an increase in volatility assumption from 12% to 13%, which gave rise to a £211m loss reported through this line in the prior period.

Once again there were no corporate bond defaults within our portfolio during the year (2018: no defaults).

Other operating activities Other operating activities resulted in a loss of £19.6m in 2019 compared to a loss of £16.9m in 2018. This line includes non-life company costs of £5.1m (2018: £2.3m) and development costs of £2.9m (2018: £2.4m). The underlying improvement reflects the benefit of actions taken during 2019 to reduce our cost base is starting to come through, with the full run-rate benefit expected in 2020. Included within this line item is the operating result for the HUB group of companies which generated a loss of £3.9m in 2019 but has made significant progress towards profitability during the year. Non-recurring and project expenditure Non-recurring and project expenditure, which includes significant one-off project spend associated with restructuring the Group’s securitisation to meet the recent regulatory changes and to meet major new financial reporting requirements was £8.3m for 2019 (2018: £19.6m). Non-recurring expenditure for 2019 includes costs associated with the equity placing, Restricted Tier 1 notes issuance, new Tier 2 notes issue and the tender for existing Tier 2 notes which were all undertaken during the year. Other project expenditure included in this category includes preparations for the new insurance accounting standard, IFRS 17, restructuring of the Group’s internal LTM notes, and the costs of responding to the requirements of SS 3/17, PS 31/18 and PS 19/19. The costs of ongoing interaction with our regulators and the costs of implementing less significant regulatory changes are included in operating costs. Implementation of cost saving initiatives These costs are in respect of the significant cost savings initiated during the year to optimise the Group’s business model and prioritise capital efficiency. During the year the Group rationalised its property footprint, reducing its Reigate office locations from three to two, and moved to more cost efficient London premises. We simplified our senior management structure and made improvements to our business processes to create long-term savings. As previously mentioned, we have also closed our US Care business and transferred out our drawdown service. These actions have resulted in a 10% reduction in our full year 2019 recurring core management expenses, with a total saving of £16m. These savings are expected to reduce both acquisition and maintenance costs. We expect ongoing savings as new cost initiatives in 2020 drive further cost savings across the business. Interest adjustment to reflect RT1 as equity See Reinsurance and finance cost above Amortisation and impairment costs Group Amortisation and impairment costs mainly relates to the value of the acquired in-force business asset relating to Partnership Assurance Group plc, which is being amortised over ten years in line with the expected run-off of the in-force business.


17

A.1.6 Other information

Employees All staff were employed by Just Retirement Management Services Limited. Details of employee numbers are available in the financial statements of that company. On 31 December 2018, all employees of Partnership Services Limited were transferred to Just Retirement Management Services Limited. Supervisor The Group’s and Companies’ Supervisors are the Prudential Regulation Authority (“PRA”), which is part of the Bank of England and the Financial Conduct Authority (“FCA”). Contact details for the PRA are as follows: Address 20 Moorgate, London, EC2R 6DA. Telephone number +44 (0) 20 7601 4444 Contact details for the FCA are as follows: Address 12 Endeavour Square, London, E20 1JN. Telephone number +44 (0) 20 7066 1000 External auditor The Company’s external auditor was KPMG LLP. Contact details are as follows: Address 15 Canada Square, London E14 5GL Telephone number +44 (0) 20 7311 1000 On 1 November 2019, the Group announced that PricewaterhouseCoopers LLP ("PwC") had been selected as the Group’s external auditor for the financial year ending 31 December 2020, subject to shareholder approval at the 2020 AGM. Contact details are as follows: Address 1 Embankment Place, London WC2N 6RH Telephone number +44 (0) 20 7583 5000 Qualifying holdings Qualifying holdings in the Group as defined by Article 13(21) of Directive 2009/138/EC are shown below:

Shareholder

Ordinary shareholdings at

31 December 2019

% of capital Ordinary shareholdings at

7 April 2020*

% of capital

Aberdeen Standard Investments (Standard Life)

166,019,292 16.04 152,455,618 14.73

* Being the last practical date prior to publication of the SFCR


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A.2 Underwriting Performance

The table below presents underwriting performance consistent with IFRS statutory accounts except that a ‘normalised’ investment return has been included instead of the total investment return. Returns earned on investments are a key part of the underwriting model within long-term insurance businesses, and hence a ‘normal’ level of return has been included for the purpose of this review of underwriting performance. Variations from the normal or expected level of investment return are presented in section A.3 on Investment performance.

The Group has two lines of business for Solvency II reporting purposes as disclosed on the annexed S.05.01 template, the FPP unit-linked product with sales of £26.7m (2018: £51.0m) representing 1.4% (2018: 2.3%) of the total new business sales, and the remaining ‘Other’ life products. Given that the FPP product is small and is supported by the business as a whole, it has not been be split out separately in the table below. During 2019, the Group closed the FPP product to new business and transferred the in-force policies of £99m to an external provider.

Substantially all of the business written in 2019 and 2018 was located in the United Kingdom, and hence the template S.05.02 for geographic split is not prepared.

Underwriting performance Partnership Life

Just Retirement Assurance Company

Just Group plc Limited Limited

To 31 December 2019 2018 2019 2018 2019 2018

£m £m £m £m £m £m

Gross premiums written 1,921.0 2,176.9 1,816.0 2,071.5 74.3 76.1

Reinsurance premiums ceded 2.8 (8.0) 4.2 12.3 (1.5) (20.2)

Reinsurance recapture 436.8 543.3 436.8 543.3 - -

Net premium revenue 2,360.6 2,712.2 2,257.0 2,627.1 72.8 55.9

Normalised investment return 677.1 542.3 495.1 356.0 205.5 184.9

Fee and commission income 2.0 4.8 1.9 1.5 1.0 4.9

Total revenue 3,039.7 3,259.3 2,754.0 2,984.6 279.3 245.7

Gross claims paid (1,247.5) (1,185.3) (826.6) (758.3) (415.6) (424.3)

Reinsurers' share of claims paid 386.4 435.4 131.6 171.6 254.8 263.8

Net claims paid (861.1) (749.9) (695.0) (586.7) (160.8) (160.5)

Change in insurance liabilities excluding economic variance:

Gross amount (844.1) (929.5) (1,060.8) (1,231.1) 178.5 297.6

Reinsurers' share (263.5) (366.4) (91.9) (175.4) (134.5) (190.9)

Reinsurance recapture (436.8) (543.3) (436.8) (543.3) - -

(1,544.4) (1,839.2) (1,589.5) (1,949.8) 44.0 106.7

Change in investment contract liabilities

(1.9) 0.4 (1.9) 0.4 - -

Acquisition costs (36.3) (53.3) (34.3) (53.2) (0.3) (0.5)

Other operating expenses (159.3) (189.9) (123.9) (151.3) (28.3) (34.7)

Finance costs (198.5) (200.2) (99.3) (101.9) (99.2) (98.3)

Total claims and expenses (2,801.5) (3,032.1) (2,543.9) (2,842.5) (244.6) (187.3)

Total Underwriting result 238.2 227.2 210.1 142.1 34.7 58.4

Investment performance - A.3 173.8 (252.0) 117.3 (206.1) 52.5 (44.7)

Other activities - A.4 (43.4) (60.7) (4.8) (4.1) 1.1 (2.5)

Profit before tax 368.6 (85.5) 322.6 (68.1) 88.3 11.2

Note: Profit before tax for Just Group plc is shown on a consolidated basis and includes the results of all Group subsidiary undertakings that are controlled by the Group, as set out in Section D, Valuation for Solvency Purposes, Method of consolidation

Gross premiums written Gross premiums written comprise GIfL, DB and Care Plan contracts in the period, gross of commission paid, and amounted to £1,921.0m (2018: £2,176.9m) for the Group, £1,816.0m (2018: £2,071.5m) for JRL, and £74.3m (2018:


19

£76.1m) for PLACL. As discussed above, the year on year decrease reflects the Group’s planned reduction in new business volumes in order to preserve capital. Net premium revenue Net premium revenue includes gross premiums written plus the impact of any reinsurance recaptures made during the year, partly offset by reinsurance premiums ceded. Net premium revenue for the Group decreased from £2,712.2m to £2,360.6m, driven by the reduction in gross premiums written combined with the impact of lower reinsurance recaptures, from £2,627.1m to £2,257.0m for JRL, but increased from £55.9m to £72.8m for PLACL. This reflects that from 2019 onwards, PLACL retains the longevity risk when writing new Care Plans. Normalised investment return The normalised investment return represents the expected return based on the opening yields on the established portfolio adjusted for investments acquired in the period and amounted to £677.1m (2018: £542.3m) for the Group, £495.1m (2018: £356.0 for JRL, and £205.5m (2018: £184.9m) for PLACL. The net impact of fluctuations from expected yields due to changes in interest rates and other economic factors on both investment assets and insurance liabilities are reported in the Investment performance section A.3. Net claims paid Net claims paid represent the total payments due to policyholders during the accounting period, less the reinsurers’ share of such claims which are payable back to the Group under the terms of the reinsurance treaties. Net claims paid for the Group increased to £861.1m from £749.9m in 2018, and to £695.0m from £586.7m in 2018 for JRL, both reflecting the growth of the in-force book. Claims paid in PLACL were broadly level, at £160.8m compared with £160.5m in 2018. Change in insurance liabilities excluding economic variance Change in insurance liabilities represents the year-on-year changes in the carrying value of the insurance liabilities and reinsurance assets, excluding the effect of changes in economic assumptions including discount rates. The effect of these economic changes is largely offset by changes in the value of the backing assets, with any net impact reported in the Investment performance section A.3. Change in insurance liabilities for the Group reflected an increase of £1,544.4m for the current year, compared to £1,839.2m in 2018, including an increase in liabilities in JRL of £1,589.5m in 2019 compared with £1,949.8m in 2018. This change year on year reflects the lower new business volumes and the comparative impact of reinsurance recaptures. The net decrease in liabilities in PLACL of £44.0m in 2019 compared with £106.7m in 2018, reflecting that this business is in net run-off. Acquisition costs Acquisition costs comprise the direct costs (such as commissions) and indirect costs of obtaining new business. Acquisition costs for the Group decreased from £53.3m in 2018 to £36.3m in 2019 mainly as a result of the planned reduction in volumes of retirement income sales and LTM advances, with the vast majority of the costs falling in JRL in each period. Other operating expenses Other operating expenses represent the operational overheads, including personnel expenses, investment expenses and charges, depreciation, reinsurance fees, operating leases and other expenses incurred in running the Group’s operations. Other operating expenses for the Group decreased from £189.9m in 2018 to £174.3m for the current year, due to a reduction from £151.3m in 2018 to £123.9m in 2019 for JRL, and from £34.7m in 2018 to £28.3m in 2019 for PLACL. The Group reduction reflects the benefit of cost base reduction during 2019 including simplification of the senior management structure, consolidation of property footprint, JRL transferring out of the FPP product to an external company, and a decrease in development expenditure as certain projects completed. Costs were also saved via the closure of the US Care business and decreasing size of the in force book in PLACL. Finance costs Finance costs represent interest accruing on the deposits received from reinsurers, interest payable on subordinated debt, interest on reinsurance financing and bank finance costs.


20

Finance costs charged to underwriting activity at Group level decreased from £200.2m in 2018 to £198.5m in 2019. The main driver relates to a reduction in reinsurance deposits, which have fallen in line with the planned recaptures made. At a Group level, this decrease has been partly offset by a full year’s interest on the Group’s Tier 3 loan notes issued in February 2018, and interest on the new Tier 2 loan notes issued in October 2019. Note that the coupon on the Group’s Restricted Tier 1 notes is recognised as a capital distribution directly within equity and not within finance costs. This includes reinsurance finance costs as well as the core expense base. Finance costs in JRL decreased from £101.9m in 2018 to £99.3m in 2019 for similar reasons as noted for Group. PLACL’s costs for 2019 of £99.2m and £98.3m in 2018 mainly represent interest on reinsurance deposits, but also include interest payable on Tier 2 subordinated debt held during the year.

A.3 Investment Performance

A.3.1 Income and expenses by asset class

Investment performance Partnership

Life Assurance

Just Group plc Just Retirement Limited Company Limited

To 31 December 2019 2018 2019 2018 2019 2018

£m £m £m £m £m £m

Interest income

Bond interest 364.4 375.8 224.1 213.9 139.2 146.2

Cash interest 20.2 10.1 9.4 2.9 10.1 5.1

Mortgage interest 273.4 268.4 215.8 205.9 57.1 61.9

Collateral interest 0.7 0.9 - 0.9 0.6 -

Other 4.3 - - - 4.4 - 663.0 655.2 449.3 423.6 211.4 213.2

Fair value movements

Bonds 432.0 (374.9) 246.8 (185.1) 178.2 (180.6)

Mortgages 458.6 (202.7) 380.1 (168.9) 79.0 (33.1)

Reassurance (154.0) 127.2 (46.8) 35.3 (107.3) 92.0

Derivatives 129.9 (65.3) 134.1 (43.6) (7.1) (20.2)

Flexible Pension Plan (FPP) (94.1) (3.1) (94.1) (3.1) - -

Other 16.3 6.2 19.0 16.1 (2.7) (6.2)

788.7 (512.6) 639.1 (349.3) 140.1 (148.1)

Other investment income - - - 0.5 - -

Total net investment return

1,451.7 142.6 1,088.4 74.8 351.5 65.1

Less: Normalised return included in underwriting result

(678.6) (544.8) (495.1) (356.0) (205.5) (184.9)

Adjust for:

Economic variances matched by investment movements

(693.4) 150.2 (570.1) 75.1 (93.5) 75.1

FPP contract liabilities 94.1 - 94.1 - - -

Investment variance 173.8 (252.0) 117.3 (206.1) 52.5 (44.7)


21

Interest income Interest income relates mainly to corporate bonds and rolled-up mortgage interest in the period and has increased due to growth in the asset portfolio from underlying business growth. Fair value movements During 2019, risk free rates have decreased and credit spreads have narrowed, giving rise to unrealised gains on the Group’s mortgage and corporate bond assets. This is in contrast to the prior year, where risk free rates increased and credit spreads widened, leading to unrealised losses. Investment variance Investment variance represents the net variance after netting off economic variances experienced in the valuation of the IFRS technical provisions from the fair value movement on the assets, and allowing for a normalised investment return. The net variance reflects the management of interest rate volatility through use of derivatives, which is optimised for the Solvency II basis rather than the IFRS basis balance sheet. Investment and economic profits for 2019 include the benefit of a decrease in risk-free rates, and a narrowing of credit spreads, partly offset by an actual property growth rate lower than the long-term expected rate. In contrast, during 2018, we experienced IFRS losses from increases in risk-free rates and widening credit spreads. Investment and economic losses for 2018 included the impact of changes to the Group’s IFRS property growth and volatility assumption, in particular the reduction of the property growth assumption from 4.25% to 3.8% and an increase in volatility assumptions from 12% to 13%, which gave rise to a £211m loss reported through this line in the prior period.

Investment expenses Investment expenses in the year were £13.9m (2018: £16.3m) for the Group, £7.7m (2018: £11.2m) in JRL, and £5.7m (2018: £5.1m) in PLACL.

A.3.2 Gains and losses recognised directly in equity A gain of £5.3m on the revaluation of property owned by JRL was been recognised directly in equity in 2018. No revaluation has been made in 2019.

A.3.3 Investments in securitisation

There are no investments in securitisations which are not originated by the Group.


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A.4 Performance of other activities

Partnership

Just Retirement Life Assurance

Just Group plc Limited Company Limited

To 31 December 2019 2018 2019 2018 2019 2018

£m £m £m £m £m £m

Other operating activities (19.6) (16.9) - - - -

Non-recurring and project expenditure (8.3) (19.6) (3.7) (4.1) - (0.2)

Implementation costs (13.5) - (12.8) - (0.5) -

Adjustment to reflect IFRS accounting for RT1 as equity

16.8 - 11.7 - 2.3 -

Amortisation of intangible assets (18.8) (24.2) - - (0.7) (2.3)

Other activities (43.4) (60.7) (4.8) (4.1) 1.1 (2.5) Other operating activities

Other operating activities include results for other Group companies, notably the holding and distribution companies, and include financing costs which were the main driver for the year on year change from £16.9m in 2018 to £19.6m in 2019. The higher financing costs reflected interest costs in the period before funding was on-lent to the life companies.

Non-recurring and project expenditure

Non-recurring and project expenditure at Group level were £8.3m for 2019 (2018: £19.6m), in JRL were £3.7m (2018: £4.1m), and in PLACL £nil (2018: 0.2m). Non-recurring expenditure for 2019 includes costs associated with the equity placing, Restricted Tier 1 notes issuance, new Tier 2 notes issue and the tender for existing Tier 2 notes which were all undertaken during the year. Other project expenditure included in this category includes preparations for the new insurance accounting standard, IFRS 17, restructuring of the Group’s internal LTM notes, and the costs of responding to the requirements of SS 3/17, PS 31/18 and PS 19/19. The costs of ongoing interaction with our regulators and the costs of implementing less significant regulatory changes are included in operating costs.

Implementation of cost saving initiatives

These costs are in respect of the significant cost savings initiated during the year to optimise the Group’s business model and prioritise capital efficiency. During the year the Group rationalised its property footprint, reducing its Reigate office locations from three to two, and moved to more cost efficient London premises. We simplified our senior management structure and made improvements to our business processes to create long-term savings. As previously mentioned, we have also closed our US Care business and transferred out our drawdown service. These savings are expected to reduce both acquisition and maintenance costs. We expect ongoing savings as new cost initiatives in 2020 drive further cost savings across the business. Of the total £13.5m cost in 2019, £12.8m was incurred in JRL and £0.5m in PLACL. These actions have resulted in a 10% reduction in our full year 2019 recurring core management expenses, with a total saving of £16m.

Amortisation and impairment costs

Amortisation mainly relates to the acquired in-force business asset relating to Partnership Assurance Group plc, which is being amortised over ten years in line with the expected run-off of the in-force business.


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Chapter B contents

B. System of Governance ...................................................................................................... 24 B.1 General information on the system of governance ................................................ 24

B.1.1 Governance in the Just Group ................................................................................ 24 B.1.2 Governance structure in Just Retirement Limited and Partnership Life Assurance Company Limited ........................................................................................... 28 B.1.3 Allocation of responsibilities to functions ........................................................... 30 B.1.4 Changes in the system of governance ................................................................ 31 B.1.5 Assessment of adequacy ........................................................................................ 31 B.1.6 Remuneration policy ................................................................................................ 31 B.1.7 Material transactions .............................................................................................. 36 B.1.8 Intra-group outsourcing arrangements .............................................................. 36

B.2 Fit and proper requirements ......................................................................................... 36 B.2.1 Requirement applicable to Directors .................................................................... 37 B.2.2 Assessing fitness and propriety ............................................................................. 39

B.3 Risk management system including the own risk and solvency assessment .. 39 B.3.1 Risk governance and management framework ................................................ 39 B.3.2 Integration of risk management into the decision making processes ........ 41 B.3.3 Determination of own solvency needs ................................................................ 41 B.3.4 Internal Model Governance .................................................................................... 41 B.3.5 ORSA management .................................................................................................. 41 B.3.6 ORSA process ............................................................................................................. 42

B.4 Internal control system .................................................................................................. 42 B.4.1 Internal control system description ..................................................................... 42 B.4.2 Roles and responsibilities of the Compliance function .................................... 44

B.5 Internal audit function ................................................................................................... 44 B.5.1 Internal audit function description ...................................................................... 44 B.5.2 Independence and objectivity of internal audit ................................................ 45

B.6 Actuarial function ............................................................................................................ 46 B.7 Outsourcing ....................................................................................................................... 47

B.7.1 Group Procurement & Outsourcing Policy .......................................................... 47 B.7.2 Principal outsourced activities ............................................................................... 47

B.8 Any other information .................................................................................................... 47


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B. System of Governance (Unaudited)

This section sets out information regarding the System of Governance in place in Just Group plc, which applies to the UK regulated entities in the Group, including Just Retirement Limited (“JRL”) and Partnership Life Assurance Company Limited (“PLACL”).

Details of the structure of the Company's administrative, management or supervisory body (defined as including the Board, subsidiary boards and Board sub-committees) are provided. The roles, responsibilities and governance of key functions (defined as the Risk, Compliance, Internal Audit and Actuarial functions) are also provided. Other components of the system of governance are also outlined, including the risk management system and the internal control system implemented across the business.

B.1 General information on the system of governance

B.1.1 Governance in the Just Group

The Board is responsible for the strategic direction of the Company as well as risk appetite, and promotes the long-term sustainable success of the Company, generating value for shareholders and contributing to wider society.

The Board has agreed an effective governance framework and our governance structure is set out below.

Just Group plc Board

The Board meets at least bi-monthly with other meetings scheduled as required by the needs of the business. During 2019 the Group Board met seven times and was chaired by Chris Gibson-Smith

• Sets Group purpose, values and strategy • Monitors culture and ensures behaviours and practices are aligned with the Group’s purpose, values and strategy • Sets risk appetite and oversees risk management, internal control systems and corporate governance regulatory

matters • Approves the business plan including objectives, budgets, forecasts and material changes and monitors delivery

against the plan • Approves major changes to the Group’s business activities including but not limited to major acquisitions or

disposals, entering into or exiting geographical areas and establishing new major areas of operations or ceasing to operate any area of the business

• Approves the capital structure of the Group and monitors capital risk appetite, approving changes to capital • • Approves the financial statements, half-year reports and regulatory reports • The Group Board has delegated oversight for some of its activities to Committees of the Board

JRL

Audit

Committee

JRL

Investment

Committee

PLACL

Investment

Committee

PLACL

Audit

Committee

Audit

Committee

Risk and

Compliance

Committee

Remuneration

Committee

Nomination

Committee

Market

Disclosure

Committee

JUST GROUP PLC BOARD

JRL Board PLACL Board

Other

Subsidiary

Boards


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Group Audit Committee The Audit Committee will normally meet not less than four times a year and is chaired by Paul Bishop. Oversees on behalf of the Board: • Financial reporting • Significant accounting judgements and accounting policies • Solvency II reporting including SFCR • Relationship with the external auditor including monitoring independence, non-audit services and the audit plan • Audit tender process • Appointment of the new auditor • Monitoring internal control • Oversight of the internal audit function and the internal audit plans JRL and PLACL Audit Committees The JRL and Audit Committees normally meet not less than four times a year and are chaired by Paul Bishop. However the membership of the Committee includes at least one non-executive director who is not also a non-executive director of Group plc. The JRL and PLACL Audit Committees’ roles are to assist the Boards of JRL and PLACL with the discharge of their responsibilities in relation to the financial reporting including the respective company’s annual report and accounts, its solvency reporting, the scope of the external audit and independence of the auditors, advising on the appointment of external auditors and reviewing the effectiveness of internal controls, risk management systems and internal audit, so far as it relates to the Company. Group Remuneration Committee The Remuneration Committee will normally meet not less than twice a year and is chaired by Ian Cormack. Oversees on behalf of the Board: • Remuneration Policy (to be then approved by the shareholders) • Within the terms of the Remuneration policy sets remuneration, benefits, pension and total compensation of the Chair of the Board, Executive Directors, members of the Executive Committee, the Group Company Secretary and other senior management and Solvency II staff • Share schemes including SAYE, LTIPs, STIPs and DSBP schemes and approval of awards under the schemes • Alignment of workforce reward and incentives to overall culture During 2019, the Committee approved a new Remuneration Policy which will be put to the shareholders for approval at the 2020 AGM. Group Nomination Committee The Nomination Committee will normally meet not less than twice a year and is chaired by Chris Gibson-Smith. Oversees on behalf of the Board: • Appointments of Board members and the CEO • Composition of the Board • Succession planning • Balance of skills, experience and knowledge • Diversity and inclusion matters and monitors the impact of initiatives (for Board, senior management and wider

initiatives) • Independence of Directors Group Risk and Compliance Committee The Risk and Compliance Committee will normally meet not less than four times a year and is chaired by Keith Nicholson. Oversees on behalf of the Board: • Risk management and internal control framework • Regulatory matters (other than Group Solvency II reporting) • Risk exposures • Solvency II compliance and the internal model including changes to the internal model


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• All Chief Actuary reports other than those which go to the Group/JRL/PLACL Audit Committees JRL and PLACL Investment Committees The JRL and PLACL Investment Committees will normally meet not less than four times a year. Mary Kerrigan is an independent Non-Executive Director and was appointed as Chair of both committees on 28 January 2020. During 2019, the Investment Committees were chaired by Michael Deakin up until his death on 15 July 2019 and by Nick Poyntz-Wright from 30 July 2019 to 28 January 2020. The Boards of JRL and PLACL have delegated responsibility for oversight and management of investment management activities within an investment management governance framework to their Investment Committees. This assists the Group Board with oversight of these activities. The Investment Committees are responsible for: • Overseeing the investment policy • Oversight of the performance of the investment portfolio • Reviewing performance of external investment managers and effectiveness of the reporting procedures • Approving entry into Investment Management Agreements and other documentation within the remit of its

terms of reference Other Board Committees The Group Board also established a Market Disclosure Committee which oversees the disclosure of information by the Company to meet its obligations under the Market Abuse Regulation. This ensures that decisions in relation to those regulations can be made quickly. The Committee’s role is to approve disclosures, determine whether there is inside information and whether such information needs to be disclosed and when to make an announcement and the contents of the announcement. Other responsibilities include reviewing and approving announcements concerning developments in Just’s business and monitoring compliance with the Group’s DTR disclosure controls and procedures. Its members comprise Chris Gibson-Smith (Chair), Keith Nicholson, David Richardson and Andy Parsons.

The Board may also establish other Committees of the Board or sub-committees of those Committees when required from time to time. All Committees are established by approval of the Board with agreed terms of reference. Terms of reference The matters reserved for the Group Board are defined and approved by the Board. Each Group Committee has terms of reference which are available on the Group website at www.justgroupplc.co.uk The matters reserved for the Life Company Boards are defined and approved by each Board. They work in synergy with the Group Board. The Investment Committees and the subsidiary Audit Committees have approved terms of reference which set out their responsibilities. Composition of committees The main Board Committees are comprised of independent Non- Executive Directors of the Company who were appointed to each Committee following review and recommendation by the Nomination Committee and approval by the Board. At each Group Board meeting the Chairs of each Committee report on the proceedings of preceding Committee meetings. The Group Company Secretary supports the Chairs of all of the Committees and is available to provide corporate governance advice to all Directors. Chief Executive Officer and the Group Executive Committee

The Board has delegated responsibility for implementing the strategy and business plans and for managing risk

and operating effective controls across the Group to the Chief Executive Officer.

The Chief Executive Officer has established a committee of senior executives to assist him with the discharge of

the duties delegated to him by the Board.

The Committee meets fortnightly to discuss and approve operational matters and comprises of David Richardson

and his executive team.

The Group Executive Committee is responsible for:

• Day-to-day leadership of the Company in accordance with the purpose, values and culture set by the Board

http://www.justgroupplc.co.uk/


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• Implementing the strategy set by the Board and recommending strategy development to the Board • Risk management across the business and implementing effective controls to manage and mitigate risks • Recommending the business plan and budgets to the Board for approval • Monitoring the Group’s performance • Implementing policies and processes to ensure that people within the organisation feel well led, well managed

with opportunities for development There is also an Executive Risk Committee (“ERC”), chaired by the Chief Risk Officer, which focuses on risk management across the Group. This includes oversight of risk controls, regulatory and compliance matters and risk appetite. The ERC reviews reports from management before they are presented to the GRCC. Just Group plc Board There were seven Board members at 31 December 2019: the Chair (independent on appointment), one Executive Director and five Non-Executive Directors (all of whom are considered to be independent). Keith Nicholson is the Senior Independent Director. On 1 January 2020 Andy Parsons was appointed as Chief Financial Officer of the Group and appointed as an Executive Director of Just Group plc. On 1 March 2020 Michelle Cracknell was appointed as an independent Non-Executive Director of Just Group plc. As at the date of this report there are nine Board members: the Chair (independent on appointment), two Executive and six Non-Executive Directors (all of whom are considered independent). The Board considers that the current mix of Executive and Non-Executive Directors is appropriate, preventing the Board from being too large and ensuring that the Board remains predominantly independent. Directors on the Board during the year and up to the date of this report are as follows: • Chris Gibson-Smith, Chair (informed the Board of his intention to retire on 12 March 2020. Pending appointment

of a successor, Chris will stand for re-election at the Group’s AGM in May 2020). • Rodney Cook, Group Chief Executive Officer (resigned on 30 April 2019) • David Richardson, Group Chief Executive Officer and Managing Director of UK Corporate Business • Andy Parsons, Group Chief Financial Officer (appointed on 1 January 2020) • Paul Bishop, Independent Non-Executive Director • Ian Cormack, Independent Non-Executive Director • Michelle Cracknell, Independent Non-Executive Director (appointed 1 March 2020) • Michael Deakin, Independent Non-Executive Director (passed away 15 July 2019) • Steve Melcher, Independent Non-Executive Director • Keith Nicholson, Senior Independent Director • Clare Spottiswoode, Independent Non-Executive Director David Richardson was the Interim Chief Financial Officer of Just Group from 31 October 2018 until 1 January 2020, and Deputy Group Chief Executive Officer from April 2016. On 30 April 2019, he was appointed as Interim Group Chief Executive Officer, retaining his other responsibilities. On 18 September 2019, David Richardson was appointed as Group Chief Executive Officer. On 1 January 2020, David Richardson relinquished his responsibilities as Interim Group Chief Financial Officer. The Board believes that documented roles and responsibilities for Directors, with a clear division of key responsibilities between the Chair and the Group Chief Executive Officer, are essential elements in the Group’s governance framework and facilitate the effective operation of the Board.

The Chair is responsible for the effective leadership and governance of the Board but takes no part in the day-to-day running of the business. His key responsibilities include: • Leading the Board effectively to ensure it is primarily focused on strategy, performance, value creation and

accountability • Ensuring the Board determines the significant risks the Group is willing to embrace in the implementation of

its strategy • Leading the succession planning process and chairing the Nomination Committee • Encouraging all Directors to contribute fully to Board discussions and ensuring that sufficient challenge applies

to major proposals • Fostering relationships within the Board and providing a sounding board for the CEO on important business

issues


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• Identifying development needs for the Board and Directors • Leading the process for evaluating the performance of the Board, its Committees and individual Directors • Ensuring effective communication with major shareholders and the regulator

The Group Chief Executive Officer is responsible for leadership of the Group’s business and managing it within the authorities delegated by the Board. His key responsibilities include: • Proposing and developing the Group’s strategy and significant commercial initiatives • Leading the executive team in the day-to-day running of the Group • Ensuring the Group’s operations are in accordance with the business plan approved by the Board, including

the Board’s overall risk appetite, the policies established by the Board, and applicable laws and regulations • Representation of the Group’s interests in the UK and abroad • Maintaining dialogue with the Chair on important business and strategy issues • Recommending budgets and forecasts for Board approval • Providing recommendations to the Remuneration Committee on remuneration strategy for Executive

Directors and other senior management • Leading the communication programme with shareholders and ensuring the appropriate and timely

disclosure of information to the stock market • Leading and ensuring effective engagement with the regulator

The Senior Independent Director, Keith Nicholson, provides a sounding board for the Chair, and serves as an intermediary for the other Directors when necessary. The Senior Independent Director also meets annually with the Non-Executive Directors without the Chair being present to appraise the Chair’s performance, and address any other matters which the Directors might wish to raise. The Senior Independent Director conveys the outcome of their discussions to the Chair. The Non-Executive Directors of the Board will meet at least twice per year without the Executive Directors being present. As the Non-Executive Director nominated, in accordance with the UK Corporate Governance code 2018, Steve Melcher is responsible for seeking the views of our colleagues and bringing these back into the boardroom. Steve has undertaken a series of “conversation with the Board” sessions at all of our UK sites. Non-Executive Directors’ appointments are subject to review every three years. Their letters of appointment set out the expected time commitment. The need for availability in exceptional circumstances is recognised. We request that the Board is informed of any subsequent changes in the other significant commitments of the Directors. All Directors’ appointments are subject to annual re-election by shareholders and the reasons why their contribution is and continues to be important to the Company’s long-term sustainable success is set out in the explanatory notes accompanying the resolutions.

B.1.2 Governance structure in Just Retirement Limited and Partnership Life Assurance Company Limited The governance structures established for JRL and PLACL are aligned with the structure for the Just Group plc. Each legal entity within the Group has its own Board responsible for taking key decisions regarding the conduct of its business and its responses to the challenges and opportunities presented by changing markets, as well as alignment of the entity’s strategy with that of the Group as a whole. The Boards of Group, JRL and PLACL also have in place matters reserved or terms of reference to govern what matters are for Board approval and what matters have been delegated. In accordance with the Companies (Miscellaneous Reporting) Regulations 2018, during 2019 the Audit Committee and Board of JRL considered the governance arrangements in operation and agreed not to apply a corporate governance code during the year, but to apply some of the provisions of the UK Corporate Governance Code 2018 (the “Code”) as far as applicable to an unlisted and wholly owned private limited subsidiary. The Directors agreed that the Company would in some cases directly apply the principles of the Code and comply with its provisions and in other cases utilise the corporate governance arrangements in place for Just Group plc, which is required to apply the Code. There are also some provisions which are not applicable to a subsidiary, such as those in relation to annual general meetings or employees (as JRL has no employees). The Directors were satisfied that this approach would allow synergies with the Group governance framework as a whole, while ensuring that the Company has appropriate standards of corporate governance.


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At least half of the Board of any regulated subsidiary of Just Group plc must be comprised of NEDs which are independent of the Group (but not necessarily independent of the Group Board). The Chair of both JRL and PLACL is not a member of the Just Group plc Board or any other subsidiary boards to ensure independence from the Group Board. A Group policy and process is in place to address possible conflicts of interest of Directors. Any relevant conflicts and potential conflicts with the interests of the Company that arise must be disclosed at the next Board meeting for consideration and, if appropriate, authorisation by relevant Board members in accordance with the Company’s Articles. During the year on 30 July 2019 the Chair of Just Group plc relinquished his responsibilities as Chair of JRL and PLACL, whilst remaining on those Boards as a non-executive Director. On 30 July 2019 Nick Poyntz-Wright, an existing non-executive director of JRL and PLACL was appointed as the Chair of those Boards. On 1 November 2019 an additional independent non-executive director, Mary Kerrigan, was appointed to the Boards of JRL and PLACL. Mary Kerrigan and Nick Poyntz-Wright are not directors of Just Group plc and thus help to ensure independence of decision making from the Group Board. Whilst the Group Board directors who are directors of JRL and PLACL do not meet the independence requirements under the Code they are considered to be independent of mind and thought when acting as directors of JRL and PLACL. In addition, one of the Executive Directors, Paul Turner, is not a member of the Group Board. During the year, the JRL Board met seven times and the PLACL Board met seven times. The Group Board holds its board meetings on a nested basis together with the Boards of the Group’s regulated life companies, JRL and PLACL, due to synergies between their strategies and operations and for JRL, due to its strategic and material impact on the consolidated Group performance. Each Board considers each matter put before it from its own perspective, led by the independent Chair of each Board. Holding the meetings together ensures good communication and governance across the Group and that the strategy is aligned and implemented effectively. During 2019, JRL and PLACL established independent Audit Committees, with their first meetings taking place in July. The Audit Committees are held on a nested basis with the Group Audit Committee. Paul Bishop is Chair of all three Audit Committees, but Nick Poyntz-Wright is a member of the JRL and PLACL Audit Committees to ensure their independence of decision making from the Group Audit Committee. Keith Nicholson is also a member of the subsidiary Audit Committees. Other subsidiary companies The Board of Just Group plc agreed a governance structure for the Group which requires regulated subsidiaries including HUB Financial Solutions Limited (“HUB”), Just Retirement Money Limited (“JRML”), and Partnership Homes Loans Limited (“PHLL”) to have a separate Chair to mitigate against potential conflicts of interest with Group, JRL and PLACL. Steve Melcher is the Chair of HUB, and Paul Bishop is the Chair of JRML and PHLL. Just Retirement South Africa (“JRSA”) also has a separate Chair to reflect the market in which it operates. As a regulated entity in another territory, JRSA has in place its own Committee Structure. This includes a Remuneration Committee, a Treating Customers Fairly Committee and an Actuarial, Audit and Risk Committee.

During the year on 10 December 2019, HUB appointed an additional independent non-executive director, Paul Petitt, to the Board. Mr Petitt is independent of Just Group and its subsidiaries.

The remit of each Board is defined in its Terms of Reference, which set out its principal role and scope of responsibilities. Certain decisions are listed in a document as being reserved for decision by the Board of Just Group plc as ultimate shareholder, notably where consistency of strategy, policies, processes and procedures are appropriate.

Each Board is responsible for (with a detailed list contained in their terms of reference):

• The strategy and management of the Company and developing and delivering the Company’s aims and objectives consistent with the Group’s strategy and direction;

• Developing and approving business plans

• Holding management to account and seeking assurance that the strategy and plans are being delivered

• Structure and capital of the Company

• Financial reporting and finance matters

• Approval of contracts relating to the Company in accordance with Group policies

• Risk management and internal controls so far as they relate to the Company

• Corporate governance and compliance matters in relation to the Company


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B.1.3 Allocation of responsibilities to functions

In order that the Group can be run effectively, responsibility and accountability is delegated to specific individuals. The Group CEO is responsible for apportionment and oversight. In addition, the CEO provides oversight to those who are apportioned responsibilities through the performance management framework. The allocation of responsibilities is covered in the Management Responsibilities Maps established for each regulated entity.

Executive Committees

CEO Chief Executive Officer GHRD Group Human Resources Director

GFCO Group Chief Financial Officer GCDIO Group Chief Digital Information Officer

GMDD Group Marketing and Distribution Director MDR Managing Director Retail

GCRO Group Chief Risk Officer GAE Group Actuarial Executive

Management committees

CSMT UK Corporate Committee ALCO Asset and Liability Committee

RSMT Retail SMT InsCom Insurance Committee

HUB SLT HUB Senior Leadership Team SMT CORC Compliance and Operational Risk Committee

Executive Committees The Group Executive Committee (“GEC”) is in place to support Executives in meeting their accountabilities because they will require advice, assistance and challenge in meeting these accountabilities from people across the business. The GEC has clearly defined authority to support decisions related to a designated area and all minutes are recorded formally. The Executive Risk Committee (“ERC”) was established during 2019 to review and monitor the aggregate risk position of the Group and discuss risk and regulatory strategies, including those relating to current and emerging risk exposures. The ERC is also responsible for reviewing and challenging the overall effectiveness of the Group’s systems and controls, risk management and future developments. Management Committees Just Group has six permanent management committees which support the Group Executive Committee: • UK Corporate Committee • Retail SMT • HUB Senior Leadership Team • Asset and Liability Committee • Insurance Committee • Compliance and Operational Risk Committee

Group Executive Committee Chair: GCEO Members: GCFO, GMDD, GCRO, GHRD, GCDIO, MDR, GAE Matters: Formed of the Group’s senior management team, the GEC provides strategic leadership to the Group to ensure competent and prudent management, adequate system of internal control, compliance with legal and regulatory obligations and reviewing company performance in light of strategy, objectives and business plans

Executive Risk Committee Chair: GCRO Members: CEO, GCFO, GMDD, GHRD, GCDIO, MDR, GAE Matters: Chaired by the GCRO and formed of the Group’s senior management team, the ERC reviews and monitors the aggregate risk position of the Group and discusses risk and regulatory strategies, including those relating to current and emerging risk exposures. The ERC is also responsible for reviewing and challenging the overall effectiveness of the Group’s systems and controls, risk management and future developments.

RSMT ALCO HUB SLT InsCom CORC CSMT


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B.1.4 Changes in the system of governance

The Group has taken steps to strengthen the independent governance of the life companies. These steps include appointing a non-Executive Chair of the life companies, Nick Poyntz-Wright, who is not the Chair of the Group, the appointment of a further independent non-Executive Director to the life company Boards and the strengthening of policies and practices for identifying and managing conflicts of interest. David Richardson was appointed as Group Chief Executive Officer on 19 September 2019 and continued as Interim Group Chief Financial Officer until Andy Parsons joined the Group on 1 January 2020. The life companies appointed an individual to perform the role of Chief Financial Officer on an interim basis, again until Andy Parsons joined the Group.

B.1.5 Assessment of adequacy

The Just Group plc Board has overall responsibility for establishing and maintaining the Group’s systems of internal financial control. The Audit Committee keeps under review the adequacy and effectiveness of the Group’s internal financial controls and the project planning for significant changes in financial systems controls. Non-financial controls are considered by the Group Risk and Compliance Committee. The Audit Committee has reviewed the effectiveness of the Group’s internal financial control systems based on reports from the Director of Group Internal Audit and the Group Chief Financial Officer. In addition, the Risk & Compliance Committee has been responsible for reviewing and recommending to the Board the Group’s regulatory and internal control policies and procedures and the compliance monitoring plan. It is the view of the Just Group plc Board that the Group’s internal controls are appropriate to its needs at this time.

B.1.6 Remuneration policy

Directors Remuneration Policy review Our existing Directors’ Remuneration Policy (the “Policy”) was approved by over 96% of our shareholders in May 2017. The reporting regulations require us to seek shareholder approval for a new Policy every three years and, therefore, a new Policy will be submitted for shareholder approval at our Annual General Meeting in 2020. The Policy was developed taking into account the requirements of Article 275 of the Solvency II Delegated Regulation, the principles of the UK Corporate Governance Code, guidelines from major investors and guidance from the UK regulators, the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”) on best practice. The Committee took time during 2019 to consider carefully any changes required to the Policy to ensure it best supports the strategy of the business. Capital is the Group’s number one priority and the Board remains focused on delivering a sustainable capital model, while in parallel continuing to develop other strategic and business options to enhance shareholder value. The Remuneration Committee has reflected these priorities in its proposed approach to remuneration from 2020, in particular through the introduction of a capital measure within the Long Term Incentive Plan. Corporate governance around pay has developed since our last Policy approval and we are proposing to make a number of changes to our Directors’ Remuneration Policy which reflect good practice. The Policy is compliant with the Solvency II remuneration regulations and the key points of our proposed new Policy are outlined below, which shareholders will vote on at the 2020 AGM. • Pensions – reduced the pension allowance for current and any future Executive Directors from 15% of salary

to 10% of salary to align with the majority of Just Group employees

• Benefits – introduced additional flexibility to pay certain relocation and/or travel benefits as considered

necessary to facilitate an appointment

• Short Term Incentive Plan (STIP) – increased the portion which is deferred into shares to 40% (from one-third

previously), increasing alignment with shareholders and reflecting best practice for financial service

companies. Some changes are proposed to the balance and use of performance measures

• Long Term Incentive Plan (LTIP) – reduced the normal award level for the Chief Executive Officer to 150% of

salary, in line with the award levels for other Executive Directors. An additional measure (a sustainable capital

model) will be added for the 2020 award

• Shareholding guidelines – extended beyond cessation, with the full guideline continuing to apply for two years following cessation of employment and 50% of the guideline continuing to apply for the second year. Deferred


32

bonus shares and shares under the LTIP which have vested but are subject to a holding period will count towards these guidelines.

The proposed changes were the subject of consultation with our largest shareholders and with prominent proxy agencies. The feedback received was positive and some changes were made to the original proposals as a result. Our shareholders strongly supported the focus on our capital position within the Policy and the LTIP, in particular. The Committee feels that the changes proposed are appropriate in the context of the changes the business is facing and reflect developments in best practice since our Policy was last renewed. The Committee considered the feedback received from shareholders when determining remuneration outcomes for 2019, and in the development of the proposed Directors’ Remuneration Policy. Factors considered as part of the Directors’ Remuneration Policy review As part of the review process the Committee considered a number of different factors, including maintaining a link with the broader remuneration framework to ensure consistency and common practice across the Group, and in determining the overall levels of remuneration of the Executive Directors, the Committee also pays due regard to pay and conditions elsewhere in the organisation. In particular, the Committee takes an active role in approving the remuneration of senior executives, which covers six roles in addition to the Executive Directors across the Group. The Committee also dedicates time, through a standing agenda item, to consider wider workforce pay policies and pay structures throughout the Group and this includes consideration of the number of incentive plans in operation, pension provisions across the Group and the annual pay review process. As set out in the new UK Corporate Governance Code, the proposed Policy has been viewed in the context of six factors: • Clarity – the proposed Policy has a clear objective; to enable the Group to recruit, retain and motivate high-

calibre individuals to deliver long-term sustainable performance which benefits all stakeholders. The Policy itself is in line with standard UK market practice, and represents an evolution of the current Policy, so should be well understood by participants and shareholders

• Simplicity – the Policy includes a standard annual bonus plan and a single LTIP, so the incentive arrangements

are considered easy to communicate. Payments are made either in cash or via Just Group shares. No artificial or complex structures are used to facilitate the operation of the incentive plans. The rationale for each element of the Policy is clearly explained in the Policy table and links to the overall Company strategy

• Risk – relevant individual and plan limits prevent excessive outcomes under the annual bonus or LTIP. Regular

interaction with the Chief Risk Officer ensures relevant risk implications are understood when setting or assessing performance targets. Comprehensive clawback and malus provisions are in place across all incentive plans and the Committee’s ability to use its discretion to override formulaic outcomes are considered important controls to prevent inappropriate reward outcomes

• Predictability – the possible reward outcomes are quantified and reviewed at the outset of the performance

period. The “Illustration of 2020 Remuneration Policy” (page 88 of the Just Group plc 2019 Annual Report and Accounts), clearly shows the potential scenarios of performance and the resulting pay outcomes which could be expected

• Proportionality – incentives only pay out if strong performance has been delivered by the Executive Directors.

The performance measures used have a direct link to the KPIs of the business and there is a clear separation between those used in the annual bonus and the LTIP. The Committee has the discretion to override formulaic outcomes if they are deemed inappropriate in light of the wider performance of the Company and considering the experience of stakeholders

• Alignment to culture – incentive structures incentivise and reward for strong performance in accordance with

the company’s expected behaviours and values; they do not reward for poor performance. The Policy seeks to retain Executive Directors to deliver long-term, sustainable performance which benefits all stakeholders.


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Consideration of employment conditions when setting executive pay The Committee seeks to ensure that the underlying principles, which form the basis for decisions on Executive Directors’ pay, are consistent with those on which pay decisions for the rest of the workforce are taken. For example, the Committee takes into account the general salary increases for the broader employee population when conducting the salary review for the Executive Directors. However, there are structural differences in the Executive Directors’ Remuneration Policy compared to that for the broader employee base, which the Committee believes are necessary to reflect the differing levels of seniority and responsibility. A greater weight is placed on performance-based pay through the quantum and participation levels in incentive schemes. This ensures the remuneration of the Executive Directors is aligned with the performance of the Group and therefore the interests of shareholders. Shareholder views The Group values and is committed to dialogue with its shareholders. The Committee will consider investor feedback and the voting results received in relation to relevant AGM resolutions each year. In addition, the Committee will engage proactively with shareholders, and will ensure that shareholders are consulted in advance where any material changes to the Directors’ Remuneration Policy are proposed. The Committee is also kept well informed of the relevant guidelines and publications of institutional investors, their representative bodies and prominent proxy agencies, so understands developments in the views across the wider investor community. Directors Remuneration Policy

Element Purpose and link to strategy

Operation (including framework used to assess performance)

Opportunity

Base salary Provides a competitive and appropriate level of basic fixed pay to help recruit and retain Directors of a sufficiently high calibre.

Reflects an individual’s experience, performance and responsibilities within the Group.

Set at a level which provides a fair reward for the role and which is competitive amongst relevant peers.

Normally reviewed annually with any changes taking effect from 1 April.

Set taking into consideration individual and Group performance, the responsibilities and accountabilities of each role, the experience of each individual, his or her marketability and the Group’s key dependencies on the individual.

Reference is also made to salary levels amongst relevant insurance peers and other companies of equivalent size and complexity.

The Remuneration Committee considers the impact of any basic salary increase on the total remuneration package.

In normal circumstances, base salaries for Executive Directors will not increase by more than the average increase for the broader employee population.

More significant increases may be awarded from time to time to recognise, for example, development in role or a change in position or responsibilities.

Benefits

Provides competitive, appropriate and cost-effective benefits.

Each Executive Director currently receives an annual benefits allowance in lieu of a company car, private medical insurance and other benefits. In addition, each Executive Director receives life assurance and permanent health insurance.

The benefits provided may be subject to minor amendment from time to time by the Remuneration Committee within this Policy.

Travel and/or relocation benefits (and any tax thereon) may be paid up to a period of 24 months following a recruitment of a new Executive Director.

The benefits allowance is subject to an annual cap of £20,000, although this may be subject to minor amendment to reflect changes in market rates. The cost of the other insurance benefits varies from year to year and there is no prescribed maximum limit. However, the Committee monitors annually the overall cost of the benefits provided to ensure that it remains appropriate.

The cost of any travel and relocation will vary based on the particular circumstances of the recruitment.


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Pension Provides for retirement planning, in line with the provisions available to the broader employee population.

The Group operates a money purchase pension scheme into which it contributes, having regard to government limits on both annual amounts and lifetime allowances.

Where the annual or lifetime allowances are exceeded, or in certain other circumstances, the Group will pay cash in lieu of a Company contribution.

The maximum Company contribution (or cash in lieu) is 10% of base salary. This is aligned to the contribution available to the majority of the workforce.

This limit may change to reflect any changes in the contributions available to the majority of the workforce.

Short Term Incentive Plan (“STIP”)

Incentivises the execution of annual goals by driving and rewarding performance against individual and corporate targets.

Compulsory deferral of a proportion into Group shares provides alignment with shareholders.

Paid annually, any bonus under the STIP is discretionary and subject to achievement of a combination of stretching corporate financial, non-financial and personal performance measures.

The core bonus opportunity is determined through a basket of financial performance measures, which is then modified by the achievement of strategic performance measures. It is then distributed to Executive Directors against their achievement of their personal objectives. While not expected in the normal course, the Committee retains the flexibility to pay up to 20% of the maximum bonus opportunity based on personal performance only.

40% (or such higher proportion as has been determined by the Committee) of any bonus earned will be deferred into awards over shares under the Deferred Share Bonus Plan (“DSBP”), with awards normally vesting after a three-year period.

The Committee has the discretion to adjust the deferral percentage if required to comply with future regulatory requirements relevant to the insurance industry.

Malus and clawback apply to both the cash and deferred elements of the STIP2.

The on-target bonus payable to Executive Directors is 75% of base salary with 150% of base salary the maximum payable.

The bonus payable at the minimum level of performance varies from year to year and is dependent on the degree of stretch and the absolute level of budgeted profit.

Dividends will accrue on DSBP awards over the vesting period and be paid out either as cash or as shares on vesting and in respect of the number of shares that have vested.

Long Term Incentive Plan (“LTIP”)

Rewards the achievement of sustained long-term operational and strategic performance and is therefore aligned with the delivery of value to shareholders.

Facilitates share ownership to provide further alignment with shareholders.

Granting of annual awards aids retention.

Annual awards of performance shares1 normally vest after three years subject to performance conditions and continued service. Performance is normally tested over a period of at least three financial years.

A post-vesting holding period will apply to Executive Directors for awards made in 2018 and beyond. Executive Directors are required to retain the LTIP shares that vest (net of tax and NICs) for a period of two years. The two year holding requirement will continue if they leave employment during the holding period.

Awards are normally subject to a combination of measures which may include financial and/or strategic measures and/or Total Shareholder Return relative to the constituents of a relevant comparator index or peer group.

The Committee retains the flexibility to vary the performance measures and/or weightings for future awards. However, the Committee will consult in advance with major shareholders prior to any significant changes being made.

Malus and clawback apply to the LTIP2.

The maximum opportunity is 250% of base salary. However, in the normal course, awards made to Executive Directors over shares with a face value of 150% of base salary.

Dividends will accrue on LTIP awards over the vesting period and be paid out either as cash or as shares on vesting and in respect of the number of shares that have vested.


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All-employee share plans

Encourages employee share ownership and therefore increases alignment with shareholders

The Group may from time to time operate tax-approved share plans (such as HMRC- approved Save As You Earn plans and Share Incentive Plans) for which Executive Directors could be eligible.

The schemes are subject to the limits set by HMRC from time to time.

Shareholding guideline

Encourages Executive Directors to build a meaningful shareholding in the Group so as to further align interests with shareholders.

Each Executive Director must build up and maintain a shareholding in the Group equivalent to 200% of base salary.

Until the guideline is met, Executive Directors are required to retain 50% of any LTIP or DSBP awards that vest (or are exercised), net of tax and NICs.

For these purposes, deferred bonuses and shares under the LTIP which have vested but are subject to a holding period would count towards these guidelines.

The guideline will be extended post-cessation, with the lower of the holding on cessation or the full guideline applying for two years. The post-cessation guideline only applies to any share awards granted (or any other shares acquired) after the date on which the new Policy is approved by shareholders.

Not applicable.

1 Awards may be structured as nil-cost options which will be exercisable until the tenth anniversary of the grant date. 2 The Committee has the authority to apply a malus adjustment to all, or a portion of, an outstanding STIP or LTIP award in specific circumstances. The

Committee also has the authority to recover (clawback) all, or a portion of, amounts already paid in specific circumstances and within a defined time frame. These provisions apply to both the cash and deferred elements of the STIP.

Chair and Non-Executive Directors

Element Purpose and link to strategy

Operation (including framework used to assess performance)

Opportunity

Fees To attract and retain a high-calibre Chair and Non-Executive Directors by offering market-competitive fee levels.

The Chair is paid a single fixed fee. The Non-Executive Directors are paid a basic fee, with additional fees paid to the Chairs of the main Board Committees and the Senior Independent Director to reflect their extra responsibilities.

In exceptional circumstances, additional fees may be paid where the normal time commitment of the Chair or a Non-Executive Director is significantly exceeded in any year.

Fees are reviewed periodically by the Committee and Group Chief Executive Officer for the Chair, and by the Chair and Executive Directors for the Non-Executive Directors.

Fees are set taking into consideration market levels amongst relevant insurance peers and other companies of equivalent size and complexity, the time commitment and responsibilities of the role, and to reflect the experience and expertise required.

The Chair and the Non-Executive Directors are entitled to the reimbursement of reasonable business-related expenses (including any tax thereon). They may also receive limited travel or accommodation-related benefits in connection with their role as a Director.

The Company’s Articles of Association place a limit on the aggregate fees of the Non-Executive Directors of £1m per annum.

Any changes to fee levels are guided by the general increase for the broader employee population, but on occasions may need to recognise, for example, changes in responsibility, and/or time commitments.

Further detail is provided on the remuneration of directors on pages 80 to 96 of the Just Group plc 2019 Annual Report and

Accounts.


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B.1.7 Material transactions

Just Group has related party relationships with its key management personnel and associated undertakings. All transactions with related parties are carried out on an arm’s length basis.

Key management compensation Key management personnel comprise the Directors of the Companies. There were no material transactions between the Group and its key management personnel other than those disclosed below: Year ended 31 December 2019

Just Group plc

£m


£m


Limited £m

Aggregate emoluments including benefits 3.2 1.4 0.6 Loans owed by Directors 0.4 - -

Year ended 31 December 2018

Just Group plc

£m


£m


Limited £m

Aggregate emoluments including benefits 7.1 3.6 0.9 Loans owed by Directors 0.4 - -

The loan advances to Directors accrue interest fixed at 4% per annum and are repayable in whole or in part at any time.

B.1.8 Intra-group outsourcing arrangements Material intra-group outsourcing arrangements for the period ended 31 December 2019 primarily comprise support services provided by the service companies, Just Retirement Services and Partnership Services Limited, both based in the UK.

B.2 Fit and proper requirements

All persons who do, or will, exert significant influence over the Group and/or its regulated entities (including those performing Senior Management Functions and Key Function Holders) will be identified by the Board, with the assistance of the Nomination Committee.

Group Compliance and Group Human Resources are responsible for identifying all other persons who will be Certified Persons under the Senior Managers and Certification Regime, who are performing roles that have the potential to cause harm to the Group and/or its regulated entities or their customers.

All applicants for Senior Management Functions and Certification Functions must be appropriately vetted in accordance with HR recruitment procedures and the appropriate Regulator informed, in accordance with the Group Fitness and Propriety Policy.

All directors and other employees, including those performing Senior Management and Certification Functions, must be assessed on a regular basis through the Group’s Performance Management Framework to ensure that they remain competent to perform their roles.

All individuals who perform Senior Management and Certification Functions are required to complete the Group’s Fit and Proper assessment on an annual basis.

Individuals will have been deemed Fit and Proper for their respective roles on recruitment, and all staff and Directors will undertake a full induction within three months of joining the Group. Directors have a specific induction programme run by the Company Secretary, in conjunction with the Group Compliance function. Other staff undertake an induction programme in line with their role in their function.

The fitness assessment undertaken as part of the annual performance management review may identify new training needs. This assessment is undertaken on an individual basis by the Chair of the Group Board in respect of


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NEDs and the Group CEO, and by the Group CEO in respect of Executive Directors and other direct reports. Other staff are assessed by their line manager or Director, who are the most relevant to assess their capability.

B.2.1 Requirement applicable to Directors

The Just Group Board comprises a range of skills and attributes acquired through a diversity of experiences and backgrounds that combine to create a cohesive and effective Board. The balance of skills and experience required alters to reflect the changing needs of the business.

The Group has specific requirements for the various roles of those who effectively run the organisation and have other key functions. These are described below:

Skills, knowledge and expertise Non-executive director Market knowledge – awareness and understanding of the wider business, economic and market environment in which the firm operates.

Business strategy and model – awareness and understanding of the firm’s business strategy and model appropriate to the role.

Risk management and control – the ability to identify, assess, monitor, control and mitigate risks to the firm. An awareness and understanding of the main risks facing the firm and the role the individual plays in managing them.

Financial analysis and controls – the ability to interpret the firm’s financial information, identify key issues based on this information and put in place appropriate controls and measures.

Governance, oversight and controls – the ability to assess the effectiveness of the firm’s arrangements to deliver effective governance, oversight and controls in the business and, if necessary, oversee changes in these areas.

Regulatory framework and requirements – awareness and understanding of the regulatory framework in which the firm operates – the requirements of the role and regulatory expectations.

Personal attributes: • Integrity, probity and high ethical standards • Sound judgement and an inquiring mind • Ability to question intelligently, debate constructively, challenge rigorously and decide dispassionately • Well informed about the business, the environment in which it operates and the issues it faces • Strong interpersonal skills • Manage conflicts of role – identify and resolve any conflicts/issues associated with carrying out the

commitments of the role Chair (in addition to NED) • Upholding the highest standards of integrity, probity and high ethical standards • Ability to build trust with the Group Chief Executive Officer, providing support and advice, whilst respecting

Executive responsibility • Ability to represent the Company with a sound understanding of the views of shareholders • An understanding of the needs and requirements of a listed company • Ability to promote the highest standards of corporate governance and compliance • Ability to set the style and tone of Board discussions to promote effective decision making • Ability to ensure effective implementation of Board decisions • Sound judgement and an inquiring mind • Ability to question intelligently, debate constructively, challenge rigorously and decide dispassionately • Subject to shareholder’s approval, ability to plan and initiate change and succession plans • Well informed about the business, the environment in which it operates and the issues it faces • Strong interpersonal skills Executive Director Qualifications: - Must have degree or professional equivalent. Skills and Knowledge • Integrity, probity and high ethical standards • Ability to question intelligently, debate constructively, challenge rigorously and decide dispassionately


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• High level of managerial skills • High level of business acumen and particularly being able to balance risk against capital and solvency

requirements when developing the business • Ability to cope with conflict, stress and crisis situations • High level of business planning, budgeting and financial control skills • Leadership and influencing skills • High degree of understanding of the products and services provided, the markets and the regulatory/legal

environment within which the Group operates • Detailed technical and commercial understanding of the corporate and capital infrastructure • Excellent problem analysis and resolution skills • Broad understanding of the high level business processes • Understanding of people resource requirements • Excellent communication and interpersonal skills Experience • Must have 5 years’ experience at Board level • Minimum of 10 years in financial services • Must have FCA/PRA approval as an FCA Significant Influence Function (“SIF”) or FCA/PRA Senior Management

Function (“SMF”) Competency - To be competent to Level 4 of Just Group’s competencies (i.e. Executive level) Chief Executive Officer See Executive Director above Chief Financial Officer As for Executive Director plus must be qualified accountant Chief Actuary As for Executive Director plus must be qualified actuary Group Actuarial executive As for Executive Director plus must be qualified actuary Compliance function As for Executive Director Director of Internal Audit As for Executive Director plus must be qualified accountant/actuary Chief Risk Officer (NB this role is an executive management role but not a board director role) Qualifications • Must have degree or professional equivalent; • Finance, actuarial qualification (or other recognised risk management qualification). Skills and Knowledge • Ability to question intelligently, debate constructively, challenge rigorously and decide dispassionately; • High level of business acumen and particularly being able to balance risk against capital and solvency

requirements when developing the business; • High level of business planning, budgeting and financial control skills. Leadership and influencing skills • Excellent problem analysis and resolution skills • Ability to cope with conflict, stress and crisis situations • Excellent verbal, written communication and interpersonal skills • High degree of understanding of the products and services provided by the Group, the markets and the

regulatory/legal framework that the Group operates within • Technical and commercial understanding of actuarial and risk management processes and techniques


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• Understanding of high level business processes • Understanding of people resource requirements Experience • Ideally 5 years’ experience at close to Executive/Board level with extensive experience of life company

operations, through working in a UK life company and/or a life consultancy environment • Minimum of 10 years in financial services post qualifying • Able to achieve FCA/PRA approval as a Significant Influence Function or Approved Person

B.2.2 Assessing fitness and propriety

The Board has approved and the Group maintains a Group Fitness and Propriety policy.

When recruiting individuals for Executive Director/NED roles, the Group will: • Ensure a formal, rigorous and transparent procedure for appointment; • Ask the applicant to disclose any criminal convictions, relevant adverse legal proceedings, previous regulatory

history (including any investigations or revocations). This information is normally captured by using the Financial Conduct Authority (“FCA”) form A or the Group application forms;

• Obtain sufficient information about the individual’s previous relevant activities and experience to make an informed recruitment decision;

• Take into account the knowledge, skills, expertise and ethics of the individual in relation to the requirements for the role (i.e. perform a ‘gap’ analysis). This also includes considering current and previous directorships;

• Conduct background financial standing/credit checks using a recognised credit reference agency; • Conduct Disclosure and Barring Service (“DBS”) checks. The appointment of individuals holding Executive Director, Non-executive Director or CEO positions within the Group requires Board approval and approval acting on recommendation from the Nominations Committee.

Group HR undertakes all the referencing activities for new Executive Director/NEDs and all appointments are subject to satisfactory referencing. A Senior Management and Approved Persons process exists in order to aid the HR Business Partner in preparing records for these roles.

A fitness and propriety check is conducted annually on all non-executive directors and on employees in certain regulated roles within the Group. The checks were carried out in 2019 using an external provider, HireRight, with the non-executive directors completing a form and providing their original identification documents for verification. Group HR manage this process.

B.3 Risk management system including the own risk and solvency assessment

B.3.1 Risk governance and management framework

Just Group’s risk management framework is based on an enterprise-wide approach in which all the risks are considered along with their inter-relationships and risk management is embedded in all activities within the Group.

An overview of the Group’s risk management strategies, objectives, processes and reporting procedures, which form part of the Group risk management framework, is set out below.

Risk Strategy

The Group’s enterprise-wide risk management strategy is to enable all employees to take more effective business decisions through a better understanding of risk and the Group’s expectations for risk-based returns.

This increases the likelihood of meeting the Group’s business objectives and improve its financial and operational performance. It should give the Group a competitive advantage against its peers.

Underpinning this strategy are the following:

• Risk management objectives (see below); and

• Guiding risk management principles.


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Risk Management Objectives The Risk function is tasked with the high-level objectives as set out below. These objectives should lead to value for the business through the achievement of the following outcomes:

The Risk function’s high-level objectives are set out in more detail in the Group’s Risk Operating Model.

Risk Management Processes

The risk management processes are integrated into the Group’s organisational structure and decision-making processes. Good integration is assisted by, in particular, the Group’s internal control system – further details are set out in the Group Internal Control policy.

All categories of risk, as set out in the Group’s core risk categories, must be considered and appropriate processes executed to review and understand them effectively.

Further details regarding the Group’s risk processes are set out in the Group Risk Management Policy and Risk Operating Model.

The key risk processes include:

• Strategic Risk Management

• Financial & Insurance Risk Management

• Operational Risk Management

• Stress Testing & Scenario Analysis

• Business Change

• Corporate Activity and Business Change

• Emerging Risk Management

• Risk Management Effectiveness

• Intra-group Transactions and Concentration Risk

• Resilience Risk Management

• Run-off and Recovery Plans

Risk Reporting & ORSA

The Group defines its Group ORSA as the entirety of the processes and procedures employed to identify, assess, monitor, manage and report the short and long term risks the Group faces or may face in the future and to determine the capital necessary to ensure that the Group’s overall solvency needs are met at all times.

Performing its Group ORSA is an essential part of the Group’s risk management framework - the Group ORSA processes and reporting are integrated into the Group’s and subsidiaries’ organisational structures and decision-making processes.


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The purpose of the ORSA is to:

• provide the Group with a comprehensive picture of the risks it is exposed to or could face in the future

• integrate the Group’s approach to managing risk & capital

• enable senior management to understand these risks and how they translate into solvency needs

• inform decision making, particularly in respect of strategy setting and business planning

• drive management actions, for example, whether to retain or transfer risks, or alternatively put in place mitigation actions to ensure that the Group operates within its solvency constraints

B.3.2 Integration of risk management into the decision making processes Solvency II capital, as a risk based capital measure, is central to the Group’s risk and capital evaluation and is a key input to business and strategic decisions. For JRL, this means the use of its Internal Model, representing the majority of the Group’s sales. As well as being a Solvency II requirement, this makes sense from a business perspective - using a model which reflects the actual risk profile of the business drives more informed decisions. A regular Business Use Assessment process takes place which facilitates embedding and evidencing of the use of risk management and economic capital in decision making.

B.3.3 Determination of own solvency needs For the purpose of ORSA, the capital requirements of the Group and its insurance subsidiaries, JRL and PLACL, are measured on the basis of Solvency II requirements for determining Solvency II Own funds and SCR.

B.3.4 Internal Model Governance

The Internal model used by JRL and the partial internal model of Just Group is governed by the Internal Model Governance Forum (“IMGF”). The IMGF is chaired by the Group Chief Risk Officer and attended by senior members of the first and second lines including the Group Chief Actuary. The forum oversees all changes to the Internal Model, whether minor or major. Results calculated using the internal model are independently validated by the second line, which provides an annual report to the Group Risk & Compliance Committee. There were no significant changes made to internal model governance in the period. Data used in the internal model is governed by the Just Group Data Policy, the application of which is overseen by the Data Governance Forum. The forum is set up to support, report and improve data quality under the Just Group Data Governance Framework. This committee, chaired by the Head of Data and BI, meets at least bi-annually, is responsible for designing, maintaining, improving and reporting on the effectiveness of the underlying Data Governance Framework. A report to the Group Executive Committee is produced semi-annually on the effectiveness of the SII Data Governance framework, the quality of the data and if required identifying any areas for improvement.

B.3.5 ORSA management

Timing and Frequency of the Group ORSA The Group considers that the availability of an up to date Group ORSA in line with both its year end reporting activities and its strategy and business planning cycle, as well as updates in between, is appropriate to provide management with timely and relevant capital and solvency information to inform business decision making.

Specifically, the timing of the ORSA will be as follows:

• Full Group ORSA - Timing: To be approved annually, usually preceding the Strategy and Business Planning processes.

• Group ORSAs Updates (x3) - Timing: To be approved three times per year and on a quarterly basis (excluding the quarter when the Full Group ORSA is approved).

• Non-regular Full ORSA - The Group will perform a Full Group ORSA outside the normal annual cycle (a non-regular Full Group ORSA), and without delay, where there has been a fundamental change in the risk profile of the business or a major change to the Internal Model.


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Full Group ORSA (Annual) The purpose of the Full Group wide ORSA is to provide a comprehensive assessment of JRL’s, PLACL’s and the Just Group’s consolidated risk and solvency positions. This includes changes to risk and solvency since the previous full ORSA, the current risk and solvency position and a forward looking assessment of risk and solvency. A waiver allowing the preparation of a single Group ORSA, rather than separate ORSAs for JRL and PLACL, was approved by the PRA.

The Full Group ORSA is documented in a Group ORSA Management Document and GCRO Summary.

Group ORSA Management Document The ORSA Management Document discusses the material risks facing the Group. The ORSA Management Document contains dynamic information which is updated on a regular basis, but it also contains standing information, provided to support the ORSA that will change less frequently.

GCRO Summary The most significant risks that should be considered in setting strategy/business planning are set out in the GCRO Executive Summary. This provides a risk-focused backdrop to the Strategy/Business Planning Processes. Group ORSA Updates (Quarterly) The Group ORSA Updates provide a summary of the material risks to which the Group is exposed and focus on the delivery of agreed responses to risks and management actions. Review & Approval The Group ORSA is prepared by the Risk Function and is subject to review and approval. All outputs are peer reviewed within the Risk Function before presentation to the Group Chief Risk Officer. The Full Group ORSA is also reviewed by the Group’s Prudential Compliance function.

The Group ORSA is reviewed by the ERC and the GRCC and approved by the JRL, PLACL and Just Group Boards.

B.3.6 ORSA process

The primary purpose of the Full Group-wide ORSA Management Document and GCRO Summary is to provide a forward looking assessment of the key risks the Group may face and should consider during the Strategy and Business Planning Processes.

The consideration of risk, over short and long-term time horizons, is an integral part of the Group’s strategic and business planning process. This process is designed to help the business understand, manage and control the risks inherent in the chosen strategy and associated business plans. An overview is below:

B.4 Internal control system

B.4.1 Internal control system description

The Board is ultimately responsible for the effectiveness and monitoring of the Group’s systems of internal control, covering all material financial, operational and compliance controls, and for undertaking an annual review of the control systems in place, while the implementation of internal control systems is the responsibility of management. The Group’s systems of internal control are applied consistently across all Group companies. They are designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable, and not absolute, assurance against material financial misstatement.

The Group’s internal control systems comprise the following key features:


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• Establishment of clear and detailed terms of reference for the Board and each of its Committees

• A clear organisational structure, with documented delegation of authority from the Board to senior management

• A Group policy framework, which sets out risk management and control standards for the Group’s operations

• Defined procedures for the approval of major transactions and capital allocation It is the view of the Board that the Group’s internal controls are appropriate to the Group’s needs at this time, including those of its subsidiary companies. Internal controls are kept under review by the Board and its Committees and the Board is committed to maintaining standards of internal controls that are in line with industry practice, the Group’s needs and regulatory regimes, in particular the requirements of the PRA and FCA.

Culture The Group aims to have an organisational culture in which its values, and the importance of internal control to manage risks, are understood. Employees are encouraged to speak up if risk exposures or control weaknesses are identified and structures are in place to allow this to happen.

The leadership style and management structures prevalent in the Group are intended to support the desired organisational culture, backed by appropriate HR policies and reward structures. Arrangements that are in place and the whistleblowing policy are overseen by the Chair of the Group Audit Committee.

Positive behaviours and attitudes among employees towards risk management and internal control are encouraged.

Sanctions are implemented in response to any inappropriate behaviour such as a wilful disregard for risk management or controls, or a deliberate or negligent breach of control procedures.

Internal Control Framework The Internal Control Framework comprises controls that are embedded into the Group’s infrastructure and processes. The aim is to use controls that are prudent, appropriate and proportionate to the risks involved. Controls are used to keep risk exposures within agreed risk appetites and are not intended to eliminate risks. The Internal Control Framework has a close relationship with the Risk Operating Model. The Internal Control Framework takes account of risk concentrations and of intra-group transactions and interdependencies. Training and guidance on effective internal controls are available to management. Risk and Control Self-assessment Confirmation of the continued effectiveness of design and operation of internal controls is provided through attestations made by management during completion of regular risk processes in the risk management system.

Management undertake a quarterly risk and control self-assessment process. This self-certification process formalises management’s responsibility for the effective design and operation of internal controls and other mitigations put in place with the primary aim of reducing exposure to risk. In addition management confirms the operation of its controls each month through the risk management system reporting any risk events and control weaknesses or failures, together with remedial action taken or planned.

Material controls failures and near-misses are analysed so the experience can be used to improve the Internal Control Framework going forward. Monitoring, Reporting and Executive Attestation Process On a quarterly basis each business unit produces an ORSA report for review by the senior management of the business unit. Core operational risk owners report quarterly to the Compliance and Operational Risk Committee.

Each Executive provides an attestation to the Group CEO twice yearly in respect the Internal Control Framework in his or her area of responsibility. The attestation confirms the extent to which effective controls have operated to keep material risks within risk appetite. The attestation also confirms whether there has been material compliance with legal and regulatory requirements, codes of conduct, business standards and Group policies, as well as positive behaviours towards standards, risk management and internal control. Group Board Oversight The Group Board, its Committees and its subsidiary Boards keep the internal control environment under ongoing review through the reports received from Executives, the control functions and other sources.


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The Internal Control Framework is subject to a formal annual Effectiveness Review by the Group Board. This review is based on a report to the Group Board from the Group Chief Executive Officer. The report is supported by the process of Executive attestations as set out above.

B.4.2 Roles and responsibilities of the Compliance function

The Compliance function is led by the Group Chief Risk Officer. The function:

• is incorporated into the Group's organisational structure in a way that ensures that it is free from influences that may compromise its ability to undertake its duties in an objective, fair and independent manner

• co-operates with other control functions, i.e. the Risk, Internal Audit, Finance, and Actuarial functions, in order to ensure effective oversight of the Group’s activities

• includes a range of employees with relevant experience across the range of activities for which it has oversight

who collectively are able to:

o interpret and communicate on regulatory matters

o monitor and report on compliance with regulation and the Group’s policies

o influence the business at all levels

• reports any significant concerns in its areas of responsibility to the Group Executive Committee, the Executive Risk Committee, Group Risk & Compliance Committee, and the Just Group plc Board

• maintains an open and honest relationship with the Regulators, informing them as necessary of relevant

developments and issues

Staff within the Compliance function are able to communicate at their own initiative with any other staff members of Group companies. They have unrestricted access to information necessary for the discharge of their responsibilities.

The Compliance function provides a consultancy service to all companies within the Group on compliance matters, undertakes compliance due diligence reviews and participates in business projects to provide compliance advice and direction.

The Compliance function monitors and provides oversight of the operation of the Group’s Performance Management frameworks for advisers, sales managers and back-office staff, which incorporate the requirements of the FCA’s training and competence regime.

The Compliance function has oversight of the Senior Managers and Certification Regime (SMCR). The Just Group Fitness and Propriety Policy sets out the framework for the processes and procedures to ensure that all Senior Managers, Certification employees and Key Function Holders are fit and proper both at recruitment and on an ongoing basis. It also ensures that there are high-level governance arrangements necessary to meet the requirements of SMCR in respect of Handover Procedures, Conduct Rules and Standards and Regulatory References.

B.5 Internal audit function

B.5.1 Internal audit function description

Organisation

Just has adopted a ‘Three Lines of Defence’ model; this allows Group Internal Audit (“GIA”) to consider and take some limited comfort from the second line functions e.g. Risk Management, Chief Actuary and Compliance or other external providers. To assess the reliability of the second line’s work, GIA independently audits the Compliance, Chief Actuary and Risk functions at least once every three years to obtain comfort over the quality of their processes which ensure the quality of their output. In the event of using external third parties, GIA’s level of reliance varies on a number of different criteria, namely on the professionalism of the firm i.e. Big 4 greater reliance, the scope of engagement and management’s influence on this, and the standards against which the engagement has been performed e.g. professional standards such as the International Standard on Assurance Engagements (“ISAE”) would provide higher reliance.

Assurance and consultancy activities are delivered within Just Group through independent in-house GIA resources.


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The Internal Audit activity and responsibilities are defined and established by the Board of Directors and Audit Committee (“AC”) as part of their oversight role.

Assurance The role of GIA in its assurance remit is to understand the key risks of the Group, and to examine and evaluate the adequacy of the design and implementation and operational effectiveness of the systems of risk management and of internal control operated by the business to mitigate these risks.

GIA provide a risk based approach and independent appraisal over the activities of the Group, as defined in the Group Audit Universe. A risk based Audit Plan covering twelve months is produced at the start of each financial year for agreement with the AC. The plan is reviewed periodically to ensure it remains appropriate; any material changes to the plan agreed with the AC.

GIA’s ultimate vision through its assurance work is to support the growth and development of Just Group through effective and efficient monitoring and assessment of the strategic, operational, financial and regulatory internal controls, with the aim to add value and improve the operational efficiencies, governance processes and internal control systems.

Consultancy The role of GIA in its consultancy remit is to provide the operational business areas access to GIA expertise to investigate and challenge elements of the control environment without the need for a formal audit. This will enable the GIA function to be proactive in the business to support the controlled growth of Just Group.

GIA’s ultimate vision through its consultancy work is to increase the business’s awareness of processes requiring attention, support or understanding with regards to the controls implemented, and additionally to support control effectiveness in new business developments.

GIA’s assurance activities are established and defined by the Group Executive and the Group Audit Committee (“AC”). The AC has the further and more specific responsibility for monitoring and reviewing the effectiveness of GIA’s activities, resources and structure.

GIA’s consultancy activities are established and defined by the business operations from time to time.

Structure

The Director of Group Internal Audit (“DoGIA”) is the Approved Person and reports directly to the Chair of the Audit Committee for Internal Audit matters and has a dotted line into the Chief Executive Officer (“CEO”) for key day-to-day operational matters. Via the Chair of the Audit Committee, the Board’s Audit Committee will participate in matters relating to the performance evaluation, appointment or removal of the DoGIA as well as input to the DoGIA’s annual remuneration terms as set by the Remuneration Committee. The senior Group internal audit managers report to the DoGIA and have a right of access and escalation to the CEO and the Chair of the Audit Committee. The approach ensures there is a significant competent control and oversight presence for GIA at Board and Executive levels and ensures its functional independence.

B.5.2 Independence and objectivity of internal audit

GIA maintains and adheres to a functional Independence & Objectivity Policy.

GIA staff members must exhibit the highest level of professional objectivity in gathering, evaluating, and communicating information about the subject being examined. GIA must make a balanced assessment of all the relevant circumstances and not be unduly influenced by their own interest or by others in forming judgements.

GIA as a function will have no direct operational responsibility over any of the activities audited, reviewed or consulted on. Nor will any GIA staff member undertake an audit where there is, or could potentially be, personal conflict of interest.

Any GIA staff member engaged in an assurance audit will not directly implement internal controls, develop procedures, install systems, prepare records, or engage in any other activity that may impair the Internal Auditor’s judgement. However, they are entitled to give recommendations for strengthening internal controls and provide opinions on specific matters related to internal control procedures.

Within a consultancy engagement the staff member may, as a segregated activity, proactively provide a range of potential solutions for discussion with the business. The type and level of advice provided will vary depending on


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the nature of the engagement. To avoid the potential for self-review conflicts of interest, any GIA staff member involved in a consulting activity that involves the design and implementation of internal controls will not be part of any assurance team that subsequently audits these business processes.

In the event of an audit where the aforementioned mitigating controls cannot be implemented, an appropriate third party will be employed to undertake the required audit engagement.

The DoGIA will confirm to the GEC and AC at least annually, the organisational independence of the GIA work undertaken.

B.6 Actuarial function

The responsibility for the Actuarial Function for both JRL and PLACL was allocated to Paul Jolly, Chief Actuary (SMF20) throughout the year. The Chief Actuary has a currently valid Chief Actuary (Life) Practicing Certificate issued by the Institute and Faculty of Actuaries (“IFoA”) certifying that he has the appropriate skills and experience to perform the role. The Chief Actuary role is a regulated Senior Management Function (SMF20).

Just’s Chief Actuary’s department is led by the Chief Actuary and reports functionally to the GCRO. The Chief Actuary is authorised by the Just Group plc Board to have full and unrestricted access to such information, records and staff appropriate to delivering its responsibilities. The Chief Actuary will also have right to submit reports to the Just Group plc Board, JRL & PLACL Board, Audit Committees, Investment Committees and Risk & Compliance Committee, as deemed necessary to fulfil the role.

The primary responsibility of the Chief Actuary department is to monitor and provide advice on the risks that have an impact on the companies’ ability to meet their liabilities to policyholders. In meeting these aims the function is responsible for:

Technical provisions and capital monitoring • Reviewing and validating the reliability and adequacy of the technical provisions, including ensuring the

appropriateness of methodologies, models and assumptions used in calculations of the technical provisions • Monitoring the assessment of the sufficiency and quality of the data used in the calculation of technical

provisions • Overseeing the calculation of technical provisions in the cases where there is insufficient data Contributing to the effective implementation of the risk-management system • Expressing an opinion on the overall underwriting policy as part of the Chief Actuary’s Report • Expressing an opinion on the adequacy of reinsurance arrangements as part of the Chief Actuary’s Report • Advising the Board on the risks that may have a material impact on each firm's ability to meet liabilities to

policyholders as they fall due and, on the capital, needed to support the business, including regulatory capital requirements

• Performing the validation of the Internal Model in accordance with the plan agreed with the GCRO

• Contributing to the effective implementation of the risk management system and ORSA, in particular in respect of risk modelling within the ORSA and internal model

• Engaging with the Risk Function in the selection process for the stresses and scenarios to be run for the ORSA and provides key conclusions and recommendations to the Board(s), based on the findings of the ORSA assessments

• Providing independent review and challenge of key results delivered by the actuarial teams • Providing independent assurance relating to the appropriateness and effectiveness of the design of controls

within Just’s actuarial processes • Providing independent assurance on the application of Group Pricing policy and frameworks within business

units • Considering the change programme with regard to its impact on actuarial processes models and controls.

•


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B.7 Outsourcing

B.7.1 Group Procurement & Outsourcing Policy The Just Group policy is to consider outsourcing functions or services where: • there are clear financial and/or operational benefits, on condition that the associated risks can be adequately

mitigated; • associated operational and other risks can be monitored and controlled in line with risk appetite without

unduly increasing overall risk exposure; • the arrangement will not materially impair the quality of the Group's system of governance including its risk

management and internal control framework; • the arrangement will not impair the ability of the Group's supervisory authorities to monitor compliance with

regulatory requirements; • there is confidence that standards of service to the Group’s commercial counterparties and customers will be

maintained or enhanced by outsourcing, and; • the remuneration arrangements with outsourced service providers do not encourage risk-taking that is

excessive in view of the undertaking’s risk management strategy. Just Group recognises and accepts that the Group remains fully responsible for any critical or important business function or activity it chooses to outsource. The Group further recognises that, while potentially beneficial, outsourcing can change its exposure to operational risk and in particular its degree of control over people, processes and systems.

Outsourcing arrangements determined to be material require prior approval of the Group Board and notification to the appropriate Regulator(s).

The Accountable Executive responsible for the Group Procurement & Outsourcing Policy is responsible for deciding whether a particular arrangement is outsourcing.

Group Compliance will determine whether the outsourcing arrangement is Material, including whether it is critical or important to the Group’s operations. In the case of a dispute as to the nature of the outsourcing arrangement, the Accountable Executive will make the final decision in consultation with the Group Chief Risk Officer.

The business case for establishing an outsourced activity is the responsibility of the executive manager for the area proposing the outsourcing. That area is also responsible for oversight of the outsourced activity and the requisite safeguards.

B.7.2 Principal outsourced activities The principal activities that are outsourced are:

• Investment Management – outsourced by JRL to service providers in the UK, one in the Netherlands and another based in the US. Another two investment managers, based in the UK, have their headquarters in Australia. PLACL has also outsourced investment management to service providers in the UK

• Defined benefit (buy out / buy in) policy administration - outsourced by both JRL and PLACL to service providers in the UK

• Scanning of customer applications and other paper records - outsourced by JRL to a service provider in the UK

• Administration of Post Completion policies - outsourced by PLACL to service providers in the UK

B.8 Any other information

The Directors of Just Group consider that the contents of this chapter on governance provides all of the salient information to be provided in the SFCR.


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Chapter C contents

C. Risk Profile ............................................................................................................................ 49 C.1 Underwriting risk .............................................................................................................. 51

C.1.1 Nature of material underwriting risks .................................................................. 51 C.1.2 Compliance with the 'Prudent Person Principle' for underwriting risk ......... 51 C.1.3 Underwriting risk concentration ............................................................................ 52 C.1.4 Underwriting risk mitigation .................................................................................. 52

C.2 Market risk ......................................................................................................................... 53 C.2.1 Nature of material market risks ............................................................................ 53 C.2.2 Compliance with the 'Prudent Person Principle' for market risk ................... 54 C.2.3 Market risk concentration ....................................................................................... 54 C.2.4 Market risk mitigation .............................................................................................. 54

C.3 Credit risk ........................................................................................................................... 55 C.3.1 Nature of material credit risks ............................................................................... 55 C.3.2 Compliance with the 'Prudent Person Principle' for credit risk ...................... 56 C.3.3 Credit risk concentration ......................................................................................... 56 C.3.4 Credit risk mitigation ................................................................................................ 56

C.4 Liquidity risk ...................................................................................................................... 57 C.4.1 Nature of material liquidity risks ........................................................................... 57 C.4.2 Compliance with the “Prudent Person Principle” for liquidity risk ................ 57 C.4.3 Liquidity risk concentration .................................................................................... 58 C.4.4 Liquidity risk mitigation ........................................................................................... 58

C.5 Operational risk ................................................................................................................ 58 C.5.1 Nature of material operational risks .................................................................... 58 C.5.2 Compliance with the “Prudent Person Principle” for Operational risk ......... 59 C.5.3 Operational risk concentration .............................................................................. 59 C.5.4 Operational risk mitigation ..................................................................................... 60 C.5.5 Sensitivity to operational risks ............................................................................... 60

C.6 Other material risks ......................................................................................................... 61 C.7 Any other information .................................................................................................... 61

C.7.1 Sensitivities ................................................................................................................. 61 C.7.2 Stress and Scenario analysis .................................................................................. 62


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C. Risk Profile (Unaudited)

Introduction This chapter provides information on the material risks for the Group including how those risks are assessed and

managed. This chapter looks at the risk profile across the major risk categories as defined by EIOPA:

• Underwriting risk

• Market risk

• Credit Risk

• Liquidity risk

• Operational risk

The charts below show the composition of the risk categories for Just Group, Just Retirement Limited (“JRL”) and

Partnership Life Assurance Company Limited (“PLACL”) before diversification. JRL’s counterparty default risk is

modelled as part of market risk within its internal model. Liquidity is closely managed, but does not result in an

explicit allowance within Solvency Capital Requirement (“SCR”).

Changes to risk profile

Just’s risk profile has not materially changed since the 2018 report. During 2019 the Group restructured its internal LTM securitisation to meet the revised regulatory requirements of PS19/19 and PS31/18. The restructure removes much of the uncertainty on the level of matching adjustment (“MA”) relating to LTMs in the regulatory balance sheet. This has resulted in a significant reduction in Group and JRL’s sensitivity to property risk under the regulatory capital regime. See Sections C.6, D.2.5 and E.2.2 for further detail. Risk identification Risk identification is a continuous process carried out as part of normal business-as-usual (‘BAU’) risk management

activities. These activities include: strategic, financial and operational risk management; business change;

resilience risk management; stress testing & scenario analyses and risk reporting including Just Group’s Own Risk

and Solvency Assessment. Other reviews could cover specific risk topics, for example risk appetite reviews to ensure

ongoing appropriateness.


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Risk measurement and monitoring

The Group, JRL and PLACL measure and monitor their capital resources on a Solvency II regulatory basis. The Group,

JRL and PLACL are required to maintain eligible capital, or ‘Eligible 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 stresses of each of the risk types that Just Group is materially exposed to. Risks include market risks, life

underwriting risks, operational risks as well as counterparty risk.

These risks are all aggregated with appropriate allowance for diversification benefits. Just Group plc calculated its

SCR using a partial internal model, with JRL calculating capital requirements using a full internal model covering

all the risk categories available and PLACL using the standard formula.

Monitoring the effectiveness of risk mitigation techniques

Risk mitigation techniques are monitored and approved by the appropriate governance committees responsible

for oversight of specific individual risks.

The Group Risk function presents to the Risk and Compliance Committee the results of its annual assessment of

the effectiveness of the Group’s and business units’ overall risk management and their control environments in

mitigating operational risk. The effectiveness of market, credit, underwriting, and liquidity risk management is

monitored regularly through reports to the Board’s Audit Committee, the Risk and Compliance Committee, the

Investment Committee, and other operating management committees where relevant.

The monitoring of the effectiveness of financial risk mitigation techniques is carried out in a number of ways, which

includes:

• Sensitivity testing to monitor the sensitivity of the capital adequacy ratio to individual risk factors;

• Stress and scenario analysis to monitor the volatility of the capital adequacy ratio to real world scenarios;

• Analysing actual experience against expectations and forecasts which provides a feedback loop to the actuarial

and risk control cycles; and

• Reporting on risk mitigation techniques currently in place

Brexit

Following the UK’s departure from the EU on 31st January 2020 with a withdrawal agreement in place, Just’s

business model remains unchanged. Just is actively monitoring the political discussions between the UK and EU

during the transitional period and is making contingency plans should an agreement not be reached between the

parties by the end of this period. This includes contacting all 27 EEA regulators to understand what measures they

will be taking to deal with overseas resident annuity policyholders in these countries.

Sensitivity analyses

The Group carries out sensitivity testing and stress and scenario analysis in order to understand the sensitivity of

the Group’s capital adequacy ratio and risk profile to changes in the underlying risks. Refer to section C.7.1 for

further details.

Prudent Person Principle

JRL and PLACL (which are 100% owned by Just Group) have Investment Strategies in place which set out the

investment constraints. The strategies align with the Board approved risk appetite statements and ensure the best

interests of policyholders are considered in the decision making process. The strategies consider 4 key elements,

namely risk measurement, monitoring, setting of limits and diversification.

The strategies are embedded through policies, Investment Management Agreements, regular reporting and a

mature governance structure.


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Risk concentrations

Lifetime Mortgages and hence residential property risk exposure remains a material contributor to Group’s risk

profile. The LTM investments are monitored to ensure adequate geographic and demographic diversification in the

LTM portfolios.

The most significant investment credit risk concentrations in JRL are in respect of holdings in UK government,

European Investment Bank and UK bank fixed interest securities, although there has been an increased exposure

to private placements and infrastructure loans to enhance asset return, and some commercial mortgages in

PLACL.

Special Purpose Vehicles

The Group has no SPVs authorised under Article 211 of the Solvency II Directive.

C.1 Underwriting risk

C.1.1 Nature of material underwriting risks The writing of long-term insurance contracts requires a range of assumptions to be made and risk arises from these assumptions being materially inaccurate. The Group’s main insurance risk arises from adverse experience compared with the assumptions used in pricing products and valuing insurance liabilities. Insurance risk arises through exposure to longevity, mortality and morbidity and exposure to factors such as withdrawal levels and management and administration expenses. Individually underwritten GIfL are priced using assumptions about future longevity that are based on historical experience information, lifestyle and medical factors relevant to individual customers, and judgements about the future development of longevity improvements. In the event of an increase in longevity, the actuarial reserve required to make future payments to customers may increase. Loans secured by mortgages are used to match some of the liabilities arising from the sale of GIfL and DB business. In the event that early repayments in a given period are higher than anticipated, less interest will have accrued on the mortgages and the amount repayable will be less than assumed at the time of sale. In the event of an increase in longevity, although more interest will have accrued and the amount repayable will be greater than assumed at the time of the sale, the associated cash flows will be received later than had originally been anticipated. In addition, a general increase in longevity would have the effect of increasing the total amount repayable, which would increase the LTV ratio and could increase the risk of failing to be repaid in full as a consequence of the no-negative equity guarantee (“NNEG”). The NNEG ensures that the mortgage holder does not have a liability to repay more than the value of their house when a property is sold on the event of death or moving into long-term care. There is also morbidity risk exposure as the contract ends earlier than expected, and the customer moves into long-term care. Healthier LTM population than assumed will delay the maturity of the loan and therefore has similar effect to longevity risk.

C.1.2 Compliance with the 'Prudent Person Principle' for underwriting risk Just Group maintains an Insurance Risk Policy which covers the high level standards and processes in relation to product design and pricing, underwriting, reinsurance and reserving and capital. The Policy ensures that:

• underwriting risks can be properly identified, measured, monitored, managed, controlled, and reported; and

• funds are invested such that the security, quality, liquidity and profitability of the portfolios as a whole are maintained, and investments are appropriate to the nature and duration of insurance and reinsurance liabilities.


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C.1.3 Underwriting risk concentration Just has a large and naturally diversified demographic basis on its life insurance business. Further underwriting concentration risk mitigation is achieved by writing business across a wide range of different medical and lifestyle conditions.

C.1.4 Underwriting risk mitigation We seek LTM mortality and annuitant longevity risks, as these risks are central to achieving our vision and strategy. We have expertise in the selection of these risks, and understanding and evaluating them is a core competency of the Group.

We tolerate morbidity, LTM withdrawal and expense risks. During 2018, the Group completed the exercise of integrating the IP from the Just Retirement and Partnership legacy businesses and carried out a comprehensive review of its longevity assumptions. As a consequence of this review the Group’s proprietary tool for pricing and reserving new business, PrognoSysTM, has been recalibrated using the combined businesses’ mortality data set. Underpinning the management of underwriting risk are:

• the development and use of medical information including PrognoSys™ for both pricing and reserving to provide detailed insight into longevity risk;

• adherence to approved underwriting requirements;

• controls around the development of suitable products and their pricing;

• review and approval of assumptions used by the Board;

• regular monitoring and analysis of actual experience;

• use of reinsurance to minimise volatility of capital requirement and profit; and

• monitoring of expense levels.

Reinsurance of longevity risk

• JRL has longevity swaps in place covering longevity risk derived from GIfL business written through PrognoSys™

(since 2015), plus Defined Benefit and in-force Care business. However, a material amount of back-book GIfL

liabilities (i.e. the business written using the previous Merica underwriting system) do not have permanent risk

transfer.

• In 2018, the decision was taken to no longer reinsure longevity risk on PLACL’s Care new business due to very strong IP and relatively shorter duration of the business, which made reinsurance capital inefficient.

JRL Reinsurance treaties

• SCOR treaty (GIfL): The reinsurance percentage for the longevity swap is 45% for qualifying policies pre 2016 and post Dec 2018 (when GenRe was introduced), and 75% in-between. Escalating policies were included as qualifying policies in 2016.

• Gen Re treaty (GIfL): The reinsurance percentage for the longevity swap is 30% for all policies written since Dec

2018.

• RGA treaty (standard-underwritten DB): The reinsurance percentage for the longevity swap is 75% for pre-2016,

100% for January 2016 to June 2019, and 90% for business written thereafter.

• RGA treaty (medically-underwritten DB): The reinsurance percentage for the longevity swap is 55% for pre-

2016, 100% for January 2016 to June 2019, and 75% for business written thereafter.

• Gen Re treaty (JRL Care- closed to new business, Group Care new business is written via PLACL): The reinsurance

percentage for the longevity swap is 90%. This treaty was closed to new business on 31 January 2017

PLACL Reinsurance treaties

• All PLACL reinsurance treaties are closed to new business. In-force business is reinsured under longevity swap and quota share treaties. The quota share treaties have deposit back or collateralisation arrangements to remove the majority of the reinsurer counterparty default risk.


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C.2 Market risk

C.2.1 Nature of material market risks Market risk is the risk of loss or of adverse change in the financial situation resulting, directly or indirectly, from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments, together with the impact of changes in interest rates. Significant market risk is implicit in the insurance business and arises from exposure to interest rate risk, property risk, inflation risk and currency risk. The Group is not exposed to equity risk. Market risk represents both upside and downside impacts but the Group’s policy to manage market risk is to limit downside risk. Falls in the financial markets can reduce the value of pension funds available to purchase Retirement Income products and changes in interest rates can affect the relative attractiveness of Retirement Income products. Changes in the value of the Group’s investment portfolio will also affect the Group’s financial position. For each of the material components of market risk, described in more detail below, the Capital Risk Appetite Framework and the Market Risk and ALM Policy sets out the risk appetite and management processes governing how each risk should be measured, managed, monitored and reported. Investment credit risk is included in our market risk and ALM policy but we have set details out in a separate Credit risk section C.3. (i) Interest rate risk JRL and PLACL, and by consequence the Group as a whole, are exposed to interest rate risk through its impact on the value of, or income from, specific assets, liabilities or both, and due to the potential change in capital requirements, especially for the Effective Value Test. These companies seek to limit their exposure through appropriate asset and liability matching and hedging strategies. Exposure to changes in interest rates arises from the investment portfolio, loans secured by mortgages and the valuation of insurance obligations. Changes in investment and loan values attributable to interest rate changes are mitigated by corresponding and partially offsetting changes in the value of insurance liabilities. Residual interest rate risk exposure is managed and reduced via derivative hedging in a cost effective way. (ii) Property risk Exposure to property risk within group companies arises from indirect exposure to the UK residential property market through the provision of lifetime mortgages and the associated NNEG. A substantial decline or sustained underperformance in UK residential property prices, against which the Group’s lifetime mortgages are secured, could result in proceeds on sale of the property on which the mortgage is secured, being exceeded by the mortgage debt at the date of redemption, creating NNEG costs. Demand may also reduce for lifetime mortgage products through reducing consumers’ propensity to borrow and by reducing the amount they are able to borrow due to reductions in property values and the impact on loan to value limits. (iii) Inflation risk Inflation risk is the risk of fluctuations in the value of, or income from, specific assets or liabilities or both in combination, arising from relative or absolute changes in inflation or in the volatility of inflation. Exposure to inflation occurs in relation to JRL’s and PLACL’s management expenses and their matching of index-linked Retirement Income products. (iv) Currency risk Currency risk arises from fluctuations in the value of, or income from, assets denominated in foreign currencies, from relative or absolute changes in foreign exchange rates or in the volatility of exchange rates. Exposure to currency risk could arise from the JRL’s and PLACL’s investment in non-sterling denominated assets. From time to time, these companies acquire fixed income securities denominated in US dollars or other foreign currencies for their financial asset portfolios. All material liabilities are in sterling. As neither company wishes to introduce foreign exchange risk into its investment portfolio, derivative or quasi-derivative contracts are entered into to hedge the foreign exchange exposure as far as possible.


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C.2.2 Compliance with the 'Prudent Person Principle' for market risk Just Group companies’ exposure to changes in interest rate is primarily concentrated in bonds, lifetime mortgages,

liquidity funds and derivatives. To reduce interest rate risk, assets are invested such that they closely match the

liabilities. For assets not matched to liabilities, duration is kept low. Gilts, gilt futures and interest rate swaps are

used to mitigate interest rate risk.

Just Group’s foreign currency exchange rate risk arises from JRL’s and PLACL’s investment in non-Sterling

denominated corporate bonds. Just Group sets limits in connection with the amount of foreign currency risk it is

prepared to accept. Where necessary derivatives are used to ensure the exposure remains within limits.

To manage inflation risks, assets are invested to closely match the index-linked nature of the liabilities. A

combination of index-linked assets and derivatives such as inflation swaps are entered into provide inflation

coverage.

JRL and PLACL exposure comes from commercial real estate mortgages and lifetime mortgages. The lifetime

mortgages incorporate a NNEG. To manage the NNEG risk, Just Group companies have maximum LTV requirements

when the loan is originated. Just is also actively exploring less conventional risk mitigation tools such as NNEG

derivatives with external counterparties to reduce property risk exposure.

C.2.3 Market risk concentration JRL and PLACL invest in a wide variety of assets, however the main asset classes are corporate bonds, lifetime

mortgages, and gilts. Given the restrictions on assets that can qualify for matching adjustment that would support

GIfL and DB business, concentrations of investments are inevitable.

To manage this concentration risk, JRL and PLACL invest in a diverse portfolio of bonds across different issuers,

sectors, and currencies. The companies also invest in a wide geographical spread of lifetime mortgages across a

range of ages and property sizes. In addition to this, risk limits are imposed on the maximum concentration across

a range of investment criteria.

Market risk concentrations are regularly monitored and reported via Asset Liability Committee and escalated to

higher level committees if necessary.

C.2.4 Market risk mitigation Whilst we do not actively seek any of the aforementioned market risks, some of them such as property and interest

rate risks arise as a consequence of taking risks that are central to our vision and strategy. We aim to mitigate

these risks where it is cost and capital efficient to do so.

Retirement Income product monies are invested to match the asset and liability cash flows as closely as

practicable. In practice it is not possible to eliminate market risk fully as there are inherent uncertainties

surrounding many of the assumptions underlying the projected asset and liability cash flows.

For each of the material components of market risk, described in more detail below, we set out how each risk is

mitigated:

Interest Rate Risk

Just is averse to interest rate risk. This exposure is managed by investing in assets which closely match the interest

rate sensitivity of the liabilities, with both duration and cash flow matching taken into consideration. We monitor

the effectiveness through regular reviews of the asset and liability position, capital modelling, sensitivity testing

and scenario analyses. Interest rate risk is also managed using derivative instruments e.g. swaps and swaptions.

Following the finalisation of SS3/17, and in particular, clarifications around EVT assessment parameterisation, Just

has built in additional prudence on its balance sheet by allowing for an EVT buffer in its LTM valuation assumptions.

This has significantly reduced JRL and hence Group’s sensitivity to interest rate down risk.


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Property Risk

We tolerate property risk. The risk is mitigated by ensuring that the loan advance represents a low proportion of

the property’s value at outset and independent third party valuations are undertaken on each property before

initial mortgages are advanced. Lifetime mortgage contracts are also monitored through dilapidation reviews.

House prices are monitored and the impact of exposure to adverse house prices (both regionally and nationally) is

regularly reviewed. In addition to the internal analysis, during 2019 management commissioned two independent

external firms to produce long-term forecasts for future property price growth to support the assumptions made.

NNEG hedge derivative is another way to reduce our regulatory balance sheet sensitivity to property level, growth

and volatility risks. We have entered into our second NNEG hedging transaction covering £670m of LTMs.

In 2019, the Audit Committee reviewed the key assumptions, including detailed analyses from management. It

was determined that the assumptions for property price future inflation and property price volatility should remain

unchanged from the 2018 year-end. This included consideration of the potential impact of the UK’s withdrawal

from the European Union on UK property prices. The Committee reviewed, and challenged as appropriate, the

detailed analysis and agreed with the proposals. In addition to the internal analysis management commissioned

two independent external firms to produce long-term forecasts for future property price growth to support the

assumptions made which the Committee reviewed and helped support their decision making.

During 2019 management also assessed the appropriateness of using the ONS index to determine property prices

and on reviewing the analysis the committee concluded that it was appropriate to continue to use the ONS index

to determine property prices at the valuation date.

Inflation Risk

We are averse to inflation risk. Its impact is managed through the application of disciplined cost control over its

management expenses and through matching its index-linked assets and index-linked liabilities for the inflation

risk associated with its index-linked Retirement Income products.

Currency Risk

We are averse to currency risk. Derivative or quasi-derivative contracts are entered into to eliminate the foreign

exchange exposure as far as possible. For matching assets those contracts are for all the expected cash flows

from the asset eliminating exposure to currency risk from rolling forwards.

C.3 Credit risk

C.3.1 Nature of material credit risks Just invests in bonds that provide regular interest income in order to match the expense and policyholder payment

outgoes. It also enters into reinsurance and derivative contracts with third parties as risk mitigation tools to

management its risk profile within its risk appetite. In addition, cash deposits are held in banks to support regular

liquidity requirements.

Such investment strategy gives rise to credit risk and counterparty risk. We seek appropriately priced investment

credit risk and tolerate reinsurance and derivative counterparty default risk.

Credit risk is defined as a reduction in the value of investments which results from a perceived risk of counterparty

failure to perform its financial obligations to the Group in a timely manner (default). Credit downgrade risk is the

risk of bond rating being downgraded and prices falling as a result of concerns over the credit counterparty, or over

the sector or economy in which the issuing company operates. Credit downgrade leads to wider spreads (the

difference between redemption yields and a risk-free return) and therefore volatility to the asset valuation.

Reinsurance and derivative counterparty risk refers to failure of counterparty to meet financial obligations when

fall due, other than the investment credit counterparties.


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C.3.2 Compliance with the 'Prudent Person Principle' for credit risk Credit risks in respect of invested assets arise from the change in the value of assets due to a change in the level

of credit spreads over the risk free term structure. This includes credit rating downgrades and credit default risks.

This does not include the matching adjustment which can be applied to the discount rate used to value the

liabilities and hence be offset.

Just Group’s assets backing liabilities are mainly investment grade bonds or loans in which the Just Group actively

invests.

In respect of credit risks from the investment portfolios, Just Group operates within a Board approved Investment

Management Framework which prescribes constraints in respect of asset class, single name, sector and geography.

The framework ensures that credit risk is suitably diversified to avoid over concentration of credit risks.

Quantitative limits are set for non-traded assets in order to maintain overall volumes at prudent levels. Non traded

assets can give rise to additional risks. Just Group maintains a robust valuation model which considers the

additional risks such as valuation (including valuation under stressed conditions) and liquidity. The risks are

analysed by experienced individuals who are also responsible for ensuring the credit rating assigned to the assets

appropriately reflects the risks.

JRL’s and PLACL’s asset managers carry out fundamental analysis on a credit name before investing. Over time,

the asset manager carries out regular monitoring exercises to ensure that the credit name does not deteriorate in

quality. New asset class or asset managers are subject to appropriate due diligence performed by both Lines 1 and

2 and approved by the Investment Committee. Any credit rating downgrades are also actively monitored and

escalated via appropriate governance.

In the event of a deterioration in creditworthiness, where the asset is actively traded the asset manager can

recommend to sell the asset. There is also in-house credit function whose role it is to consider the asset manager

and rating agency views and methodologies and ensure compliance with SS3/17 ‘Solvency II: Matching adjustment

– illiquid unrated assets and equity release mortgages’. In the event of a creditworthiness deterioration in private

assets, close engagement and intervention with the borrower by the asset manager and in-house team will be

utilised to manage the situation as favourably as possible.

Just Group also actively manages its exposures to reinsurance and derivative counterparties to ensure exposures

remain within prescribed limits and collateral is appropriate valued and managed.

C.3.3 Credit risk concentration A well-diversified portfolio of assets is invested to avoid over concentration of credit risks. A counterparty limit

framework in place to control counterparty default risk. Concentration of credit risk exposures is managed by

placing limits on individual counterparties and on exposures to credit ratings at sector level. Just Group companies

predominantly invest in Investment Grade bonds for assets backing liabilities.

C.3.4 Credit risk mitigation The risk of default on fixed income investments (where the counterparty fails to make contractual capital

repayments and/or interest payments on a corporate bond) is mitigated by understanding and being selective with

the credit investments based on expertise, guided by the risk appetite limits and framework. For assets backing

liabilities, spread risk arising from fluctuation in the illiquidity premium component of the credit spread is mitigated

through construction of a well-matched portfolio and the adoption of a “buy and maintain” strategy.

JRL and PLACL also manage credit risk within their corporate bond portfolios through the appointment of specialist

fund managers, who execute diversified investment strategies, investing in predominantly investment-grade

assets and imposing individual counterparty limits. Current economic and market conditions are closely monitored,

as are spreads on the bond portfolio in comparison with benchmark data.

Group uses financial instruments to mitigate interest rate and currency risk exposures. It therefore has credit

exposure to various counterparties through which it transacts these instruments. Credit risk on hedging

instruments is managed by the use of collateral arrangements. Group companies hold collateral from their


57

derivative counterparties in the form of cash and liquidity facilities only, and margin calls are daily based on

minimum transfer thresholds.

Reinsurance is used to manage longevity risk as well as asset risk in DB partnering business. Reinsurance default

risk arises from the exposure to reinsurer failure to meet its claim repayment obligations. Credit risk on reinsurance

balances is also mitigated by the use of collateral arrangements. We employ careful selection of qualifying

collateral types at the outset of the contract and frequently value the reinsurance contract and collateral.

Counterparty default risk on cash assets is managed by imposing restrictions over the credit ratings of third parties

with whom cash is deposited.

C.4 Liquidity risk

C.4.1 Nature of material liquidity risks The investment of Retirement Income cash in corporate bonds, gilts and lifetime mortgages, and commitments to

pay policyholders and other obligations, requires liquidity risks to be taken.

Liquidity risk is the risk of loss because Group companies, although solvent, either do not have sufficient financial

resources available to them in order to meet their obligations as they fall due, or can secure them only at excessive

cost.

Exposure to liquidity risk arises from:

• Deterioration in the external environment caused by economic shocks, regulatory changes or reputational

damage;

• realising assets to meet liabilities during stressed market conditions;

• further advances on existing LTM contracts in the absence of receiving premium income and being unable to

sell other assets to fund those further advances;

• increasing cash flow volatility in the short term giving rise to mismatches between cash flows from assets and

requirements from liabilities;

• needing to support liquidity requirements for day-to-day operations;

• ensuring financial support can be provided across the Group; and

• maintaining and servicing collateral requirements arising from the changes in market value of financial

derivatives and reinsurance agreements used by the Group.

Business written within Just is all single premium, and hence there is no liquidity risk related to future premium

recognition.

C.4.2 Compliance with the “Prudent Person Principle” for liquidity risk The firm considers liquidity risk from both the policyholder and the shareholder perspective. The Group is inherently

less exposed to short-term liquidity risk than other financial institutions, such as banks. The Group’s short-term

liquidity requirements are wholly funded by individually underwritten annuity business, defined benefit de-risking

business, mortgage redemptions and investment coupon receipts out of which contractual payments need to be

made. Given the nature of the Group’s products, distribution and funds Just does not have a concentration of

policyholder liquidity risk.

The Group is exposed to short-term shareholder liquidity risks in a number of key areas:

• Ability to support liquidity requirements for day-to-day operations;

• Ensuring financial support can be provided across the Group; and

• Ability to maintain and service certain collateral requirements arising from the use of financial derivatives and

reinsurance agreements.

The Group holds a number of financial derivatives including interest rate swaps, inflation swaps and currency

swaps to minimise the impact of market fluctuations, and these are collateralised with various banks.


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C.4.3 Liquidity risk concentration Within Just Group, liquid assets are considered to be composed of cash, cash equivalents such as liquidity funds,

conservative credit and short dated gilts. The majority of Just Group’s cash is invested in several liquidity funds

managed by well-known counterparties which have a substantial asset size. These include Insight, BlackRock,

Aberdeen, Morgan Stanley and Goldman Sachs. The liquidity funds diversify risk by investing in a portfolio of short

dated bank deposits and short dated bonds across a wide range of counterparties. This reduces the concentration

risk which would occur if Just Group invested directly with the banks. The underlying assets in the liquidity funds

are of a vanilla nature, and can be valued independently if required. Short duration liquid assets invested under

the Royal London mandate are required to be MAP compliant.

C.4.4 Liquidity risk mitigation Liquidity risk is managed by ensuring that assets of a suitable maturity and marketability are held to meet liabilities

as they fall due. Just Group’s short-term liquidity requirements are predominantly funded by cash and cash

equivalent held in NMAP outside of the Special Purpose Entities (JRe1 and JRe2). Cash buffers are also maintained

for the life companies to meet daily derivative margin call.

Following the LTM notes securitisation restructuring within JRL MAP, significant amount of liquidity has now been

released from the regulatory structure to enable Just to pursue better investment return opportunities both

domestically and overseas.

Cash flow forecasts over the short and long terms are regularly monitored and reported, and liquidity levels

monitored in line with limits set by the frameworks.

Liquidity stress testing is carried out for the life insurance companies, JRL and PLACL, as all policyholder liabilities

are paid from those two life insurance companies. The stress tests are performed in line with Just’s liquidity risk

appetites, by assessing the available liquid assets against operational liquidity requirements under 1-in-x

scenarios, and allowing for appropriate recognition of asset types and liquidation costs across different stress

horizons.

C.5 Operational risk

C.5.1 Nature of material operational risks Operational risk is defined as the risk of loss arising from failed or inadequate processes and systems, from people or from external events. Operational risks are not actively sought out, but arise as a consequence of doing business or as a consequence of other risks we choose to seek or take. Just Group aims to mitigate its exposures to operational risks through its control environment. Cybercrime is a continued threat and we recognise that threats can change quickly. Just Group’s exposure is increasing with the expansion of our online presence, through both digital and ecommerce capability. Information security is under constant review as cyber-threats evolve. Significant investment has been made in information security tools and these tools will continue to be updated as required. Due diligence is performed on all partners to ensure that they work to similar high security standards as Just Group. Significant effort is being expended to increase the efficiency and effectiveness of data collection, systems and processes to meet reducing external reporting deadlines. Key man dependencies, reliance on key skills and resource capacity issues (particularly in relation to actuarial, legal and developer roles) persists, putting pressure on delivery of both BAU and development activity. The Just Group has a potential exposure to underperformance of its third party administration relationships (“TPAs”). Activity continues to strengthen the risk management framework, including contingency planning to minimise the impact of a sudden failure or market exit of a critical third party.


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The Just Group is still operating a partial internal model pending application for a group full internal model. The complexity of assessing the Group’s solvency capital position will continue until the internal model application is made and approved. The Just Group is preparing to launch an automated advice model. An increased exposure to conduct risk related to this advice is recognised.

C.5.2 Compliance with the “Prudent Person Principle” for Operational risk The prudent person principle requires companies to invest in assets and instruments whose risk we can identify, measure, monitor, management, control and report, and take into account in the assessment of our overall solvency needs. Investments have to be made so as to ensure the security, quality, liquidity and profitability of the portfolio as a whole. Assets backing liabilities have to be appropriate to the nature and duration of the liabilities. They are also to be invested in the best interest of policyholders and beneficiaries taking into account any disclosed policy objective. Derivatives must only be used insofar as they reduce risks or to facilitate efficient portfolio management. Assets which are not admitted to trading on a regulated financial market shall be kept to prudent levels. In addition, companies should not be exposed to excessive concentration risk. Just Group’s financial investments comprise of lifetime mortgages, commercial mortgages, corporate, municipal and emerging market bonds, corporate loans, infrastructure debt, private placements, gilts and cash and liquidity fund holdings. Operational risks in respect of invested assets could arise from the following areas:

• Outsourcing risk, failures by external asset managers e.g. manager underperformance, failure to adhere to mandate guidelines, business failure of key service providers etc.

• Inadequate contracts with third parties including outsourcing agreements, counterparty agreements, loan documentation and other commercial agreements.

• Internally managed assets are exposed to execution risk, origination risk and risk of ineffective oversight.

• Human errors by internal teams (e.g. incorrect execution of derivatives or failure to monitor portfolios effectively)

• Lack of appropriate mark-to-market valuation techniques of less liquid assets

• IT infrastructure which includes the systems, controls and processes for investment management

• Investments made in fraudulent assets

• Loss of physical goods (Commodity Trade Finance) through theft, misuse or fire The asset portfolio activities are managed through the appointment of specialist asset managers. These external managers execute a diversified investment strategy under signed Investment Management Agreements (“IMAs"). The IMAs clearly set out the investment strategy and mandate guidelines including the permissible investible universe and various limits such as credit rating and counterparty limits. The external asset managers are only able to invest in permissible assets and instruments defined in the IMAs. Invested assets including the concentration limits are closely monitored by Just Group’s Investment and Finance Teams. If there are any breaches or non-compliance, the asset managers are required to report the issues to Just Group as soon as possible. Any investment in new asset classes are subject to detailed internal approval process which includes approvals from the ALCO and the Investment Committee, a sub-committee of the Board. Due diligence on the operational aspects of the new asset class and the new asset manager is carried out prior to investing. New investment processes are agreed by all relevant internal and external parties, and are clearly documented. Risks exposures for internally managed assets are mitigated through adherence to a clear end to end process and investment guidelines, outcomes are reported to appropriate governance forums.

C.5.3 Operational risk concentration The majority of operations are based in Reigate, in buildings in close proximity. A programme of activity to improve business resilience is underway, critical systems failover is now in place between Reigate Data Centres. Activity is in progress to create geographical separation between Data Centres to further increase resilience. The concentration is also reduced to an extent through the Group having offices in London and a recovery site near to Reigate which can be used for alternative working in the event of an incident in Reigate.


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C.5.4 Operational risk mitigation Just Group maintains a risk taxonomy including core operational risks. Each core operational risk has an assigned risk owner who is responsible for overseeing the management of that risk and the assessment and reporting on risk exposure; this includes key risk indicators and actions in progress (or planned) to reduce risk exposure or to mitigate risk events. Risks are assessed against Just Group’s standard impact and likelihood risk rating criteria. Core operational risk owners provide quarterly reports on the status of the core operational risk exposure which are reviewed and challenged in the Compliance & Operational Risk Committee chaired by the Group Chief Risk Officer; any material risk events that have occurred are also reviewed by the Committee to consider adequacy of remedial action and any trends that may be emerging. Top operational risk exposures are reported to the Group Risk and Compliance Committee every quarter. Core operational risk owners are also responsible for ensuring scenario analysis is undertaken on their core risk, and considering the results of the analysis in their assessment of the core risk exposure. Risk owners are required to implement control environments commensurate to the operational risk exposure and record both risks and controls on a risk management database, reviewing their risk assessments on a quarterly basis. On a monthly basis, controls owners attest to the adequacy of the control environment and are required to implement action plans where control deficiencies are identified. Adequacy and timeliness of action to resolve issues is monitored by the Risk Function and any concerns are escalated to relevant management. Just Group policies and procedures define the mandatory standards for the mitigation of business disruption; financial crime; outsourcing; legal risk management; data protection; information security; inside information; disclosure protocol; data; conflicts of interest; training & competency; remuneration; fitness and propriety; security dealing; internal control; whistleblowing; regulatory compliance; conduct risk; and proposition development. Policy owners are required to attest annually to the Group’s material adherence to policy requirements. Material enhancements to the operational risk environment may take the form of a change project or a programme of work, for example, a leadership programme. For major changes, a Chief Risk Officer’s Report is prepared providing the Executive Risk Committee and Group Risk & Compliance Committee with an independent assessment of the risks involved and how they are being managed. Quality assurance is undertaken on operational and sales activities. It is Just Group’s intent that its corporate insurance programme mitigates all conceivable, and insurable, financial impacts of operational risk events. Just Group insurance cover includes: employers and public liability cover for accidents and injury at the Group’s premises; buildings and contents cover, cover for acts of financial crime against the Group; and cover for the quality of advice and other professional activities of the Group which may be relied upon by others. In addition in the last year the Group has purchased specific ‘cyber-risk’ cover for the costs incurred should the Group be the victim of a material cyber security incident. An annual assessment is made on the effectiveness of the Group’s risk management to help guide efforts to further enhance the way in which risks are addressed.

C.5.5 Sensitivity to operational risks A suite of scenarios are developed covering material operational risk events to which the business is exposed, drawing on:

• The Group’s core operational risk framework

• Risk control self-assessment (“RCSA”) data

• Actual operational risk events experienced (internal loss data)

• Events experienced by the wider insurance industry

• Standard operational risk scenarios used across the insurance industry (published by ORIC International, an operational risk data consortium for (re)insurers and asset managers)

The scenario suite is periodically presented to the Compliance & Operational Risk Committee for it to consider the completeness of coverage of the potential operational risks. Workshop analysis is carried out for each material scenario attended by subject matter experts within the Group.


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Workshop analysis derives an agreed likelihood and potential severity for the risk scenario being examined. Where appropriate, external data and expertise are used to support this consideration. This information is then used as the basis for capital modelling of the potential financial impact of the risk. Sensitivity analysis is undertaken on the capital assessment of operational risk scenarios. Sensitivity tests are run on both the aggregate capital requirement and on individual scenario capital requirements. The tests undertaken include:

• increasing and decreasing correlations;

• forced selection of mathematical distributions in the model;

• adjusting criteria for fitting mathematical distributions or external loss data; and

• varying scenario inputs to test the calibration.

C.6 Other material risks The financial services industry continues to see a high level of regulatory activity and intense regulatory supervision. The regulatory agenda for the coming year covers many areas directly relevant to the Group. Further to the implementation of Solvency II, the PRA has published and continues to publish supervisory statements that set out its expectations for certain aspects of prudential regulation as well as consultation papers proposing additional guidance in a number of areas. They include to date supervisory statements and consultation papers relating to illiquid assets, matching adjustments, climate change and liquidity management. The most recent publication on Lifetime Mortgages, PS19/19, and the finalisation of SS 3/17 set out the guidance on the treatment of EVT in SCR calculation. The latest PRA consultation on Prudent Person Principle (CP22/19) is also being reviewed internally to understand its impact on the business in general, including credit investment activities and LTM origination. Improving operational resilience of financial services firms has become a key focus of both the FCA (CP19/32, 5 December 2019) and PRA (CP29/19, 5 December 2019), with the expectation that firms will review and enhance their operational resilience frameworks covering internal operations, systems and technology. The Department for Work and Pensions is seeking views on a new legislative framework for authorising and regulating defined benefit superfund consolidation vehicles of the type envisaged by the White Paper – “Protecting defined benefit pension schemes” – published in March 2018, which could potentially impact the Group’s future Defined Benefit De-risking business volumes. The regulatory focus on the issue of sustainable finance and particularly the risks that climate change could have on the safety and soundness of firms and stability of the financial system may accelerate actions of market participants that then have an impact on the availability and attractiveness of certain securities. The ultimate terms of the UK’s exit from the EU could have significant consequences for the regulations and legislation that apply to Just’s operations. Just Group is closely monitoring the evolving situation in relation to the Covid-19 pandemic. Further details are included in Section A.1.1.

C.7 Any other information

C.7.1 Sensitivities The Group Solvency II results at 31 December 2019 have been recalculated to show the sensitivity of the results to changes in the key SII assumptions. The Group uses sensitivity analysis to understand the impact of changes to the material individual risks would have on the Group’s solvency coverage ratio. This section describes the sensitivity analysis carried out. The choice of sensitivities are simple stresses that have been disclosed over time to allow for comparison purposes. The sensitivities are not intended to represent any particular probability of occurrence.


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Market Risk

• Interest rate -50 bps: this sensitivity is modelled as a 50bp change to the yield at all durations up to the LLP on individual asset and liabilities across all currencies. Spot rates are allowed to go negative and SII EVT headroom is allowed to reset post stress.

• 10% fall in property values: this sensitivity allows for the change in lifetime mortgage asset value arising from an immediate fall of 10% in property prices. The level of SII EVT headroom is restored after stress.

Credit Spread Risk

• The 100bps increase in credit spread for corporate bonds (excludes gilts, EIBs, any other government/supranational) assumes that the Fundamental Spread and volatility adjustment remain unchanged.

Underwriting Risk

• 5% decrease in base mortality: this sensitivity is applied to both the annuity and LTM businesses. This is modelled as a multiplicative reduction in the best estimate mortality level.

• 10% proportionate change in lapses: this sensitivity is modelled as a change assumptions for lifetime mortgage voluntary repayment rates. The sensitivity is applied as a multiplicative increase in the rate of withdrawal.

The sensitivities to material market and underwriting risks are tabled below.

Group %

Base 141

Interest rate down (-50bps) (post notional TMTP recalculation) (3)

Credit spreads +100bps 1

Credit quality step downgrade1 (13)

Early redemptions +10% 2

Property values - 10% (post notional TMTP recalculation)2 (15)

Mortality -5% (10)

1 Sensitivity shows the impact of an immediate full letter downgrade on 20% of all assets where the capital treatment depends on a credit rating (including corporate bonds, lifetime mortgage senior notes, commercial mortgages and infrastructure loans). All credit assets were grouped into rating class, then 20% of each group were downgraded.

2 After application of NNEG hedges entered into in December 2018 and March 2020.

C.7.2 Stress and Scenario analysis The Group uses stress and scenario analysis, which includes risk appetite assessments, experience variance

projections, interaction and scenarios, as well as reverse stress testing, to better understand the robustness of its

business plans and balance sheet to all risks represented by real world scenarios. The stress and scenario analysis

is carried out as part of the Group’s ORSA process, run-off and recovery planning, and liquidity risk management.


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Chapter D contents

D. Valuation for Solvency Purposes ................................................................................... 64 D.1 Assets ................................................................................................................................. 67

D.1.1 Asset valuation as at 31 December 2019 ........................................................... 67 D.1.2 Valuation for solvency purposes ........................................................................... 68

D.2 Technical Provisions ........................................................................................................ 72 D.2.1 Methodology used in the calculation of Technical Provisions ....................... 72 D.2.2 Valuation as at 31 December 2019 ...................................................................... 72 D.2.3 Differences to statutory IFRS reporting............................................................... 74 D.2.4 Key assumptions used in calculation of Technical Provisions ....................... 75 D.2.5 Level of uncertainty in valuation .......................................................................... 76 D.2.6 Long-term guarantee measures ........................................................................... 77 D.2.7 Transitional measures ............................................................................................. 80

D.3 Other liabilities ................................................................................................................. 81 D.3.1 Other liabilities valuation as at 31 December 2019 ......................................... 81 D.3.2 Valuation for solvency purposes ........................................................................... 82

D.4 Alternative methods for valuation .............................................................................. 84 D.5 Other information ............................................................................................................ 86

D.5.1 Reconciliations to IFRS statutory accounts ........................................................ 86


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D. Valuation for Solvency Purposes

This chapter provides narrative information on the valuation of assets, technical provisions and other liabilities for solvency reporting purposes including the solvency valuation bases and the methods and assumptions used by the Just Group.

The tables below show the valuation of reinsurance recoverables, other assets, technical provisions and other liabilities for the Group as well as JRL and PLACL on a legal entity basis as at 31 December 2019 and 31 December 2018, with comparison to the International Financial Reporting Standards (“IFRS”) basis. The statutory basis figures in this report are stated after solvency reporting reclassifications for fixed term annuity investment products, deposits, the FPP unit-linked product and the JRL reinsurance deficit account to the Solvency II reporting balance sheet format. Reconciliations of the statutory basis to the IFRS Report and accounts for each company are provided in Section D.5.

These figures are analysed further in the following sections.

Partnership Life



Solvency Statutory Solvency Statutory Solvency Statutory

2019 Basis Basis Basis Basis Basis Basis £m £m £m £m £m £m

Reinsurance recoverables (D1) 1,195.3 3,732.0 690.5 809.0 504.7 2,923.0

Other assets (D1) 21,896.3 22,122.3 16,443.1 16,378.5 5,481.2 5,486.6

Total assets 23,091.5 25,854.3 17,133.6 17,187.5 5,985.9 8,409.6

Technical provisions (D2) 19,149.8 19,020.4 14,195.2 13,907.1 4,954.6 5,043.0

Other liabilities (D3) 2,028.9 4,512.9 1,846.2 1,847.1 291.4 2,700.0

Total liabilities 21,178.7 23,533.3 16,041.4 15,754.2 5,246.0 7,743.0

Excess of assets over liabilities 1,912.8 2,321.0 1,092.2 1,433.3 739.9 666.6

Partnership Life



Solvency Statutory Solvency Statutory Solvency Statutory


Reinsurance recoverables (D1) 1,746.0 4,239.2 1,244.1 1,299.7 502.0 2,939.5

Other assets (D1) 19,391.8 19,656.0 14,033.9 14,033.9 5,235.8 5,247.2

Total assets 21,137.8 23,895.2 15,278.0 15,333.6 5,737.8 8,186.7

Technical provisions (D2) 17,137.1 17,454.6 12,225.7 12,402.4 4,911.4 5,010.1

Other liabilities (D3) 2,300.6 4,776.8 2,102.4 2,089.6 196.0 2,630.9

Total liabilities 19,437.7 22,231.4 14,328.1 14,492.0 5,107.4 7,641.0

Excess of assets over liabilities 1,700.1 1,663.8 949.9 841.6 630.4 545.7


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Key aspects of the preparation of the Solvency II balance sheet that apply to assets and liabilities are as follows: Valuation Assets and liabilities under Solvency II are valued in accordance with the Group’s accounting policies under IFRS as adopted by the European Union (“EU”), unless stated otherwise in sections D.1 ‘Assets’, D.2 ‘Technical provisions’ and D.3 ‘Other liabilities’. The effects of these valuation differences at 31 December 2019 are at Just Group level £408.1m lower (2018: £36.3m higher), in JRL £341.0m lower (2018: £108.3m higher), and in PLACL £73.2m higher (2018: £84.7m higher). The switch in the relationship between IFRS and SII in JRL, and by consequence Group, is due to the build-up of new business since the start of SII in 2016 and the amortisation of transitional relief on technical provisions.

Details of the asset valuation differences are set out in Section D.1.1 ‘Asset valuation as at 31 December 2019’; details of the technical provisions valuation differences are set out in Section D.2.2 ‘Valuation as at 31 December 2019’; and details of the other liabilities valuation differences are set out in Section D.3.1 ‘Other liabilities valuation as at 31 December 2019’.

The valuation for solvency purposes of the Group's assets, technical provisions and other liabilities are consistent with those used by its subsidiaries.

A summary of the Group’s IFRS accounting policies can be found in the accounting policies note of the Group’s 2019 financial statements. Reclassification of PLACL reinsurance deposit back liability In this report, the Directors have reclassified all of the reinsurance deposit back liability in PLACL’s IFRS accounts as a deduction to reinsurance recoverable. The financial liability is in respect of reinsurance premiums deposited back and accounted for in their entirety as a financial liability in the IFRS accounts. This is discussed further in the reinsurance recoverable section D.1.2. Restructured assets JRL has established two special purpose entities (“SPEs”), Just Re1 Ltd and Just Re2 Ltd, in order to restructure its lifetime mortgage and callable bond portfolios to enable these illiquid investments to be eligible for the Matching Adjustment. Given that the risks and rewards of ownership of the underlying investments continue to reside with JRL, the lifetime mortgages and bonds continue to be reported on JRL’s IFRS balance sheet. The Solvency II balance sheet is presented on a similar basis, with transactions with the SPE’s treated as ‘failed sale’ assets and liabilities. As noted in section A.1.2, this securitisation was restructured at the end of 2019 affecting the split of MA and non-MA assets and liabilities. Going concern As part of their assessment of going concern at 31 December 2019, the Directors have considered matters currently under development by the PRA. These include the impact of the updated regulatory expectations set out in SS3/17 “Solvency II: matching adjustment – illiquid unrated assets and equity release mortgages” and PS19/19 “Solvency II: Equity release mortgages – part 2”, under which the Group restructured and updated its internal lifetime Mortgage (“LTM”) securitisation. A restructure was effected on 31 December 2019 which involved a redemption of existing notes, and a restructuring and issuance of new LTM notes. The restructure removes much of the uncertainty on the level of matching adjustment relating to LTMs in the regulatory balance sheet. The Board considers, including having considered the matters below, that there is no material uncertainty in relation to going concern at 31 December 2019. The Directors have considered the following in their assessment:

• The benefit of the equity, Restricted Tier 1 and Tier 2 capital raised during 2019, a total of £500m new capital (before issue costs), £100m of which has been used to re-finance the partnership life Assurance company limited 9.5% Tier 2 loan notes.

• Steps to improve capital efficiency during 2019, including reduction in new business volumes and cost saving initiatives.

• The projected liquidity position of the Group, current financing arrangements and contingent liabilities. • A range of forecast scenarios with differing levels of new business and associated additional capital

requirements to write anticipated levels of new business. • Eligible own funds being in excess of minimum capital requirements in severe but plausible stressed

scenarios, including no further capital strengthening and reduced new business volumes.


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• The findings of the 2019 Group own Risk and solvency Assessment (“ORSA”). • Risks arising from the UK’s withdrawal from the European Union. • Scenario testing to consider the possible impacts of the Covid-19 pandemic on the Group’s business,

including stresses to property prices, house price inflation, credit quality of assets, and risk free rates, together with a reduction in new business levels. These scenarios included property stresses significantly in excess of the 10% reduction in property values shown in the sensitivity analysis set out in Sections A.1.1 and C.7.1. Credit stress scenarios were developed in conjunction with the Group’s investment managers to assess the impact of both a short, sharp, recession and a longer, deeper recession, including identification of assets with an increased risk of downgrade in specific sectors that are more exposed to the impacts of the pandemic. The financial impact of these stresses are not greater than the impact of a full letter downgrade on 20% of all credit assets where the capital treatment depends on a credit rating, as set out in the sensitivity analysis set out in Sections A.1.1 and C.7.1. The possible impact on liquidity from the pandemic was considered through applying significant stresses to exchange rates and interest rates, including scenarios equivalent to a 20% fall in sterling combined with an 80 bps increase in interest rates, and assessing the impact this would have on the Group’s cash collateral requirements,

• 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. Such testing includes assessment of the impact of a property price shock on the Group, given that the Group holds a significant proportion of its assets in lifetime Mortgages.

• Scenarios, including those in the ORSA, where the Company ceases to write new business. However, in such a run-off scenario the going concern basis would continue to be applicable because the Group would be continuing to trade with its existing business (for example, collect premiums and administer policies) rather than ceasing to trade.

• The Group plan, which was approved by the Board in the first quarter of 2020, and in particular the forecast regulatory solvency position calculated on a Solvency II basis, which includes the impact of SS3/17 and PS 19/19 outlined above, together with regular updates to the Group’s capital plan.

The directors’ assessment concluded that it remains appropriate to value assets and liabilities on the assumption that there are adequate resources to continue in business and meet obligations as they fall due for the foreseeable future, being at least 12 months from the date of signing this report, including in the event of the run-off scenarios considered above. Accordingly, the going concern basis has been adopted for the Group, for JRL and for PLACL, in the valuation of assets and liabilities. Method of consolidation The Group Solvency II balance sheet has been prepared using the default accounting consolidation method (‘method 1’). This differs to the methods applied under IFRS for the Group consolidated financial statements as noted in the table below. All of the principal subsidiaries of the Group are 100% held.

Type of undertaking Solvency II Group balance sheet

IFRS Group balance sheet

Insurance undertakings, insurance holding companies and ancillary service companies

Full consolidation Full consolidation

Other financial sectors Own funds according to relevant sectoral rules, with value included in ‘Participations’ line of balance sheet

Full consolidation

Other, including related undertakings

Valued according to Solvency II rules and included in ‘Participations’ line of balance sheet

Full consolidation if entity is controlled by Just, otherwise equity accounted in a single line in IFRS balance sheet

Just Retirement South Africa Excluded from consolidation Full consolidation


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Entities have been deconsolidated and reported as participations where material, with the result that intra-group transactions with the equity-accounted participations of value £112.7m (2018: £510.8m) are recognised and investments totalling £112.7m (2018: £510.8m) derecognised.

Just Group has a waiver reference 2967471 dated 9 December 2016 from the PRA to exclude Just Retirement South Africa (“JRSA”) from the scope of its regulatory reporting as this company has been deemed to be of negligible interest with respect to the objectives of group supervision. JRSA’s IFRS net assets of £6.8m as at 31 December 2019 (2018: £5.4m) have therefore been excluded from the scope of the Solvency II balance sheet and supporting analyses within this report. The waiver has been renewed with effect from 1 January 2020 and is replaced by waiver reference 5274561 dated 29 August 2019.

D.1 Assets

D.1.1 Asset valuation as at 31 December 2019

The table below shows the composition of assets of the Group as well as in the JRL and PLACL legal entity balance sheets as at 31 December 2019 and 31 December 2018 presented on the Solvency II reporting basis, with statutory reporting valuation bases presented alongside for comparison purposes.

The IFRS statutory accounts values are presented after reclassification to the solvency reporting format, but before any valuation adjustments. Reconciliations of the IFRS statutory basis to the IFRS Report and accounts for each company are provided in Section D.5.

Partnership Life Just Retirement Assurance Company Just Group plc Limited Limited Solvency Statutory Solvency Statutory Solvency Statutory


Goodwill - 34.1 - - - 1.3

Intangible assets - 120.3 - - - 1.0

Deferred tax assets 63.0 11.5 64.6 - - 7.1

Property, plant & equipment

26.7 26.8 17.2 17.2 - -

Participations 6.1 - - - - -

Bonds 10,272.9 10,277.3 7,270.6 7,270.6 3,002.3 3,002.3

Collective investment undertakings

1,525.5 1,559.1 924.0 924.0 519.1 519.1

Derivatives 233.0 233.0 266.0 266.0 12.8 12.8

Deposits other than cash equivalents

166.5 166.5 102.0 102.0 64.5 64.5

Loans & mortgages 9,237.6 9,302.6 7,414.9 7,414.9 1,832.4 1,832.4

Reinsurance recoverables 1,195.2 3,732.0 690.5 809.0 504.7 2,923.0

Insurance & intermediaries receivables

3.2 4.0 0.7 0.7 2.5 2.5

Reinsurance receivables 8.2 8.2 - - 8.2 8.2

Receivables (trade, not insurance)

110.1 122.7 183.0 183.0 9.4 5.4

Own shares (held directly) 6.0 - - - - -

Cash and cash equivalents 237.5 256.2 200.1 200.1 30.0 30.0

Total assets 23,091.5 25,854.3 17,133.6 17,187.5 5,985.9 8,409.6


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Goodwill - 34.1 - - - 1.3

Intangible assets - 136.9 - - - 1.0

Deferred tax assets - 18.6 - - - 9.1

Property, plant & equipment 21.2 21.4 17.8 17.8 - -

Participations 7.1 0.3 - - - -

Bonds 9,207.8 9,210.5 6,225.4 6,225.4 2,916.2 2,916.2

Collective investment undertakings 857.3 876.8 345.5 345.5 436.6 436.6

Derivatives 77.9 77.9 64.5 64.5 13.4 13.4

Deposits other than cash equivalents 165.1 165.1 117.7 117.7 44.9 44.9

Assets held for index-linked and unit-linked funds

104.4 104.4 104.4 104.4 - -

Loans & mortgages 8,302.2 8,332.9 6,532.4 6,532.4 1,777.3 1,777.3

Reinsurance recoverables 1,746.0 4,239.2 1,244.1 1,299.7 502.0 2,939.5

Insurance & intermediaries receivables

3.9 3.9 1.6 1.6 2.3 2.3

Reinsurance receivables 10.3 10.3 - - 10.3 10.3

Receivables (trade, not insurance) 545.5 562.5 564.5 564.5 18.5 18.5

Own shares (held directly) 6.2 - - - - -

Cash and cash equivalents 82.9 100.4 60.1 60.1 16.3 16.3

Total assets 21,137.8 23,895.2 15,278.0 15,333.6 5,737.8 8,186.7

D.1.2 Valuation for solvency purposes

Assets have been valued according to the requirements of the Solvency II Directive and related guidance, which requires that assets are recognised at the value that they could be exchanged between knowledgeable parties in an arm’s length transaction. For the most part, measurement of assets under Solvency II is consistent with the IFRS valuations used in the statutory accounts. The most significant differences are: • Valuation of goodwill and intangibles • Valuation of reinsurance recoverables • Classification of deposits • Consequences of deferred tax on revaluation of insurance provisions

Extensive use of market data and alternative valuation methodologies are applied for the purpose of valuation of financial assets, similar to their treatment for IFRS reporting purposes. Individual assets and liabilities are valued separately in accordance with Article 9 (5) and (6) of the Delegated Regulation (EU 2015/35). Solvency II valuation policies relevant to the Group are as follows: Goodwill Goodwill is valued at nil for Solvency II purposes in accordance with Article 12 of the Solvency II Delegated Regulation.

The IFRS valuation recognises the excess of the costs of the acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary and represents the future economic benefit arising from acquired assets that are not capable of being individually identified and valued. Goodwill is not amortised, but assessed for impairment annually or when circumstances or events indicate there may be uncertainty over its carrying value.


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Intangible assets For Solvency II purposes, intangible assets that can be sold separately in an active market are valued at realisable value less sale costs. An active market for this purpose is one where prices can be observed. All other intangible assets are valued at nil value.

The Group holds Purchased Value of In-force business (“PVIF”), distribution network, intellectual property, and software intangible assets, none of which are attributed any value under Solvency II reporting as they considered to be a non-separable assets.

Under IFRS, intangible assets are recognised if it is probable that the relevant future economic benefits attributable to the assets will flow to the Company, and are recognised at cost less accumulated amortisation and any impairment. Intangible assets are amortised on a straight-line basis over their useful lives. Deferred tax assets and liabilities Solvency reporting basis Provision is made for deferred tax liabilities and credit taken for deferred tax assets using the liability method on all material temporary differences between the tax bases of assets and liabilities and their carrying amounts in the Solvency II and IFRS balance sheets. The principal temporary differences arise from the revaluation of certain financial assets and liabilities, including technical provisions, amortisation of intangible assets and other insurance items and tax losses carried forward. In accordance with IAS 12 (paragraph 55), temporary differences are determined by reference to the carrying amount of an asset or liability. This applies even where that carrying amount is itself determined on a discounted basis.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting period. The measurement reflects the Group's expectations, at the end of the reporting period, as to the manner in which the carrying amount of its assets and liabilities will be recovered or settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits, assessed based on forecast future corporate tax returns, will be available against which the temporary differences can be utilised. Sources of future profits may include future new business based on annual plan data and other projections and potential offset with deferred tax liabilities.

Valuation uncertainty in deferred tax balances exists to the extent that there is uncertainty within the pre-tax technical provisions IFRS to Solvency II reconciliation items. The eligibility of deferred tax assets is considered in section E.1.3.

Statutory IFRS reporting The methodologies used for Solvency II reporting and IFRS reporting are consistent, with only the impact of valuation differences resulting in differences in carrying amount. Within the IFRS accounts, deferred tax assets and liabilities arising from distinct sources of timing differences are aggregated within categories and only net balances are reported. These categories are: 1. Timing differences arising from the ongoing business transactions within the organisation. Principal sources

of deferred tax balances are technical provision differences which are linked through asset and liability matching.

2. Timing differences in respect of capitalised intangible assets subject to amortisation, if any, 3. Timing differences in respect of transitional tax, notably representing deferral of part of the impact from

moving to a new taxation basis, initially from UK GAAP to IFRS.


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Property, Plant and equipment JRL holds only property assets acquired in 2015 and 2017 which are held for own use. These properties will be regularly revalued for IFRS reporting purposes, providing a fair value also appropriate for Solvency II reporting purposes. Revaluations are performed with sufficient frequency to ensure that the fair value of the revalued asset does not differ materially from its carrying value.

Other plant and equipment held by Just Group includes computer equipment, furniture and fittings for which the replacement cost is considered to be similar to its depreciated cost valuation under IFRS. Participations For Just Group, the Solvency II value consists of non-insurance subsidiary participations valued under either the adjusted equity method or sectoral rules, and the share of net assets of all associated undertakings.

For JRL, the Solvency II value represents non-insurance subsidiary participations valued under the adjusted equity method.

Under IFRS, all entities that are controlled by the Group are consolidated in the Just Group accounts, and only associated undertakings are reported on this line. Financial investments - Bonds, Investment funds and Derivatives All financial investments are measured at fair value for both Solvency II and IFRS purposes. Consistent with IFRS reporting, Just Group uses alternative valuation methods in accordance with Article 10 of the Delegated Regulation where values are not readily available. Further information on financial investments valued using an alternative method to either a quoted market price or a quoted market price for a similar asset is included in section D.4.

The difference between the IFRS and Solvency II investment fund values in Just Group is due to the removal of JRSA from the scope of Solvency II reporting.

Deposits and Cash equivalents Deposits are classified on the Solvency II balance sheet according to Annex II of the Implementing Technical Standard (EU 2015/2450): • Deposits held within UCITS are reported within Collective Investments Undertakings. • Deposits that cannot be used to make payments until before a specific maturity date are classified as deposits. • Deposits exchangeable for cash on demand without penalty or restriction are classified as cash equivalents. There are no differences in valuation compared with IFRS, however there is a difference in presentation as IFRS applies a three month term beyond which balances are treated as deposits, unless that are immediately callable, in which case they are treated as cash. Loans and mortgages The valuation of loans and mortgages is consistent with IFRS reporting. As a trading market for Lifetime Mortgages (LTM’s) does not exist, the value of the residential mortgage portfolio is calculated by marking to model. The value of the cash flows for each individual mortgage has been calculated using a discount rate equivalent to the risk-free rate based on the swap curve plus a liquidity premium adjustment. The liquidity premium adjustment is calculated separately for each mortgage at the date of the advance for that mortgage in JRL, and by suitable cohort in PLACL.

Under the terms of the lifetime mortgages (“LTM”), a guarantee is provided that when a property is sold on the event of death or move into long-term care and the mortgage repaid, the amount repayable will be capped at the sale value of the underlying property after deducting reasonable costs of selling the property. The value of the ‘No Negative Equity Guarantee’ (“NNEG”) has been calculated using a variant of the Black-Scholes option pricing formula in which an explicit house price growth assumption is used together with the last known value placed on the property by an independent third party surveyor.

The variant of the Black-Scholes option pricing formula used in the measurements of the NNEG has been adapted to use real world assumptions instead of risk neutral assumptions due to the lack of relevant observable market inputs to support a risk neutral valuation approach. This approach is in line with common industry practice and there does not appear to be an alternative approach that is widely supported in the industry. We acknowledge that there has been significant recent academic and market debate concerning the valuation of no-negative equity guarantees and we intend to continue to actively monitor this debate.

The fair value of loans secured by commercial mortgages is initially deemed to be the transaction price and then subsequently marked to model. Post transaction valuations are provided by a third party.


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The difference between the IFRS and Solvency II values in Just Group is due to the deconsolidation of JRSA.

Reinsurance recoverables The amounts recoverable from reinsurance arrangements are calculated as the sum of the present value of the expected recoverable cash flows.

The present value of the expected recoverable cash flows is calculated using the same cash flows, methodology, assumptions and discount rate used to derive the Best Estimate Liability of the cash flows that are reinsured, as explained in Section D.2 below.

Recoverable amounts for financial reinsurance in JRL are limited to the value of reinsurance deposit for both Solvency II and IFRS reporting, as it is anticipated that all underwriting years will be recaptured at some point. In the event of underwriting years being recaptured, the reinsurance deposit and recoverable are effectively netted off.

For IFRS reporting, PLACL reinsurance treaties with deposit back arrangements are unbundled into a reinsurance recoverable element (accounted for under IFRS 4) which is presented as an asset within Reinsurance assets on the face of the IFRS balance sheet, and a deposit back financial element (accounted for under IAS 39) which is presented as a liability within Other financial liabilities on the face of the IFRS balance sheet. For Solvency II reporting, the deposit back liabilities in PLACL is netted off against the reinsurance recoverable asset which results in the presentation of a net reinsurance asset with no deposit back liability. The resulting net contract cash flows are valued on a basis consistent with treating the whole contract as a technical provision, in line with Article 76 of the Solvency II Directive.

The netting off approach has two steps: firstly to create reinsurance asset values which are net of the associated deposit back liability, and then to re-value these cash flows as a technical provision discounting at SII discount rates, in line with Article 76 of the Solvency II Directive.

The table below sets out PLACL’s reinsurance assets and deposit back liabilities on a SII and IFRS basis as at 31 December 2019 and 31 December 2018.

Partnership Life Assurance Company Limited IFRS value Netting off adjustment

Revaluation of net cash flows for SII SII value

£m £m £m £m 2019 as reported Reinsurance assets 2,923.0 (2,417.7) 0.6 504.7 Deposits from reinsurers 2,417.7 (2,417.7) - - 2018 as reported Reinsurance assets 2,939.5 (2,443.5) 6.0 502.0 Deposits from reinsurers 2,443.5 (2,443.5) - -

The Group also holds a number of reinsurance swaps as protection against adverse deviation in longevity. The financial terms of these swaps are based on the experience of the JRL portfolio, rather than the population as a whole, and consequently it is not appropriate to treat these swaps as derivatives.

Under Solvency II the reinsurance recoverable includes an adjustment to allow for the risk of reinsurance counterparty default using the methodology prescribed by the regulations.

Insurance and other receivables Insurance receivables are specified in Annex II of the Implementing Technical Standard as “Amounts past-due for payment by policyholders, insurers, and other linked to insurance business, that are not included in cash-in flows of technical provisions.” Material insurance prepayments and receivables that are not overdue are therefore not included in the insurance receivables line, and are instead adjusted against the best estimate cash flow projections.

Insurance receivables in the IFRS balance sheet reflect all amounts due, whether overdue or not. There is however a difference in presentation of insurance receivables due to the IFRS balance sheet having additional detail compared with the Solvency II balance sheet and due to the Solvency II balance sheet definition of insurance receivables being overdue amounts only rather than all amounts due (subject to materiality).


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Own shares (held directly) Just Group plc shares held by the Group itself are presented as an asset on the Solvency II balance sheet and are removed in the calculation of own funds.

Own shares are deducted from share capital for IFRS reporting purposes.

D.2 Technical Provisions The calculation of Risk Margin (RM) in JRL and at Just Group level and Transitional Measures on Technical Provisions (“TMTP”) in JRL, PLACL and at Just Group level are unaudited.

D.2.1 Methodology used in the calculation of Technical Provisions

General Methodology Under Solvency II, the Technical Provisions gross of reinsurance are the sum of the Best Estimate Liability (“BEL”) and Risk Margin (“RM”). Transitional Measures can be used to reduce the calculated Solvency II Technical Provisions. Best Estimate Liabilities Best Estimate Liabilities are calculated by projecting expected future benefit outgoings (e.g. annuity payments), premium income and the costs of maintaining the contracts. These cash flows are discounted to take into account the time value of money. The relevant discount rate is discussed further below.

The nature of insurance business means that the timing and in some cases, the amount of future insurance cash flows paid to policyholders is uncertain. To allow for this uncertainty, assumptions are made using actuarial judgement where appropriate. Risk Margin The Risk Margin is calculated using the assumptions and methodology prescribed by the regulations.

The regulations require an SCR for each future year to be calculated for non-hedgeable risks. For some Standard Formula SCRs in PLACL – e.g. Longevity and Operational Risk, the future SCR can be calculated directly. For the other risks, a Risk Driver approach is used to project the non-hedgeable SCR in each future year. The non-hedgeable SCR used in the Risk Margin calculation includes expense and counterparty risks.

D.2.2 Valuation as at 31 December 2019

A breakdown of Solvency II Technical Provisions is summarised in the table below.



Gross Best Estimate 20,167.4 14,624.6 5,542.8

Risk Margin 873.4 662.2 211.2

TMTP (1,891.0) (1,091.6) (799.4)

Technical provisions – Other life 19,149.8 19,020.4 14,195.2 13,907.1 4,954.6 5,043.0

Reinsurance recoverable 1,195.2 3,732.0 690.5 809.0 504.7 2,923.0

Technical provisions – Net of reinsurance

17,954.6 15,288.4 13,504.7 13,098.1 4,449.9 2,120.0


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Gross Best Estimate 18,055.8 12,559.7 5,496.0

Risk Margin 850.7 646.9 203.9

TMTP (1,873.6) (1,085.1) (788.5)

Technical provisions – Other life 17,032.9 17,350.4 12,121.5 12,298.2 4,911.4 5,010.1

Technical provisions – Index-linked and unit-linked

104.2 104.2 104.2 104.2 - -

Technical provisions – Total gross

17,137.1 17,454.6 12,225.7 12,402.4 4,911.4 5,010.1

Reinsurance recoverable 1,746.0 4,239.2 1,244.1 1,299.7 502.0 2,939.5

Technical provisions – Net of reinsurance

15,391.1 13,215.4 10,981.6 11,102.7 4,409.4 2,070.6

At 31 December 2019 JRL had just one line of business under Solvency II - 'Other life', in which all of the Company's principal products are reported.

At 31 December 2018 it also reported 'Index-linked and Unit-linked' within which the Flexible Pension Plan (“FPP”) product was reported, representing less than 0.7% of the total, prior to this line of business being terminated and assets and liabilities transferred to a third party.

A significant part of the exposure to reinsurers is mitigated by the deposit back terms of certain reinsurance treaties. To consider the net exposure, the reinsurance recoverable asset should be considered alongside the deposits due from reinsurers described in section D.3.

The Risk Margin and Transitional Measure on Technical Provisions (“TMTP”) are both entirely allocated to the 'Other life' line of business as the FPP product's risks were considered hedgeable, and its reserves were unaffected by the transition to Solvency II.

The “Other Life Insurance” includes: Guaranteed Income for Life (GIfL) These are non-profit individually enhanced pension annuities from premiums in respect of occupational or personal pension funds, written on either a single life or joint life last survivor basis, which provide a level series of payments throughout the life of the annuitant(s), reducing where appropriate on the death of the first life, or incorporate a provision for payments to increase annually at a guaranteed rate. The annuity may incorporate a guaranteed period of payment.

Defined Benefit Schemes (DB) This business is similar to GIfL, except that each scheme contains a number of individual policyholders. There are two propositions, a “buy-in”, where in return for the payment of a single premium, pension scheme trustees buy a bulk purchase annuity insurance policy which provides pension benefit payments for identified scheme members and their qualifying beneficiaries. In the “bulk buy-out” proposition the scheme of trustees secure member benefits by purchasing, in bulk, many individual annuity policies in the names of the individual scheme members. Care Plans This product is similar to GIfL, but will contribute to the costs of providing immediate nursing care for clients. In return for a single premium, the income payable directly to the care provider(s), for life in order to cover care costs. The product also includes a “payment protection” option whereby the income paid by the policy can be set to be no less than a guaranteed minimum amount.


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Fixed Term Annuity (FTA, discontinued) This is a non-profit single premium pension plan written under the capped drawdown rules. The plan provides a lump sum that is payable if the insured life survives to the end of the fixed term. An income selectable at outset is payable throughout the plan term while the insured life is alive. The life insured may elect to include additional death benefit at outset including a guaranteed period, dependant’s annuity or value protection on the annuity. Term Assurance and Whole of Life Protection (discontinued) These are non-profit whole of life or fixed term assurances, written on a single life or joint life first death basis. The benefit is a single lump sum payable on death. Flexible Pension Plan (FPP, discontinued and transferred out during 2019) The Flexible Pension Plan is an income drawdown product. FPP is a unitised product which allows investment in a number of underlying funds. Policies are sold on a single life basis and can be passed on to a dependant on death. The policyholder has the ability to withdraw part/all of those funds as and when required. The product was launched in May 2015, and the service was transferred to a third party during the second half of 2019. In form S.12, there is also a split of the lines of business, into “contracts with options and guarantees” and “contracts without options and guarantees”. Here the guarantee refers to a financial guarantee rather than an insurance guarantee. For JRL and PLACL we define contracts with options and guarantees to be any inflation linked contract.

D.2.3 Differences to statutory IFRS reporting The Solvency II liabilities differ from the liabilities reported in the (IFRS) financial statements for several reasons including:

• Under Solvency II, Technical Provisions include a Risk Margin. IFRS liabilities do not include this Risk Margin.

• Solvency II Technical Provisions are reduced by the TMTP.

• The assumptions used to derive expected future cash flows and discount rate are different under IFRS and Solvency II.

• There are certain regulatory restrictions over the assets that can be used to back liabilities discounted at rates inclusive of the Matching Adjustment under Solvency II. Lifetime Mortgages and ineligible callable bonds in JRL are structured into tranches of notes to be eligible for Matching Adjustment.

• The PLACL reinsurance recoverable is calculated net of the fixed schedule of deposit repayments.

• At Just Group level, the deconsolidation of JRSA.


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D.2.4 Key assumptions used in calculation of Technical Provisions The key assumptions used in the calculation of Technical Provisions are the current rates of mortality for annuitants and future improvements in mortality. Longevity Assumptions Mortality assumptions have been set by reference to appropriate standard mortality tables. These tables have been adjusted to reflect the future mortality experience of the policyholders, taking into account the medical and lifestyle evidence collected during the underwriting process, premium size, gender and the Group’s assessment of how this experience will develop in the future. The assessment takes into consideration relevant industry and population studies, published research materials, input from the Group’s lead reinsurer and management’s own industry experience. The standard tables which underpin the mortality assumptions are summarised in the table below.

Product Group 2019 2018

Individually underwritten Guaranteed Income for Life Solutions (JRL)

Modified E&W Population mortality, with modified CMI 2017 model mortality improvements for both Merica and PrognoSysTM

underwritten business

Modified E&W Population mortality, with modified CMI 2017 model mortality improvements for both Merica and PrognoSysTM underwritten business

Individually underwritten Guaranteed Income for Life Solutions (PLACL)

Modified E&W Population mortality, with modified CMI 2017 model mortality improvements


Defined Benefit (JRL)

Modified E&W Population mortality, with modified CMI 2017 model mortality improvements for standard underwritten business; Reinsurer supplied tables underpinned by the Self-Administered Pension Scheme (“SAPS”) S1 tables, with CMI 2009 model mortality improvements for medically underwritten business

Modified E&W Population mortality, with modified CMI 2017 model mortality improvements for standard underwritten business; Reinsurer supplied tables underpinned by the Self-Administered Pension Scheme (“SAPS”) S1 tables, with CMI 2009 model mortality improvements for medically underwritten business

Defined Benefit (PLACL)



Care Plans and other annuity products (PLACL)

Modified PCMA/PCFA and with modified CMI 2017 model mortality improvements for Care Plans. Modified E&W Population mortality with modified CMI 2017 model mortality improvements for other annuity products.

Modified PCMA/PCFA and with modified CMI 2017 model mortality improvements for Care Plans. Modified E&W Population mortality with modified CMI 2017 model mortality improvements for other annuity products.

Protection (PLACL) TM/TF00 Select TM/TF00 Select


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Expenses Assumptions for future costs of maintaining policies are set with reference to analysis of the existing expense base and actual fees payable under the contracts for those services outsourced. The assumptions cover both the direct and indirect costs of maintaining policies. The assumed future policy expense levels incorporate a best estimate annual inflation rate allowance of 3.9% derived from the expected retail price index implied by inflation swap rates and an additional allowance for earnings inflation. Discount rates In order to calculate Best Estimate Liabilities, cash flows are discounted to take into account the time value of money.

Under Solvency II, the relevant discount rate is comprised of: • A basic risk-free interest rate term structure, provided by the European Insurance and Occupational Pensions

Authority (EIOPA), plus • A flat adjustment to that rate, where approved by the PRA for either the Matching Adjustment or the Volatility

Adjustment. The two types of flat adjustment, sometimes referred to as “long-term guarantees”, for which approval has been obtained are Matching Adjustment and Volatility Adjustment:

Matching Adjustment (“MA”) Volatility Adjustment (“VA”)

JRL Written notice 2201079 on 7 November 2015

n/a

PLACL Written notice 2200601 on 24 December 2015*

Written notice 2200623 on 11 March 2016

*the written notice is dated 7 November 2015 and gives conditional approval, subject to certain conditions being met. The PRA confirmed they were satisfied that those conditions had been met on 24 December 2015.

Further explanation is given in section D.2.6 below.

D.2.5 Level of uncertainty in valuation Set out below are the main areas of uncertainty over the calculation of liabilities.

Life Insurance Technical Provisions The best estimate liability corresponds to the probability-weighted average of future cash flows, taking account of the time value of money using the relevant risk-free interest rate term structure. They reflect estimates of how markets and the business might behave in the future given policyholder data, cash flow models and a set of assumptions.

All estimates are based on management’s knowledge of current facts and circumstances; assumptions based on that knowledge; and their predictions of future events and actions. Actual results may differ from those estimates, possibly significantly. Fluctuation in the amount and/or timing of claims events is considered particularly susceptible to valuation uncertainty, e.g. when estimating the length of time for which an annuity will be paid which requires a projection of annuitant mortality rates in excess of 20 years into the future which cannot be done with certainty.

The best estimate liability assumptions are governed by a rigorous process, underpinned by actuarial judgement and peer review. The scope of assumption review papers includes considering the degree of uncertainty inherent in the assumptions being reviewed.

Data governance and model governance standards are in place, which help to ensure that the cash flow models used to calculate technical provisions, are fit for purpose and are managed under appropriate change control processes.


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Regulatory compliance The Company allocates its resources to respond to regulatory developments in a way that it believes is appropriate and proportionate to its circumstances. However, all regulated financial services companies face the risk that their regulator could find that they have failed to comply with applicable regulations or have not undertaken corrective action as required or expected.

The impact of any such finding could have a negative impact on the Company’s reported results.

Further to the implementation of Solvency II, the PRA has published and continues to publish supervisory statements that set out its expectations for certain aspects of prudential regulation. This includes to date statements relating to illiquid assets, matching adjustments and transitional provisions. There is a risk that the implementation of one or more of these statements could result in a negative impact on the regulatory capital position of the Group.

The following supervisory statements and consultation papers issued by the PRA either came into effect in 2019, or could require further changes to the Solvency II balance sheet and SCR by the Just Group in the future:

SS3/17 - Solvency II: matching adjustment - illiquid unrated assets and equity release mortgages (including as modified by PS31/18 published on 10 December 2018 and PS19/19 published on 27 September 2019). The expectations set out in the updated SS3/17 were effective as at 31 December 2019.

SS3/17 sets out the PRA’s expectations in respect of firms that are subject to the Solvency II regime, and that invest in illiquid, unrated assets within their matching adjustment portfolios. Amongst other matters SS3/17 states that firms will have to explain how they will group assets in their Solvency II matching adjustment portfolios with respect to credit quality steps (“CQS”), asset class and duration for the purposes of determining the fundamental spread, and that where assessing internally-rated assets, greater judgment is involved and firms need to “have confidence that the risk management of these more complex credit exposures, in particular the CQS mapping process and the size of the MA benefit claimed on them, is fit for purpose.” (SS3/17, paragraph 1.4).

PS19/19 – Solvency II: Equity release mortgages - Part 2 (This forms part of an update to SS3/17 – Solvency II: matching adjustment – illiquid unrated assets and equity release mortgages).

This policy statement sets out:

• The PRA intends to review and update the EVT parameters for deferment rate (twice a year) and volatility (annually); but may publish updated values more frequently and at other times when, it considers it as appropriate to do so taking account of market conditions.

• Where firms include assets other than ERMs in the special purpose vehicle used to restructure ERM loans, how those other assets should be allowed for in the EVT.

• The frequency with which the PRA would expect firms to assess the EVT.

• Principles for how the PRA would assess the approaches firms could use to model the risks associated with ERMs in their internal models against the Solvency II tests and standards, including whether and how the PRA would expect firms to apply the EVT in stress, taking account of the PRA’s proposals for how it would vary the deferment rate.

• Principles to clarify how the loan value plus accrued interest input to the EVT would reflect circumstances (such as drawdown contracts) where the ultimate amount due at exit is uncertain.

As at 31 December 2019, a new methodology has been developed for rating and valuing LTM notes which meets the expectations of SS3/17 which came into effect from 31 December 2019. As a result, the Group and JRL have restructured the LTM notes issued by Just Re 1 Limited to meet these expectations, including an ECAI consistent internal ratings approach for the structured notes. The new methodology reduced the overall size of the note resulting in a transfer of £1.9bn of liabilities from Matching Adjustment Portfolio (MAP) to the Non Matching Adjustment Portfolio (NMAP), thus increasing the value of the liabilities and reducing the amount of own funds. PS19/19 indicates that the PRA expects companies to meet the EVT based on a deferment rate of 0% by 31 December 2019 and phase-in the requirement to meet a 0.5% deferment rate by 31 December 2021. As at 31 December 2019, our new structure meets this EVT requirement with an implied deferment rate headroom of 0.67%.

D.2.6 Long-term guarantee measures The long-term guarantee and transitional measures are a component of the Solvency II rules and regulations, which require specific approval, so that firms for which it is appropriate to use these components can do so.


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For example, for firms that sell annuity business where the liability cash flows are illiquid, it is well-established practice to invest in assets with illiquid characteristics since they are a good match for the illiquid liabilities and set a discount rate which reflects this illiquidity. Under Solvency II, the Matching Adjustment is the mechanism for doing this.

To obtain approval to use the MA, JRL and PLACL had to provide details to the PRA of the features of the assets and liabilities and operational structure that would be used to manage the portfolios. Once approval has been obtained from the PRA, it can only be withdrawn in specific circumstances where, for example, a firm breaches the conditions of the approval.

The conditions for approval of the TMTP primarily related to demonstrating that the calculation would be carried out appropriately and that as the TMTP runs-off in future, the firm is expected to have sufficient capital to cover its SCR as the TMTP runs-off in future. JRL and PLACL were able to satisfy both of these requirements.

Firms are required to show the impact of removing each of these long-term guarantee and transitional measures and this is shown in form s.22.01.

Matching Adjustment The Matching Adjustment (“MA”) is defined under Regulation 42 of the Solvency II Regulations (Article 77b of the Solvency II Directive).

It is a single flat addition (spread), which can be applied to the basic risk-free interest rate term structure. MA is applied to a large proportion of annuity business within the Group. The MA is based on the yield on the portfolio of assets that have been chosen to replicate the liability cash flows. An adjustment is made to allow for the risk of default and downgrade, based on inputs provided by EIOPA.

The assigned assets consist primarily of GBP denominated corporate bonds, government bonds, Lifetime Mortgages Notes, derivatives and cash. A smaller volume of corporate bonds denominated in foreign currencies are held alongside derivatives (cross currency swaps) which transform the cash flows back to GBP. Inflation swaps are held in conjunction with inflation linked bonds to hedge the cash flows of insurance obligations that are linked to inflation.

Lifetime Mortgages Notes are structured assets that are issued by a wholly owned SPE, Just Re1 Ltd. Just Re1 Ltd holds a pool of lifetime mortgages, which provides the collateral for issuance of eleven senior notes to JRL, eligible for inclusion in its matching portfolio. When preparing the Group consolidated Best Estimate Liabilities including the Just Retirement Limited Matching Adjustment, the securitisation structure is not eliminated on consolidation.

The key assumptions in determining the Matching Adjustment on LTM notes are the spread and the credit rating which is used to evaluate the risk of default and downgrade. The ratings are set using a two-step internal rating process that consists of an ECAI-consistent assessment and an NNEG Overlay assessment. The NNEG Overlay is an alternative pricing of risk based upon an option pricing technique (Black 76). This also serves as our bespoke calibration of Fundamental Spread. The key parameters that determine the magnitude of NNEG are:

• House price growth;

• Property volatility; and

• Risk-free rates.

Final note ratings are the lower of the two assessments and depend upon the fixed note cash flows and the security provided by the underlying lifetime mortgages, as collateral. The spread on the notes that have been included in the matching portfolio has been set having taken into consideration the relevant requirements of the SII regulations and guidance (as set out in Section C.6.1 and Section D.2.5 above). The resulting spreads on these notes are lower than the IFRS spread on the underlying lifetime mortgage notes. The ratings of the LTM notes in the Matching Adjustment Portfolio in JRL have been set equivalent to external ratings ranges from AAA to BBB as at 31 December 2019 (31 December 2018: A rating based on old structuring methodology).

As at 31 December 2019, JUST passes the PRA EVT with a material buffer (0.67%) over the minimum deferment rate of zero required at 31 December 2019 and volatility of 13% in line with the requirement. The expected cost of satisfying the EVT at a parameterisation of 13%/1% (which includes a 0.5% buffer over the PRA’s ultimate expectation of 0.5% as published in September 2019) rather than our current level of 13%/0.67% depends on economic conditions but would have been £80m at 31 December 2019, after allowing for the TMTP and tax offset.


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A similar structure is used to convert callable bonds, issued by a wholly owned SPE, Just Re2 Ltd, into structured notes for inclusion in the matching portfolio, but with the credit rating based upon the external ratings of the underlying bonds.

PLACL does not include structured callable bonds and lifetime mortgages in its Matching Adjustment.

The following table sets out further information on the Matching Adjustment in JRL and PLACL (PLACL net of reinsurance). 31 December 2019 31 December 2018 JRL PLACL JRL PLACL Matching Adjustment in bps 154bps 92bps 162bps 128bps Value of Matching Adjustment (£m) £2,425m £254m £2,503m £345m

The Matching Adjustment for JRL and PLACL has decreased (in bps) primarily due to decrease in credit spreads on corporate bonds during the period (average bond spread decreased by c.40bps in 2019). This is partially offset by an increase in spreads on the Lifetime Mortgage notes in JRL as a result of the restructure as at 31 December 2019.

The assets in the Matching Adjustment Portfolios for JRL and PLACL can be summarised as follows:

Partnership Life


Limited Limited

2019 2018 2019 2018 £m £m £m £m

LTM notes 5,255 5,651 - -

Callable bond notes 260 307 - -

Government bonds 240 254 128 43

Corporate bonds 7,003 6,182 2,590 2,554

Swaps (89) 18 (6) (2)

Cash and cash equivalents 455 231 126 86

-

Total assets 13,124 12,644 2,838 2,682

Volatility Adjustment The Volatility Adjustment (“VA”) is a flat adjustment to the basic risk-free interest rate term structure. It is provided by EIOPA and can be used where approval has been obtained from the PRA.

JRL has not applied to use the VA for its insurance or reinsurance obligations.

PLACL has approval to use the VA for certain insurance and reinsurance obligations. As at 31 December 2019, this has been used for policies that are in the Non Matching adjustment portfolio with a Best estimate liabilities value of £2.5bn.


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D.2.7 Transitional measures

The Solvency II Regulations allow two alternative types of transitional relief:

Risk-free interest rate term-structure transitional measure

The Group has not applied to use the risk-free interest rate-term structure transitional measure.

Transitional Measures on Technical Provisions (unaudited) The Transitional Measures on Technical Provisions (TMTP), referred to in Article 308d of the Solvency II Directive and Regulation 54 of the Solvency 2 Regulations has been used by the company to phase in the impact of moving from Solvency I to Solvency II for business written under the Solvency I regime. It reflects differences between the value of the Solvency I and Solvency II Technical Provisions. This includes the introduction of the Risk Margin under Solvency II.

JRL and PLACL obtained approval under written notices (2201404 and 11072 respectively) dated 22 December 2015 to use the TMTP.

The TMTP was calculated in line with these Regulations as at 31 December 2015. The TMTP has been recalculated as at 31 December 2019 in-line with the requirement to recalculate it every two years. The 31 December 2019 position reflects this recalculation.

The TMTP reported at 31 December 2019 has been reduced to reflect the amortisation required by condition 1 of Regulation 54. This condition requires the TMTP to be reduced by 1/16th of its original or recalculated value (i.e. the value as at 1 January 2016), by January 1st of each following year. For simplicity and consistency with the solvency ratio disclosed in the financial statements, we have applied this amortisation on 31 December 2019, one day earlier than required.

The table below shows the TMTP and the tax impact on TMTP for the Just Group, JRL and PLACL. During 2019, the TMTP in Just Group has increased by £17m (£14m net of tax).

31 December 2019

31 December 2018

£m £m

TMTP in JRL 1,091.6 1,085.1

TMTP in PLACL 799.4 788.5

TMTP in Just Group 1,891.0 1,873.6

Tax impact of TMTP (321.5) (189.3)

Note:

1) At 31 December 2019, £30m of TMTP in JRL represents the portion of TMTP which is subject to an accelerated amortisation (as discussed below).

In some of the forms (notably the s.12), the TMTP needs to be allocated across BEL and Risk Margin. The approach taken by the Group is to allocate to Risk Margin (in respect of business written before 31 December 2015 and thus subject to the TMTP) first, with any remaining TMTP to the BEL for the line of business “Other Life Insurance”.

On the 6 April 2018, the PRA approved JRL’s application to phase in a revision to Individual Capital Guidance via a requirement pursuant to section 55m(5)(a) of the Financial Services and Markets Act 2000. The requirement will result in an accelerated amortisation for a portion of TMTP over a period of three years up to 31 December 2020. This requirement has resulted in the 31 December 2019 TMTP being £120m lower than it would be on 1/16 per annum amortisation. By 31 December 2020, it is expected this requirement may result in the TMTP being £150m lower than it would be on a 1/16 per annum amortisation.


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D.3 Other liabilities

D.3.1 Other liabilities valuation as at 31 December 2019 The table below shows the composition of non-technical liabilities (Technical Provisions are considered in section D.2) in the Group and legal entity balance sheets as at 31 December 2019. Figures are presented on the solvency reporting basis, with statutory reporting valuation bases presented alongside for comparison purposes. The statutory accounts values are presented after reclassification to the solvency reporting format, but before any valuation adjustments. Reconciliations of the statutory basis to the IFRS Report and accounts for each company are provided in Section D.5.



Provisions other than technical provisions

1.8 1.8 0.5 0.5 - -

Deposits from reinsurers 935.5 3,353.2 935.5 935.5 - 2,417.7

Deferred tax liabilities - 26.3 - 6.9 7.7 -

Derivatives 248.4 248.4 218.2 218.2 76.1 76.1

Debts owed to credit institutions

126.2 126.2 126.2 126.2 - -

Insurance & intermediaries payables

1.6 1.6 1.2 1.2 0.3 0.3

Reinsurance payables 7.0 7.0 7.0 7.0 0.1 0.1

Payables (trade, not insurance)

23.9 74.1 70.3 70.3 40.4 39.8

Subordinated liabilities 684.5 674.3 487.3 481.3 166.8 166.0

Total liabilities (excluding Technical Provisions)

2,028.9 4,512.9 1,846.2 1,847.1 291.4 2,700.0

Total liabilities (including Technical Provisions)

21,178.7 23,533.3 16,041.4 15,754.2 5,246.0 7,743.0


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Provisions other than technical provisions

0.7 0.7 0.5 0.5 - -

Deposits from reinsurers 1,407.5 3,851.0 1,407.5 1,407.5 - 2,443.5

Deferred tax liabilities 20.5 32.2 24.8 9.4 8.4 -

Derivatives 178.3 178.3 118.2 118.2 57.8 57.8

Debts owed to credit institutions

15.9 15.9 15.7 15.7 0.2 0.2

Insurance & intermediaries payables

1.1 1.7 0.8 0.8 0.7 0.7

Reinsurance payables 6.4 6.4 6.0 6.0 0.4 0.4

Payables (trade, not insurance)

80.3 102.6 75.9 75.9 20.9 21.0


Total liabilities (excluding Technical Provisions)

2,300.6 4,776.8 2,102.4 2,089.6 196.0 2,630.9

Total liabilities (including Technical Provisions)

19,437.7 22,231.4 14,328.1 14,492.0 5,107.4 7,641.0

D.3.2 Valuation for solvency purposes

The Solvency II valuation policies relevant to the Group are as follows: Contingent liabilities

For Solvency II reporting, the Group’s policy is to consider whether any material contingent liability exists. For any contingent liability that does exist, risk weighted outcomes are applied to the set of values of the potential liability to derive a single liability valuation for inclusion in the solvency reporting balance sheet.

Contingent liabilities are only reported on the IFRS balance sheet if they are probable and material in size. Where the event is less than probable, the item is disclosed within narrative.

Contingent liabilities at 31 December 2019 in the IFRS basis annual report and accounts for Just Group plc represent the outstanding contingent consideration on the acquisition of Corinthian Group Limited in 2018 of £0.2m (2018: £0.3m). The Group has received an enquiry from HMRC with respect to the withholding tax treatment of amounts associated with financial reinsurance. While the outcome of such enquiries cannot be predicted with certainty, the Group believes the ultimate outcome will not have a material adverse effect on the Group’s financial condition, results of operations, or cash flows.

Deposits from reinsurers

The Just Group balance sheet includes liabilities in respect of amounts payable to reinsurers through reinsurance deposit back arrangements.

These cash flows are fixed at outset and valued in accordance with the terms of the agreement, where this is specified, and where there is provision for netting of the reinsurance recoverable against the deposit in the event that an underwriting year is recaptured.

The ex-Just Retirement finance reinsurance treaties have these provisions. It should be noted that the reinsurance recoverable amount is set equal to the value of the deposit in line with the financing nature of this reinsurance and anticipating that underwriting years will eventually be recaptured.


83

The IFRS and SII balance sheet treatments for reinsurance treaties with deposit back arrangements are described in Section D.1.2 “Reinsurance recoverables.”

In addition to the deposits received from reinsurers recognised on the Solvency II balance sheet, certain reinsurance arrangements give rise to deposits from reinsurers that are not included as described below:

• PLACL has an agreement with two reinsurers whereby financial assets arising from the payment of reinsurance premiums, less the repayment of claims, in relation to specific treaties, are legally and physically deposited back. Although the funds are managed by PLACL (as it controls the investment of the asset), no future benefits accrue to PLACL as any returns on the deposits are paid to reinsurers. Consequently the deposits are not recognised as assets of PLACL and the investment income they produce does not accrue to PLACL. The value at 31 December 2019 was £200.3m (2018: £191.6m).

• PLACL also has an agreement with one reinsurer whereby assets equal to the reinsurer’s full obligation under the treaty are deposited into a ring-fenced collateral account. PLACL has first claim over these assets should the reinsurer default, but as PLACL has no control over these funds and does not accrue any future benefit, this fund is not recognised as an asset of PLACL. The value at 31 December 2019 was £279.6m (2018: £272.8).

Derivative liabilities Derivative liabilities are valued on an equivalent basis to derivative assets as described in section D.1.2 above.

Debts owed to credit institutions For Solvency II, loans and borrowings are recognised at fair value, net of transaction costs. No adjustment is made for changes in the value of own credit risk.

IFRS reporting is at amortised cost with no difference in value to solvency reporting as the interest payments on the loans are at floating rate.

Other Financial liabilities including subordinated debt All financial liabilities, including subordinated debt, are held at fair value in the Solvency II reporting balance sheet. The subordinated debt is adjusted to be included as capital in Own funds.

The fair value of issued debt is marked-to-model based on a current market premium for UK insurance entities based on a basket of listed corporate bonds and a company specific premium fixed at the time of issuance of the tranche of debt.

Solvency II regulations preclude adjustment for own-credit risk in the liabilities. Where appropriate, the fair value of financial liabilities in the Solvency II balance sheet includes an adjustment for own risk.

For IFRS reporting these liabilities are recognised at amortised cost, as a permissible option under IAS 39.

Where reinsurance contracts entered into by the Group are structured to provide financing components to be repaid in future periods, such amounts, classified as “reinsurance finance” and included as financial liabilities in the IFRS balance sheet at their contractual values, are included in technical provisions under Solvency II.

Insurance intermediaries and reinsurance payables Insurance intermediaries and reinsurance payables are short-term payables, for which the time value of money does not have a material impact. Therefore the value for solvency II reporting purposes is equal to their book value. Solvency II regulations preclude adjustment for own credit risk in the liabilities. Currently no adjustment for own credit risk is included in the measurement of these liabilities. If, in the future such an adjustment is included for IFRS liability measurement, the effect of the adjustment will need to be removed for the purpose of solvency II reporting (Solvency II Delegated Regulation Article 14). As short-term payables of short duration, the carrying value represents the value at which the liabilities could be exchanged with knowledgeable willing part ies in an arm’s length transaction and therefore meets the requirement of Solvency II Directive Article 75. Leases

The Group leases a number of properties under operating leases. The future minimum lease payments payable over the remaining terms of non-cancellable operating leases total £12.8m (2018: £13.3m) of which £4.4m (2018: £2.4m) falls due within one year.


84

Pension benefit obligations

Just Group does not have any material obligations in respect of defined contribution pension plans, other long-term employee benefits or termination benefits. Contributions to Just’s defined contribution pension schemes are expensed when due. Just does not operate a defined benefit pension scheme.

D.4 Alternative methods for valuation

JRL, PLACL and Just Group hold certain financial investments and liabilities for which the markets are not active comprising:

• Residential and commercial loans secured by mortgages

• Infrastructure private placement bonds and other loans

• Derivative assets and liabilities

• Holdings in liquidity and unit-linked funds and other financial investments

• Subordinated debt liabilities

When the markets are not active, there is generally no or limited observable market data to account for financial investments at fair value. In these cases, the fair value is determined using alternative valuation techniques, consistent with IFRS reporting and in accordance with Article 10 of the Delegated Regulation.

The determination of whether an active market exists for a financial investment requires management’s judgement.

There is a hierarchy of three methods to value investments at fair value in the following order: 1. Current bid prices to value any investments with quoted prices 2. Actively traded investments without quoted prices are valued using prices provided by third parties 3. If there is no active established market for an investment or financial liability, the Group applies an

appropriate valuation technique such as discounted cash flow analysis, i.e. Marked-to-Model.

The valuation technique is chosen with the objective of arriving at a fair value measurement which reflects the price at which an orderly transaction would take place between market participants on the measurement date.

The valuation techniques include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, and discounted cash flow analysis.

The valuation techniques may include a number of assumptions relating to variables such as credit risk and interest rates and, for loans secured by mortgages, mortality, future expenses, voluntary redemptions and house price assumptions. Valuation of subordinated debt uses current prices of actively traded corporate debt of other insurance companies. Changes in assumptions relating to these variables impact the reported fair value of these financial instruments positively or negatively.

As can be seen above, the default valuation method is to use quoted market prices in active markets. This method is used extensively for bonds and other fixed income securities.

Investments which are actively traded but for which there are no quoted prices, or prices are provided by third parties instead, include holdings in liquidity and unit-linked funds.

It is Just Group’s policy that if the market for a financial investment or liability is not active, the fair value must be determined using alternative valuation techniques. The Group’s over the counter derivatives and residential and commercial mortgage portfolios are not quoted on active markets, and consequently fall into this category. Whilst the markets for Just Group’s and PLACL’s external subordinated debt have been judged to be active, the internal group subordinated debt that does not have a direct back-to-back relationship to the external debt has no active market to provide current market values as at 31 December 2019. In these circumstances, fair values are determined by using quotations from independent third parties or internally developed valuation models. These models utilise an income approach with market observable inputs, with conversion of projected future cash flows into a single current amount. These valuation techniques take into consideration valuation uncertainty and may include a number of assumptions relating to variables such as credit risk and interest rates. Where possible, the adequacy of valuations made using alternative valuation techniques are compared against experience.

The extent of any losses due to default is closely monitored; at present there is no indication that allowance for default within investment valuations is not adequate.


85

Total financial investments at 31 December analysed into the hierarchy of valuation methods explained above, are as follows:



Level 1 2,511.8 2,516.8 1,658.0 1,658.0 771.4 771.4

Level 2 8,796.5 8,869.9 6,175.3 6,175.3 2,667.0 2,667.0

Level 3 10,127.2 10,151.8 8,144.2 8,144.2 1,992.7 1,992.7

Total financial investments 21,435.5 21,538.5 15,977.5 15,977.5 5,431.1 5,431.1

Partnership Life


Just Group plc Limited Limited Solvency Statutory Solvency Statutory Solvency Statutory


Level 1 1,959.5 1,962.5 1,016.4 1,016.4 664.7 664.7

Level 2 7,662.8 7,707.9 5,120.8 5,120.8 2,676.6 2,676.6

Level 3 9,092.4 9,097.2 7,252.7 7,252.7 1,847.1 1,847.1

Total financial investments 18,714.7 18,767.6 13,389.9 13,389.9 5,188.4 5,188.4


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D.5 Other information

D.5.1 Reconciliations to IFRS statutory accounts

Just Group plc

Statement of financial position At 31 December 2019

R&A ref.

R&A IFRS value

Reclassifi-cations Financing

Investment contracts Collateral

Insurance balances

not overdue

Deconsolida-tion of

Financial participations

IFRS value in SII

format

SII basis

£m £m £m £m £m £m £m £m £m Intangible assets 13 154.4 - - - - - - 154.4 -

Property, plant and equipment 14 26.8 - - - - - - 26.8

26.7

Investment in joint ventures and associates - - - - - - - -

6.1

Financial investments 15 21,606.0 - - - 63.3 - (130.8) 21,538.5

21,435.5

Reinsurance assets1 22 3,732.0 - - - - - - 3,732.0

1,195.2

Deferred tax assets 17 11.5 - - - - - - 11.5

63.0

Current tax assets

- - - - - - - - -

Prepayments and accrued income

70.6 (70.6) - - - - - -

-

Insurance and other receivables 18 25.5 70.6 - - - (62.3) 101.1 134.9

121.5

Cash and cash equivalents 19 267.0 - - - - - (10.8) 256.2

237.5

Own shares directly held - - - - - - - -

6.0

Total assets 25,893.8 - - - 63.3 (62.3) (40.5) 25,854.3 23,091.5

Insurance liabilities* 22 19,003.7 - 14.5 54.0 - (51.8) - 19,020.4

19,149.8

Deposits from reinsurers1 - 3,353.2 - - - - - 3,353.2

935.5

Investment contract liabilities 23 54.0 - - (54.0) - - - -

-

Loans and borrowings 24 660.0 - 14.3 - - - - 674.3

684.5

Lease liabilities 25 12.4 (12.4) - - - - - - -

Other financial liabilities1 26 3,678.9 (3,601.5) (14.5) - 63.3 - - 126.2

126.2

Derivatives - 248.4 - - - - - 248.4 248.4

Deferred tax liabilities 17 26.3 - - - - - - 26.3

-

Other provisions 29 1.8 - - - - - - 1.8 1.8

Current tax liabilities

10.2 (10.2) - - - - - -

-

Accruals and deferred income

52.9 (42.4) - - - (10.5) - -

-

Insurance and other payables 30 72.6 64.9 (14.3) - - - (40.5) 82.7

32.5

Total liabilities 23,572.8 - - - 63.3 (62.3) (40.5) 23,533.3 21,178.7

Excess of assets over liabilities 2,321.0 -

-

- - 2,321.0

1,912.8

* The risk margin in JRL and transitional measures in JRL and PLACL within technical provisions included in Insurance liabilities are unaudited 1 As explained in Sections D.1.2 and D.3.2, the PLACL SII balance sheet follows a netting off approach for the treatment of reinsurance contracts with deposit back arrangements.


87



R&A ref.

R&A IFRS value Reclassifications Financing

Investment contracts Collateral

Insurance balances

not overdue

IFRS value in

SII format

SII basis

£m £m £m £m £m £m £m

£m

Property, plant and equipment 10 17.2 - - - - - 17.2

17.2

Investment in group undertakings 30 112.7 (112.7) - - - - -

-

Financial investments 11 15,904.4 9.8 - - 63.3 - 15,977.5 15,977.4

Reinsurance assets 23 809.0 - - - - - 809.0 690.5

Deferred tax assets 13 - - - - - - - 64.6

Prepayments and accrued income

62.5 (62.5) - - - - -

-

Insurance and other receivables 14 80.6 165.4 - - - (62.3) 183.7

183.7

Cash and cash equivalents 15 200.1 - - - - - 200.1

200.1

Total assets 17,186.5 - - - 63.3 (62.3) 17,187.5 17,133.6

Insurance liabilities* 18 13,890.5 - 14.5 54.0 - (51.9) 13,907.1 14,195.2

Deposits from reinsurers - 935.5 - - - - 935.5

935.5

Investment contract liabilities 19 54.0 - - (54.0) - - -

-

Loans and borrowings 20 474.4 - 6.9 - - - 481.3 487.3

Other financial liabilities 21 1,231.0 (1,153.6) (14.5) - 63.3 - 126.2

126.2

Derivatives - 218.2 - - - - 218.2 218.2

Deferred tax liabilities 13 6.9 - - - - - 6.9 -

Other provisions 24 0.5 - - - - - 0.5 0.5

Current tax liabilities 7.8 (7.8) - - - - - -

Accruals and deferred income

6.9 (6.9) - - - - -

-

Insurance and other payables 25 81.2 14.6 (6.9) - - (10.4) 78.5

78.5

Total liabilities 15,753.2 - - - 63.3 (62.3) 15,754.2 16,041.4

Excess of assets over liabilities 1,433.3 - - - - - 1,433.3 1,092.2


88



R&A ref. R&A IFRS value Reclassifications Financing

IFRS value in SII format

SII basis

£m £m £m £m £m Intangible assets 11 2.3 - - 2.3 -

Financial investments 12 5,431.1 - - 5,431.1 5,431.1

Reinsurance assets1 19 2,923.0 - - 2,923.0 504.7

Deferred tax assets 14 7.1 - - 7.1 -

Prepayments and accrued income 0.1 (0.1) - -

-

Insurance and other receivables 15 16.0 0.1 - 16.1

20.1

Cash and cash equivalents 16 30.0 - - 30.0

30.0

Total assets 8,409.6 - - 8,409.6 5,985.9

Insurance liabilities* 19 5,043.0 - - 5,043.0 4,954.6

Deposits from reinsurers1

- 2,417.7 - 2,417.7

-

Derivatives - 76.1 - 76.1 76.1

Loans and borrowings 20 160.0 - 6.0 166.0 166.8

Other financial liabilities1 21 2,493.8 (2,493.8) - -

-

Deferred tax liabilities

- - - - 7.7

Current tax liabilities 0.9 (0.9) - - -

Accruals and deferred income 7.4 (7.4) - -

-

Insurance and other payables 24 37.9 8.3 (6.0) 40.2

40.8

Total liabilities 7,743.0 - - 7,743.0 5,246.0

Excess of assets over liabilities 666.6 - - 666.6

739.9

* The risk margin in JRL and transitional measures in JRL and PLACL within technical provisions included in Insurance liabilities are unaudited 1 As explained in Sections D 1.2 and D 3.2, the PLACL SII balance sheet follows a netting off approach for the treatment of reinsurance contracts with deposit back arrangements.


89

Chapter E contents

E. Capital Management ........................................................................................................ 90 E.1 Basic Own funds ............................................................................................................... 92

E.1.1 Management of Own Funds ................................................................................... 92 E.1.2 Own funds structure ................................................................................................. 95 E.1.3 Eligible own funds to meet SCR and MCR ............................................................ 97 E.1.4 Equity reconciliation between statutory and Solvency II valuations ........... 99

E.2 Solvency Capital Requirement and Minimum Capital Requirement .................. 100 E.2.1 Solvency Capital Coverage ratios ........................................................................ 100 E.2.2 Solvency Capital Requirement ............................................................................. 100 E.2.3 Minimum Consolidated Group Solvency Capital Requirement .................... 102 E.2.4 Change in MCR and SCR over the reporting period ......................................... 102

E.3 Use of the duration-based equity risk sub-module in the calculation of the Solvency Capital Requirement ........................................................................................... 103 E.4 Differences between the standard formula and any internal model used ..... 103

E.4.1 Scope and purpose of Internal Model ................................................................ 103 E.4.2 Internal Model Methodology ................................................................................ 103 E.4.3 Internal Model data appropriateness ................................................................ 103 E.4.4 Differences between the standard formula and internal model used ...... 104

E.5 Non-compliance with the Minimum Capital Requirement and non-compliance with the Solvency Capital Requirement .......................................................................... 105


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E. Capital Management

This chapter provides information on the Own Funds held by Just Group, JRL and PLACL, and on the components of their Solvency Capital Requirements. It then considers the adequacy of Own Funds coverage of the capital requirement during the period.

Finally it describes JRL's Internal Model and its uses. JRL obtained approval for use of its Internal Model for calculation of its SCR in December 2015.

This section is audited with the exception of the calculation of Solvency Capital Requirement in JRL and at Just Group level. Within Own Funds, the calculation of risk margin in JRL and at Just Group level and Transitional Measures on Technical Provisions (“TMTP”) in JRL, PLACL and at Just Group level are unaudited.

The solvency capital coverage ratios (measured as the Eligible Own Funds divided by Solvency Capital Requirement divided by Eligible Own Funds) for Just Group, JRL and PLACL are a key metric in the management of their financial position. The Boards of Just Group, JRL and PLACL have risk appetite limits and tolerances for the solvency levels, and monitor these regularly.

The key solvency metrics for Just Group, JRL and PLACL as at 31 December 2019 are presented in the table below:

Partnership Life



2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m

Eligible Own Funds 2,561.7 2,284.0 1,549.8 1,402.9 906.7 738.0

SCR 1,813.7 1,588.6 1,268.0 1,055.5 509.8 511.7

Excess Own Funds 748.0 695.4 281.8 347.4 396.9 226.3

Solvency Capital Coverage 141% 144% 122% 133% 178% 144%

The Group manages capital on a regulatory basis. Since 1 January 2016, the Group has been 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 Group and its regulated subsidiaries 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 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.

In December 2015, Just Retirement Group plc and JRL received approval to calculate their Solvency II capital requirements using a full internal model. The capital requirement for the ex-Partnership business is assessed using the standard formula. Following the merger of Just Retirement and Partnership, the capital requirement for Just Group plc is calculated using a partial internal model.

The surplus of Own Funds over the SCR is called “Excess Own Funds” and this effectively acts as working capital for the Group. 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.

In assessing the Group and JRL capital positions, matters currently under development by the PRA have been taken into account.

In order to allow a Matching Adjustment (“MA”) under Solvency II on Lifetime Mortgage (“LTM”) assets, Just Retirement Limited (“JRL”) restructures its LTMs through a Special Purpose Entity (“SPE”). This SPE issues LTM notes to JRL that are MA-eligible due to their fixed cash flows (“the Senior Notes”). The equity tranche of this restructuring (“the Junior Note”) is not MA-eligible. As noted in section D.2.5, the regulatory environment for LTMs has evolved during 2019.

The Group and JRL continue to engage in discussion with the PRA around the SCR methodology treatment, including the requirements for how the EVT would be applied in stress scenarios as set out in PS19/19. The PRA expects firms’ SCR treatments to be updated for EVT under stress by 2021. At year-end 2019, our calculations indicate that the SCR currently held should be sufficient to pass an EVT in stress validation test. Therefore our previous planning assumption, of an increase in SCR of c£130m (unaudited) to allow for EVT under stress by 2021,


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has been removed. Uncertainty remains as to how the introduction of an EVT in stress will ultimately be implemented by the industry and Just. The ultimate impact will also depend on the economic conditions at the time.

Although there is still more work to do to fully adopt the 2021 regulatory requirements, the restructuring of the mortgage notes represents a significant step towards ensuring the continuing compliance of our matching adjustment approach with the PRA’s framework in a post EVT world. It also provides a basis for discussion with the PRA on the potential MA benefit of NNEG risk transfer transactions.

Just has an approved partial internal model to calculate the Group Solvency Capital Requirement, which it reviews for continued appropriateness. In 2020 it expects to review the model to reflect changes in the risk profile of the balance sheet arising from the requirements of PS 19/19 and other business developments.

Further details regarding the capital position for Just Group, JRL and PLACL are set out in section E.1 below.

Movement in excess own funds (unaudited)

The table below analyses the movement in Excess Own Funds for Just Group during 2019:

2019 2018

Just Group Excess Own Funds £m £m

Excess own funds at 1 January 695 596

Excess own funds at 1 January after notional recalculation of TMTP

577 596

Operating

In force run-off net of TMTP amortisation 150 125

New business strain (74) (160)

Finance cost (47) (31)

Expenses (44) (45)

Other 51 (54)

Total organic capital generation/(consumption) 36 (165)

Non-operating

Accelerated TMTP amortisation (42) (58)

SS3/17 - Regulatory change (219) -

Economic variance (56) (2)

RT1, T2 and equity issuance, net of costs 452 230

Ordinary dividend - (24)

Excess own funds at 31 December 748 577

Organic capital generation (unaudited)

Positive £36m of organic capital generation is a significant improvement on the £165m of capital consumption in 2018. This reflects focussed new business pricing discipline, cost reductions and reinsurance which have halved new business strain. In-force surplus has continued to increase as the size of the in-force book grows, more than offsetting the increase in finance cost from the new debt instruments issued in the year. The operating “other” entry in the movement in excess own funds table includes the impact of basis changes, the expansion of DB reinsurance completed in August 2019, and internal model changes.

Regulatory adjustments (unaudited)

The updated regulatory expectations for equity release mortgages set out in SS3/17 and PS19/19 have had a significant impact on the Group’s capital position. Overall, the impact of these regulatory changes was a reduction in capital resources of £219m in 2019 with a further cost of £80m envisaged to fully meet the new requirements by end 2021.


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E.1 Basic Own funds

The table below shows the value and structure of basic own funds by tier for Just Group, JRL and PLACL as at 31 December 2019.

Partnership Life



2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m

Ordinary share capital 103.5 94.1 33.9 24.9 147.2 147.2

Share premium account 158.9 94.5 305.1 224.1 - -

Reconciliation reserve 1,288.2 1,505.9 438.6 700.9 542.7 483.2

Own shares (held directly) 6.0 6.2 - - - -

Minority interest (0.8) (0.6) - - - -

Solvency balance sheet 1,555.8 1,700.1 777.6 949.9 689.9 630.4

Own funds not eligible (0.5) (0.4) - - - -

Participations in other financial undertakings

(3.8) (4.0) - - - -

Own shares (held directly and indirectly)

(6.0) (6.2) - - - -

Minority interest 0.8 0.6 - - - -

Restricted Tier 1 294.0 - 250.0 - 50 -

Total Tier 1 1,840.3 1,690.1 1,027.6 949.9 739.9 630.4


Total Tier 2 445.9 356.2 332.0 300.8 166.8 107.6

Subordinated liabilities 238.6 233.7 155.3 152.2 - -

Deferred tax assets 63.0 - 64.6 - - -

Total Tier 3 301.6 233.7 219.9 152.2 - - Total Basic Own Funds 2,587.8 2,280.0 1,579.5 1,402.9 906.7 738.0

E.1.1 Management of Own Funds The management of capital in all Just Group companies, including JRL and PLACL, is governed by the Group's Capital Management Policy which describes the policies and responsibilities for managing and monitoring capital. The policy is also designed to describe the procedures for ongoing monitoring of the quality of Own Funds items as well as the forward-looking view of projected adequacy of Own Funds, and therefore their ongoing suitability for coverage of the Solvency Capital Requirements (SCR) and Minimum Capital Requirements (MCR) at entity and consolidated group levels. This ensures that the Group meets the requirements of Guideline 36 in the EIOPA Guidelines on System of Governance (EIOPA-BoS-14/253).

Medium term capital management plans covering a five-year time horizon are produced for JRL, PLACL and the Just Group on a regular basis, in order to meet the requirements of the Own Risk and Solvency Assessment (ORSA) and any other internal or external reporting processes.

A Capital Risk Appetite statement is produced and reviewed at least annually, and more frequently if the risk profile of the business changes materially.


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Capital positions of all companies are monitored on a timely basis in order to identify any deteriorations and to help plan any appropriate remedial actions. Across the Group, an assessment is maintained of the contingent capital actions that could be deployed to restore capital positions in the event of a deterioration.

As part of the capital management policy, the Group’s objective is that Own Funds items within each company are of sufficient quality, structured and managed so as not to lead to tiering restrictions in determining SCR and MCR coverage.

The Group and JRL capital positions can be adversely affected by a number of factors, in particular factors that erode the Group and JRL’s capital resources and/or which impact the quantum of risk to which the Group and JRL are exposed. In addition, any event which erodes current profitability and is expected to reduce future profitability and/or make profitability more volatile could impact the Group’s capital position, which in turn could have a negative effect on the Group and JRL’s results of operations.

In assessing the Group and JRL capital positions, matters currently under development by the PRA have been taken into account.

In order to allow a Matching Adjustment (“MA”) under Solvency II on Lifetime Mortgage (“LTM”) assets, JRL restructures its LTMs through a special purpose entity (“SPE”). This SPE issues LTM notes to JRL that are MA-eligible due to their fixed cash flows (“the Senior notes”). The equity tranche of this restructuring (“the Junior note”) is not MA-eligible.

The regulatory environment for LTMs has evolved since the adoption of Solvency II through the publication of SS3/17 “Solvency II: Equity Release Mortgages”, and PS19/19 “Solvency II: Equity Release Mortgages – part 2”. SS3/17, originally issued in July 2017 and subsequently updated by PS31/18 “Solvency II: Equity Release Mortgages” issued in December 2018, became effective in December 2019 and introduced a new key element, the effective value test (“EVT”). This acts as a regulatory diagnostic validation test which the PRA expects firms to conduct as a means of monitoring compliance with Solvency II requirements relating to the calculation of the Fundamental spread (“FS”) and thus the MA in the case where MA liabilities are matched with restructured ERMs.

The minimum EVT parameters applicable at December 2021 were published in September 2019: 13% volatility and a 0.5% deferment rate. The PRA will update the minimum parameterisation every six months (in March and September) and PS19/19 confirmed the link between the deferment rate and long-term real interest rates. This link helps remove some of the potential interest rate volatility introduced by the EVT although in practice there will be exposure to the lag from the half yearly updates. An additional source of uncertainty arises from the PRA’s judgment over the parameterisation. For example the PRA has indicated that they would normally expect to update the deferment rate in 50bp steps and they would not expect the deferment rate to be negative so the link with real interest rates is not absolute. PS19/19 established that firms could use a phasing-in period, whereby a minimum deferment rate of 0% could be used until 31 December 2021 with no PRA approval required to do so.

The Group and JRL regularly engage with the PRA on these regulatory developments. The updated regulatory framework set out in SS3/17 and PS19/19 prompted Just to restructure and update its internal LTM securitisation (which had been designed prior to SS3/17) to better meet the revised regulatory expectations. This included a significant undertaking in the second half of 2019 to update the methodology used to determine the internal rating, amount and spread on the LTM notes used to enable LTM assets to be eligible for matching adjustment. A restructure was effected on 31 December 2019 which involved a redemption of existing notes, a restructuring and an issuance of new LTM notes. JRL now maintains a single pool of LTMs tranched into 11 internally-rated and MA-eligible securitised senior notes held within JRL’s MA portfolio, and one enlarged non-MA-eligible Junior note held in JRL’s non-MA portfolio. These notes will be regularly incremented for new LTM originations.

The restructure removes much of the uncertainty on the level of MA relating to LTMs in the regulatory balance sheet. Following the restructure Just passes the PRA EVT with a material buffer (0.67%) over the minimum deferment rate of zero required at 31 December 2019 and volatility of 13% in line with the requirement. The restructuring has led to a reduction in MA which has resulted in an increase in technical provisions of approximately £300m of which approximately 44% relates to pre-2016 business and hence is partly offset by an increase in the TMTP and tax effects. The restructure has effectively accelerated recognition of some of the expected impact of complying with the new regulations applicable in 2021. The expected cost of satisfying the EVT at a parameterisation of 13%/1% (which includes a 0.5% buffer over the PRA’s ultimate expectation of 0.5% as published in September 2019) rather than our current level of 13%/0.67% depends on economic conditions but would have been £80m at 31 December 2019, after allowing for the TMTP and tax offset.

The Group and JRL continue to engage in discussion with the PRA around their SCR methodology treatment, including the requirements for how the EVT would be applied in stress scenarios as set out in PS19/19. The PRA expects firms’ SCR treatments to be updated for EVT under stress by 2021. At year-end 2019, our calculations


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indicate that the SCR currently held should be sufficient to pass an EVT in stress validation test. Therefore our previous planning assumption, of an increase in SCR of c.£130m (unaudited) to allow for EVT under stress by 2021, has been removed. Uncertainty remains as to how the introduction of an EVT in stress will ultimately be implemented by the industry and Just. The ultimate impact will also depend on the economic conditions at the time.

Although there is still more work to do to fully adopt the 2021 regulatory requirements, the restructuring of the mortgage notes represents a significant step towards ensuring the continuing compliance of our matching adjustment approach with the PRA’s framework in a post EVT world. It also provides a basis for discussion with the PRA on the potential MA benefit of NNEG risk transfer transactions.

Just has an approved partial internal model to calculate the Group solvency capital Requirement, which it reviews for continued appropriateness. In 2020 it expects to review the model to reflect changes in the risk profile of the balance sheet arising from the requirements of PS19/19 and other business developments.

As a result of the matters described above, a risk remains that the Group and JRL could, in order to better manage their capital position, further reduce new business volumes or close to new business. These are decisions that the Board keeps under regular review as it continuously monitors the impact of new business on the firm’s actual and future expected capital position.

Given that the Group and JRL continue to experience a high level of regulatory activity and intense regulatory supervision, there is also the risk of PRA intervention, not limited to the matters described in the paragraphs above, which could negatively impact on the Group and JRL capital positions.

The Group has completed a number of actions in relation to capital during the year:

• In March 2019 the Group raised a total of £375m new capital (before issue costs), through a £300m Restricted tier 1 notes issuance and through a £75m equity placing, which can be used to support the Group’s capital requirements.

• In August 2019 the Group entered into a reinsurance transaction with RGA to reduce Just Retirement Limited’s exposure to longevity risk (and the associated capital requirements) for DB business written since the implementation of solvency II, which is effective from 1 July 2019.

• In October 2019 the Group raised further new capital through the issue of £125m 8.125% Tier 2 loan notes (before issue costs) and completed a tender for £37m of the existing £100m 9.5% Partnership Tier 2 notes. the Group called the remaining £67m partnership Tier 2 notes at their first call date in March 2020, resulting in a net increase in Tier 2 capital of £25m (before costs).

• The Group has significantly reduced new business strain through a planned reduction in new business volumes, re-pricing and cost reductions.

The Group and JRL also recognise the need to continue to strengthen their capital positions and has a range of potential actions available. These include:

• Reduction in new business strain is planned through DB partner business which is much less capital intensive.

• Additional reinsurance of existing business to release risk margin and SCR in respect of that business.

• On-going cost savings are planned with a target to eliminate expense overruns by the end of 2021.

• The Group and JRL remain in discussion with the PRA to establish satisfactory regulatory treatment for the NNEG risk transfer transactions already completed. There is also the potential to pursue further NNEG risk transfer transactions.

• New business strain could be further reduced by reducing the volume of new business written or by changing the mix of new business.

• The Board continues to review the optimal capital mix, subject to market liquidity and availability. For example, the Group currently has a material amount of unutilised tier 2 debt capacity.

The Board recognises that the successful implementation of some of these potential or planned actions are not wholly within the control of the Group.

Further information on the matters considered by the Directors at 31 December 2019 in relation to capital and going concern is included in Section D. Valuation for Solvency Purposes.


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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 requirements;

• to safeguard the Group’s ability to continue as a going concern;

• to continue to provide returns for shareholders and benefits for other stakeholders; and

• to provide an adequate return to shareholders by pricing insurance and investment contracts commensurately with the level of risk.

E.1.2 Own funds structure

Basic Own Funds analysis The quality of basic own funds is described using the regulatory capital tiering analysis whereby Tier 1 is the highest quality and Tier 3 the lowest, based on the attributes of availability and sustainability of the various forms of capital funding.

The basic own funds of Just Group, JRL and PLACL comprised mainly Tier 1 capital as shown in the table above, representing the ordinary share capital, share premium and reconciliation reserve of each company. Ordinary share capital is classified as unrestricted as there are no restrictions on cancellation of the Companies’ dividends prior to payment, as set out in the Companies’ Articles of Association. The reconciliation reserve represents the total excess of Solvency II assets over liabilities reduced by the Other Basic Own Funds items that have been separately identified on the Own Funds QRT being; share capital and share premium.

Tier 1 unrestricted capital includes the highest quality assets with quality features such as permanence, subordination, undated, absence of redemption incentives, mandatory costs and encumbrances.

The remainder mainly represented subordinated liabilities all of which are classified as Tier 2 or Tier 3, and comprised:

Entity Description Tier 2 / Tier 3

Internal / external

Issue date / Redemption date

Solvency II value

Just Group plc 9.375% £300m notes

Tier 1 External Mar 2019 / perpetual £294.0m

Just Group plc 8.125% £125m notes

Tier 2 External Oct 2019 / Oct 2029 £124.0m

Just Group plc 9% £250m notes Tier 2 External Oct 2016 / Oct 2026 £255.8m

Just Group plc 3.5% £230m notes Tier 3 External Feb 2018 / Feb 2025 £238.6m

JRL 9% £250m notes Tier 2 Internal Oct 2016 / Oct 2026 £255.8m

JRL 10% £50m notes Tier 2 Internal Oct 2012 and May 2013 / Oct 2022

£51.2m

JRL 8.125% £25m notes Tier 2 Internal Oct 2019 / Oct 2029 £24.9m

JRL 3.5% £100m notes Tier 3 Internal May 2018 / Feb 2025 £103.5m

JRL 5% £50m notes Tier 3 Internal Dec 2018 / Feb 2025 £51.8m

PLACL 8.125% £100m notes

Tier 2 Internal Oct 2019 / Oct 2029 £99.6m

PLACL 9.5% £62.5m notes Tier 2 External March 2015 / March 2025 £67.2m

As noted in the table above, Just Group plc issued £250m of subordinated debt in October 2016. On the same date, JRL issued £250m of back to back debt to Just Group plc, enabling JRL to redeem £200m of debt previously held by Just Retirement (Holdings) Limited (“JRH”), leaving £50m outstanding. The JRH debt had been issued by JRL in tranches commencing in October 2012, including £30m in June 2016.


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The PLACL debt had initially been issued to Partnership Assurance Group plc in March 2015 in a back to back arrangement with PAG’s external debt issued at the same time. In April 2016, PLACL replaced PAG plc as the principal obligator for the externally held debt.

In February 2018, Just Group plc issued £230m of subordinated debt. In May 2018, JRL issued £100m of back to back debt to Just Group plc, and a further £50m of back to back debt to Just Group plc in December 2018.

In March 2019, Just Group plc issued £300m of Restricted Tier 1 capital, and raised a further £75m in equity before issuance costs. In April 2019 the Group on-lent the majority of this new capital down to its life companies to strengthen their solo balance sheets, through the issue of a £250m Restricted Tier 1 internal loan by JRL to Just Group plc and £50m Restricted Tier 1 internal loan by PLACL to Just Group plc, and through the issue of £50m new ordinary share capital by JRL. Furthermore, in October 2019, Just Group issued £125m of Tier 2 subordinated debt. £100m of the proceeds was passed down to PLACL to fund a tender offer (£37.5m of the PLACL 2015 notes accepted for purchase), and to refinance the remaining £62.5m PLACL 2015 Tier 2 notes, callable in March 2020. The remaining £25m Tier 2 was passed down to JRL.

In 2018 JRL issued £50m of new shares to its parent company, Just Retirement (Holdings) Limited, with a further £90m issued in 2019. In June 2016, PLACL issued £10m of ordinary shares at par to its immediate parent company, Partnership Group Holdings Limited. On the 18 February 2020 PLACL paid a dividend of £90m to Just Group plc and JRL issued a further £90m of new shares to its parent company, Just Retirement (Holdings) Limited.

Deferred tax assets

The table below presents the deferred tax asset balances included in the Solvency II balance sheets which are treated as Tier 3 capital in the context of deferred tax liability balances.

Partnership Life



2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m

Deferred Tax Asset 63.0 - 64.6 - - -

Deferred Tax Liability - (20.5) - (24.8) (7.7) (8.4)

The deferred tax balance represents the deferred tax balance on IFRS reporting basis adjusted by the tax effect recognised on SII balance sheet valuation adjustments:

• The IFRS deferred tax balance includes adjustments for transitional relief on migration to firstly UK GAAP and subsequently IFRS as the corporation tax basis.

• All SII valuation adjustments are tax effected including the Transitional Measure on Technical Provisions (TMTP) adjustment, except where adjustments are in respect of ‘capital items’, notably the reinsurance deficit account and the revaluation of the intra-group subordinated debt on JRL’s balance sheet.

The full amount of the deferred tax asset at 31 December 2019 of £63.0m at Just Group level and £64.6m in JRL has been recognised in the Solvency II balance sheet and basic own funds based on projected future taxable profits. The balance at Group level represents the deferred tax assets in JRL. As noted in section D.1.2, the measurement of deferred tax assets reflects the Group's expectations, at the end of the reporting period, as to the manner in which the carrying amount of its assets and liabilities will be recovered or settled, and are therefore expected to be available as basic own-fund items in accordance with Article 76(a)(iii) of the Solvency II delegated acts. As noted in section E.1.4, part of the value of the deferred tax assets is ineligible under Article 82 due to Tier 3 exceeding 15% of SCR.

Transitional relief

There was no transitional relief on capital items as the loans noted above comply with the Solvency II requirements to be counted as capital. Own funds are calculated after allowing 48 months of amortisation on transitional measures applied to technical provisions in both JRL and PLACL.


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Consolidation of Own Funds Consolidation of Own funds is in accordance with Method 1 ‘Accounting consolidation-based method’ as described in Article 230 of the Solvency II Directive. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are excluded from the date of disposal. Entities included in scope of consolidation are those entities in which the Group, directly or indirectly, has power to exercise control over the financial and operating policies in order to gain economic benefits.

Just Group has approval from the Prudential Regulation Authority (“PRA”) to exclude Just Retirement South Africa (“JRSA”) from its regulatory scope. As a result, adjustment is made to remove JRSA when comparing IFRS basis results with Solvency II basis.

Availability and transferability of own funds JRL’s and PLACL’s balance sheets include matching portfolios of assets and liabilities. Under the regulatory capital rules, there is a restriction on the transferability of assets out of the matching portfolio and into the non-matching portfolio. There are no restrictions other than meeting the eligibility criteria on transfers into the matching asset portfolio.

The matching portfolio of assets is carefully managed to ensure that liabilities are cash flow matched. The net asset value of matching assets less liabilities in each case was lower than their respective solvency capital requirements.

Just Group maintains an Employee Benefits Trust which holds Just Group plc shares and cash which are not considered transferable.

Dividends In 2019, the Group Board considered it appropriate not to pay a dividend to shareholder (2018 dividend: nil).

The JRL and PLACL Boards do not intend to distribute any profit to Group shareholders in respect of the period ended 31 December 2019. Ancillary Own funds

There are no ancillary Own funds in Just Group, JRL or PLACL at 31 December 2019.

E.1.3 Eligible own funds to meet SCR and MCR

Partnership Life



2019 2018 2019 2018 2019 2018

Available own funds £m £m £m £m £m £m

Total available own funds excluding other financial sectors

2,587.8 2,280.0 1,579.6 1,402.9 906.7 738.0

Total available own funds including other financial sectors

2,591.6 2,284.0

Eligible own funds

Total eligible own funds to cover SCR 2,561.7 2,284.0 1,549.8 1,402.9 906.7 738.0

Total eligible own funds to cover minimum Group SCR

1,929.1 1,768.4

Total eligible own funds to cover MCR 1,035.4 1,002.7 765.4 656.0

When assessing solvency against the Solvency Capital Requirement, the regulations require that Restricted Tier 1 capital is restricted to 20% of the total Tier 1 capital, with the excess treated as Tier 2. Tier 2 and Tier 3 combined is then restricted to 50% of the SCR, and Tier 3 to 15% of SCR.


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At Group level Tier 3 assets representing deferred tax assets amounting to £29.9m are in excess of 15% of SCR. At Group level this means that £271.7m of the total £301.6m Tier 3 capital is eligible to cover the consolidated Group SCR. Coverage of SCR is therefore represented by Tier 1 Unrestricted £1,550.1m; Tier 1 Restricted £294.0m, Tier 2 £445.9m and Tier 3 £271.7m totalling £2,561.7m. In 2018 there was no restriction:

In JRL, £55.6m (2018: £nil) of the Restricted Tier 1 capital is re-categorised as Tier 2 for SCR purposes given that it exceeds 20% of total Tier 1 capital. Of the Tier 3 capital, £29.8m is ineligible representing deferred tax assets in excess of the 15% of SCR. As a result, the eligible own funds to meet the SCR are comprised of Tier 1 Unrestricted £777.6m; Tier 1 Restricted £194.4m, Tier 2 £387.6m, and Tier 3 £190.2m. In 2018 no limits applied and the total eligible comprised Tier 1 Unrestricted £910.9m, Tier 2 £348.6m and Tier 3 £143.4m.

When assessing solvency against the Minimum Capital Requirement, the regulations require that Restricted Tier 1 capital is restricted to 20% of the total Tier 1 capital, with the excess treated as Tier 2, and that Tier 2 capital is restricted to 20% of the MCR. Tier 3 capital cannot be used.

For JRL, again Tier 2 capital of £55.6m (2018: £nil) of the Restricted Tier 1 capital is re-categorised as Tier 2. Of the Tier 2 capital, £63.4m (2018: £52.8m) (20% of MCR) of the total £387.6m (2018: £300.6m) available was eligible to meet the MCR. When combined with Tier 1 capital of £972.0m (2018: £949.9m), total eligible own funds to cover MCR totalled £1,035.4m (2018: £1,002.7m). The Tier 3 capital in 2019 of £220.0m is not eligible to meet MCR.

For PLACL there was no restriction on the total available Own Funds to meet the Solvency Capital Requirement at 31 December 2019, and hence the analysis by tier is as presented in section E.1.

When assessing solvency against the Minimum Capital Requirement for PLACL, Tier 2 capital of £25.5m (2018: £25.5m) (20% of MCR) of the total £166.8m (2018: £107.6m) available was eligible to meet the MCR. When combined with Unrestricted Tier 1 capital of £689.9m (2018: £630.4m) and Restricted Tier 1 capital of £50.0m (2018: £nil), total eligible own funds to cover MCR totalled £765.4m (2018: £656.0m).


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E.1.4 Equity reconciliation between statutory and Solvency II valuations

The table below shows the material differences between shareholders’ equity as presented in the respective companies' financial statements and the excess of assets over liabilities as calculated for solvency purposes presented in their Solvency II balance sheets.

Partnership Life



2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m

Statutory accounts - Shareholder funds

2,321.0 1,663.8 1,433.3 841.6 666.6 545.7

Deconsolidation of JRSA (6.8) (5.4) - - - -

Goodwill (34.1) (34.1) - - (1.3) (1.3)

Intangible assets (120.3) (137.0) - - (1.0) (1.0)

Risk margin (873.4) (850.7) (662.2) (646.9) (211.2) (203.8)

TMTP 1,891.0 1,873.6 1,091.6 1,085.1 799.4 788.5

Other valuation differences and impact on deferred tax

(1,270.6) (816.3) (770.5) (329.9) (512.6) (497.7)

Adjustment for own shares 6.0 6.2 - - - -

Solvency balance sheet - Excess Assets over Liabilities

1,912.8 1,700.1 1,092.2 949.9 739.9 630.4

Ineligible items (6.5) (6.6) - - - -

Subordinated debt 684.5 589.9 487.3 453.0 166.8 107.6

Minority interest 0.8 0.6 - - - -

Own funds 2,591.6 2,284.0 1,579.5 1,402.9 906.7 738.0

The material differences are described in the table below:

Adjustments between Shareholder funds and Excess of assets over liabilities on the Solvency reporting balance sheet:

Deconsolidation of JRSA Just Retirement South Africa is out of scope for regulatory reporting, as noted in section D.

Goodwill Goodwill in Just Group and PLACL’s IFRS statutory accounts has arisen on acquisition of subsidiaries. Goodwill assets are not recognisable under the solvency reporting valuation rules.

Intangible assets Just Group holds present value of in-force acquired business and other intangible assets, including software, on its IFRS balance sheet. These asset types have no value assigned for solvency reporting purposes.

Risk Margin Risk Margin is a requirement of Solvency II and not a feature of the statutory balance sheet. It is described further in section D.2.

TMTP The TMTP is a feature of the Solvency II balance sheet and not the statutory balance sheet. It is described further in section D.2.

Own shares Own shares held by the Group itself are presented as an asset on the Solvency II balance sheet and are removed in the calculation of own funds

Other valuation differences and impact on deferred taxes

This represents the other differences in Technical Provisions and other liabilities between the Statutory and Solvency II balance sheets. This includes the impact from the difference in discount rates, removal of IFRS margins for adverse deviation, difference in valuation of subordinated-debt, prepayment assets and reinsurance deficit account, and the impact on deferred tax. These are described further in section D.


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Additional adjustment between Excess of assets over liabilities on the Solvency reporting balance sheet and own funds:

Ineligible items Represents cash and own shares held in the Employee Benefits Trust

Subordinated debt Subordinated debt is revalued as noted in section D.3.2 and treated as a liability on the Solvency reporting balance sheet but it is then added to capital as an own funds item

E.2 Solvency Capital Requirement and Minimum Capital Requirement (The calculation and explanation of Solvency Capital Requirement in JRL and at Just Group level is unaudited)

E.2.1 Solvency Capital Coverage ratios The Solvency Capital Requirement (“SCR”) for Just Group, JRL and PLACL are quantified in the table below as at 31 December 2019. The Group consolidated minimum SCR for Just Group, and the Minimum Capital Requirement (“MCR”) for JRL and PLACL are also shown below:

Partnership Life



Minimum

2019 SCR Group SCR SCR MCR SCR MCR £m £m £m £m £m £m

Eligible Own funds 2,561.7 1,929.1 1,549.8 1,035.4 906.7 765.4

Capital Requirement 1,813.7 444.4 1,268.0 317.0 509.8 127.4

Excess Own funds 748.0 1,484.7 281.8 718.4 396.9 638.0

Coverage ratio % 141% 434% 122% 327% 178% 601%

Partnership Life



Minimum 2018 SCR Group SCR SCR MCR SCR MCR £m £m £m £m £m £m

Eligible Own funds 2,284.0 1,768.4 1,402.9 1,002.7 738.0 656.0

Capital Requirement 1,588.6 391.8 1,055.5 263.9 511.7 127.9

Excess Own funds 695.4 1,376.6 347.4 738.8 226.3 528.1

Coverage ratio % 144% 451% 133% 380% 144% 513%

E.2.2 Solvency Capital Requirement Just Group uses a Partial Internal Model to calculate its Solvency Capital Requirement (“SCR”), approved following the merger between JRG and PAG.

The Partial Internal Model comprises:

i) an approved internal model for the ex-Just Retirement Group of companies (“JRG”), where Just Retirement Limited is the sole insurance entity, and

ii) a Standard Formula result for the ex-Partnership Assurance Group of companies (“PAG”), where Partnership Life Assurance Company Limited is the sole insurance entity.

The Group intends to progress an internal model major change application for the ex-Partnership Assurance Group companies to use the Group’s internal model.


101

To derive the Partial Internal Model results for Just Group, the Standard Formula results for the PAG companies are added to the Internal Model results for the JRG companies, with components consolidated using Method 1-Consolidation method.

The Solvency II SCR is defined as the Value at Risk (“VaR”) of the change in basic own funds over a 1 year period at the 99.5% confidence level. This can be regarded as the capital required for the business to sustain a 1 in 200 year event and still be able to establish a regulatory balance sheet, including a Matching Adjustment.

As a result of the LTM restructure implemented on 31 December 2019 the changes described in section D2.5 that change the level of own funds overall, should by definition necessitate changes to the calculation of the SCR i.e. the changes in own funds over a 1 year period at the 99.5% confidence level.

The risks included in JRG’s model for which capital is held are: Property; Nominal interest rate; RPI inflation; Foreign exchange rates; Credit spread; Longevity; Withdrawal; Expense; and Operational.

The Solvency II Standard Formula is a calculation using a defined set of stresses that are set out in the Solvency II regulations. The stresses are split into “risk modules” and the risk modules into sub-risk modules. Credit can be taken for diversification between risks using a method and set of parameters defined by the regulations.

A breakdown of the Just Group, JRL and PLACL SCRs at 31 December 2019 by risk category as detailed in form S.25.03 is summarised in the following table:

Just Group plc Partial Internal Model

JRL Internal Model

PLACL Standard Formula

£m £m £m

Market 1,551 1,148 404

Counterparty Default 4 - 4

Life underwriting 960 740 220

Operational 91 35 22

Other risks - - -

Other adjustments 53 49 -

Sub-total pre-diversification 2,659 1,972 650

Diversification (564) (444) (119)

Sub-total post-diversification 2,095 1,528 531

Loss absorbing capacity of Deferred Tax & Non-insurance capital requirements

(281) (260) (21)

Solvency Capital Requirement 1,814 1,268 510

Loss Absorbing Capacity of Deferred Tax (LACDT) The maximum potential LACDT (loss absorbing capacity of deferred taxes) is calculated as 17% (long-term expected UK corporation tax rate) of the SCR prior to LACDT deduction. This maximum is restricted to 17% of future sources of profit and relevant tax liabilities, collectively referred to as LACDT support.

The sources contributing to LACDT support are:

• LTM equity tranche excess return: The margins expected to be released from the LTM securitisation as profit in the future. This is calculated as the risk-free present value of equity tranche cash flows, after allowing for the liabilities held outside the matching adjustment that are not backed by other assets. The excess return is assessed in the loss scenario that produces the SCR.

• SII base deferred tax asset: There is currently a deferred tax asset (DTA) on the base SII balance sheet due to differences in the valuation basis between IFRS (used for tax reporting) and SII. This reduces LACDT support because future profits are first used to justify the base DTA.

• Tax paid in the prior year: HMRC have specified that it is possible to carry-back to accounting periods ending in the 12 months prior to the valuation date. In the SCR loss scenario the tax charge from the previous accounting year is recovered.

• Tax due to be paid on current year profits: In the SCR loss scenario the year to date profit will be fully offset and the associated tax will no longer be paid.


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• Profits on future new business: This represents the profits expected to arise from new business written over the next 5 years following the loss scenario. Expected volumes and margins are set in line with the business plan, and then adjusted to reflect the change in environment following the loss scenario.

All internal model risks which are quantified as having a capital impact of more than 2.5% of the current JRL SCR are modelled within the calculation kernel.

At 31 December 2019, there are three identified risks which are included in the Internal Model but for which no capital is held: concentration risk, counterparty default risk and equity risk. These risks have been quantified as not exceeding the defined threshold.

E.2.3 Minimum Consolidated Group Solvency Capital Requirement The Minimum Consolidated Group Solvency Capital Requirement is a formulaic calculation prescribed by the regulations. It is the sum of the Minimum Capital Requirements for the insurance entities within the group. For each insurance entity the calculation compares the result of a calculation using the sum of i) defined proportions of the net of reinsurance Technical Provisions being 2.1% for ‘Other life’ and 0.7% for Unit-linked, and ii) a defined proportion (0.07%) of the Capital at Risk.

This is known as the “linear MCR”, which is then compared against a cap and floor. The cap and floor are based on defined proportions of the Solvency Capital Requirement. The upper limit is 45% of the SCR and the lower limit is 25% of the SCR.

The table below sets out the calculation and inputs:

Partnership Life



2019 2018 2019 2018 2019 2018 £m £m £m £m £m £m

Linear MCR 281.2 226.3 93.5 92.7

SCR 1,268.0 1,055.5 509.8 511.7

MCR cap (45% of SCR) 570.6 475.0 229.4 230.3

MCR floor (25% of SCR) 317.0 263.9 127.4 127.9

Minimum Capital Requirement 317.0 263.9 127.4 127.9

Group Consolidated Minimum SCR 444.4 391.8

For both JRL and PLACL, the floor of the corridor is the biting measure and therefore the MCR is equal to 25% of their respective SCRs.

E.2.4 Change in MCR and SCR over the reporting period For JRL, the increase in MCR and SCR is mainly due to new business written and market movements over the period.

For PLACL, the reduction in SCR and MCR since the previous year primarily reflect the unwind of inforce business and change in assumptions partly offset by market movements during the period.


103

E.3 Use of the duration-based equity risk sub-module in the calculation of the Solvency Capital Requirement (Unaudited)

Neither the Group nor its subsidiaries, JRL and PLACL, use the duration-based equity risk sub-module in the calculation of the SCR.

E.4 Differences between the standard formula and any internal model used (Unaudited)

E.4.1 Scope and purpose of Internal Model

Currently, Just Group operates an approved Partial Internal Model, where an internal model covers the ex-Just Retirement Group of companies and the ex-Partnership Assurance Group companies are currently outside its scope. The Group intends to progress an internal model major change application to reflect changes to the LTM note securitisation implemented to ensure we continue to meet PRA expectations set out in SS3/17 and for the ex-Partnership Assurance Group companies to use the Group’s internal model.

The internal model is applied to all relevant areas of the companies within its scope where capital considerations are part of the decision making process.

The Internal Model is used across the following categories:

• Capital and risk reporting/monitoring/management

• ORSA

• Business planning/strategy formulation/short term forecasting

• Strategic decisions

• Pricing

• New product development

• Risk mitigation assessment

• Investment strategy assessment

A register is maintained recording the specific occasions where the Internal Model is used across these categories.

E.4.2 Internal Model Methodology The Solvency Capital Requirement (“SCR”) is defined as the Value at Risk (“VaR”) of the change in Basic Own Funds (“BOF”) over 1 year at the 99.5th confidence level. The SCR is derived from the probability distribution forecast produced by the Internal model which assigns probabilities to changes in the BOF over 1 year. The probability distribution forecast is derived by calibrating risk distributions for the individual risk drivers. These are then combined using a copula to produce a number of scenarios. Changes in BOF with respect to the base balance sheet are calculated in each scenario and then ranked. The SCR is the change in BOF that relates to 99.5% on the probability distribution forecast.

The SCR is calibrated so as to ensure that all quantifiable risks to which we are exposed, are taken into account. It uses the same 60 year projection period as is used for the calculation of technical provisions.

The SCR is calculated on a going concern basis and anticipates new business expected to be written over the coming twelve months. With respect to existing business, it covers only unexpected losses.

E.4.3 Internal Model data appropriateness Data is an integral part of the Internal Model, specifically in the risk quantification and aggregation parts of the process. Risk quantification involves analysis of historical data to determine the probability distribution for the one-year variation in respect of each modelled risk. The historical data used is from market data sources, and where


104

applicable, internal data sources. Where historical data is limited or unreliable expert judgement is applied. All data sources used are those selected to be most appropriate by considering accuracy, granularity and completeness of the data. Where possible multiple data sources are considered to ensure that which is most appropriate is used.

Aggregation involves deriving a multivariate distribution of all the risks being modelled using a dependency structure consisting of a correlation matrix and a copula. The correlation matrix is derived using the same data sources as those used in the Risk Quantification process. Where expert judgement is used in this part, it is also used in setting the dependency between that risk and the others.

E.4.4 Differences between the standard formula and internal model used The ex-JRG Internal model represents a specific assessment of the risks faced by the ex-JRG business. A successful application to the PRA was made to use this model for regulatory reporting purposes, rather than use the generic Standard Formula model used by entities without approved Internal models.

The key comparisons between the Internal model used for the ex-JRG business and the Standard Formula methodology are as follows:

Modelling methodology

• The Standard Formula (“SF”) SCR is calculated as the Value at Risk (“VaR”) of the change in Basic Own Funds (“BOF”) over 1 year at the 99.5% confidence level. The SCR under the Internal Model (IM) is calculated under the same definition.

• The SF calculates individual SCR’s for each risk sub-module based on prescribed deterministic stresses. These individual sub-module SCR’s are aggregated to give the risk module SCR using defined correlation matrices. The risk module SCR’s are then aggregated to give the final SCR using another defined correlation matrix.

• The Internal Model produces a full probability distribution forecast of the change in basic own funds (“BOF”) over 1 year. This is derived by calibrating risk distributions for the individual risk drivers. These are then combined using a copula to produce a number of scenarios. Changes in BOF with respect to the base balance sheet are calculated in each scenario which are then ranked to produce the probability distribution forecast. The change in BOF that relates to 99.5% point of the distribution is the SCR.

Risk Quantification:

Longevity Risk

The Internal Model Longevity Risk calibration uses a stochastic model to capture trend (mortality improvement) and level (current assumptions) risk allowing for the age distribution of JRL’s policyholders and the concentrations in its risk e.g. relating to enhanced annuities.

This is considered more appropriate to the insurance business within JRL than the Standard Formula which uses a single deterministic stress across the whole portfolio of business.

Credit Risk

The credit risk calibrations in both SF and IM apply a stress across the whole spread curve, with a different stress for each issuer rating. The IM calibration also allows for sector (financial / non-financial).

This is considered more appropriate than the Standard Formula's approach of a single factor. The SF stress is deterministic, whereas the IM stress is defined by a distribution.

Property Risk

JRL is exposed to property risk via the No Negative Equity Guarantee on its lifetime mortgage products rather than being exposed to property values directly. The IM models property price volatility and house price inflation in addition to changes in property prices. This calculation is considered to be more appropriate than the Standard Formula approach.

Interest Rate Risk

The SF stresses define a shift up and down respectively, with the stress based on term.

The IM models interest rate shocks use Principal Component Analysis (“PCA”). This allows for more complex yield interactions across the whole yield curve by allowing for changes in the shape as well as level. SF prescribes a


105

“stress-up” and “stress-down” for Interest Rates, with the SCR for the sub-module being the largest as a result of the two deterministic shocks.

Withdrawal Risk

The SF withdrawal lapse risk module relates to the risk of withdrawal of insurance savings and life protection products. JRG’s exposure to lapse risk relates to the “pre-payment” risk associated with the lifetime mortgage products which is significantly different and not directly comparable.

Inflation Risk

In the IM, changes to the RPI inflation curve are modelled using Principal Component Analysis (“PCA”) which allows for changes in the shape and level of the inflation curve. Inflation risk is modelled for its impact on RPI linked annuities, investments and expenses. SF does not have an explicit inflation risk module, inflation is incorporated where appropriate amongst the other sub-risk modules.

Operational Risk

The IM models Operational Risk as an empirical loss distribution, derived using industry data and internal data regarding operational risk loss events. Additionally the Internal Model allows for diversification between Operational Risk and other risks, whereas for SF the Operational Risk capital is added directly to the Basic SCR without allowing for diversification. This is considered more appropriate than the SF approach which calculates Operational Risk based on the Basic SCR and Expenses, producing a single value.

Foreign Currency Exchange Risk

The IM models foreign currency exchange rate stresses using statistical distributions, allowing for up and down movements in the exchange rate. SF prescribes a “stress-up” and “stress-down” for each foreign currency exchange rate with the SCR for the sub-module being the largest as a result of the two deterministic shocks.

Counterparty Risk

A similar approach is used in assessing Counterparty Risk for the IM as is used for standard formula, which models Counterparty Risk using a loss given default / probability of default approach.

Diversification

Aggregation in the IM involves deriving a multivariate distribution of all the risks being modelled using a dependency structure consisting of a correlation matrix and a copula. This allows for a more appropriate modelling of diversification between risks than in the SF where a simple correlation matrix is used.

E.5 Non-compliance with the Minimum Capital Requirement and non-compliance with the Solvency Capital Requirement

Just Group, JRL and PLACL have all maintained sufficient capital to comply with the SCR and MCR requirements throughout 2019.

F.1.1 Just Group plc

31 December 2019

Quantitative Reporting Templates

S.02.01.02 Balance sheet

S.05.01.02 Premiums, claims and expenses by line of business

S.22.01.22 Impact of long term guarantees and transitional measures

S.23.01.22 Own funds

S.25.02.22 Solvency Capital Requirement - for undertakings on standard formula and a partial internal model

S.32.01.22 Undertakings in the scope of the group

106

F.1.1 Just Group plcS.02.01.02Balance sheet£000 Solvency II value

Assets C0010Intangible assets R0030 -Deferred tax assets R0040 63,044Pension benefit surplus R0050 -Property, plant & equipment held for own use R0060 26,651Investments (other than assets held for index-linked and unit-linked contracts) R0070 12,203,847

Property (other than for own use) R0080 -Holdings in related undertakings, including participations R0090 6,058Equities R0100 -

Equities - listed R0120 -Equities - unlisted R0120 -

Bonds R0130 10,272,879Government Bonds R0140 813,811Corporate Bonds R0150 9,448,077Structured notes R0160 -Collateralised securities R0170 10,991

Collective Investments Undertakings R0180 1,525,493Derivatives R0190 232,951Deposits other than cash equivalents R0200 166,466Other investments R0210 -

Assets held for index-linked and unit-linked contracts R0220 20Loans and mortgages R0230 9,237,574

Loans on policies R0240 - Loans and mortgages to individuals R0250 7,718,042 Other loans and mortgages R0260 1,519,531Reinsurance recoverables from: R0270 1,195,283Non-life and health similar to non-life R0280 -

Non-life excluding health R0290 -Health similar to non-life R0300 -

Life and health similar to life, excluding health and index-linked and unit- R0310 1,195,283Health similar to life R0320 -Life excluding health and index-linked and unit-linked R0330 1,195,283

Life index-linked and unit-linked R0340 -Deposits to cedants R0350 -Insurance and intermediaries receivables R0360 3,155Reinsurance receivables R0370 8,213Receivables (trade, not insurance) R0380 110,151Own shares (held directly) R0390 6,029Amounts due in respect of own fund items or initial fund called up but not yet R0400 -Cash and cash equivalents R0410 237,528Any other assets, not elsewhere shown R0420 -Total assets R0500 23,091,494

107

F.1.1 Just Group plcS.02.01.02Balance sheet (continued)£000 Solvency II value

C0010Technical provisions – non-life R0510 -

Technical provisions – non-life (excluding health) R0520 -TP calculated as a whole R0530 -Best Estimate R0540 -Risk margin R0550 -

Technical provisions - health (similar to non-life) R0560 -TP calculated as a whole R0570 -Best Estimate R0580 -Risk margin R0590 -

Technical provisions - life (excluding index-linked and unit-linked) R0600 19,149,905Technical provisions - health (similar to life) R0610 -

TP calculated as a whole R0620 -Best Estimate R0630 -Risk margin R0640 -

Technical provisions – life (excluding health and index-linked and unit-linked) R0650 19,149,905TP calculated as a whole R0660 -Best Estimate R0670 19,024,057Risk margin R0680 125,849

Technical provisions – index-linked and unit-linked R0690 20TP calculated as a whole R0700 -Best Estimate R0710 20Risk margin R0720 0

Contingent liabilities R0740 -Provisions other than technical provisions R0750 1,798Pension benefit obligations R0760 -Deposits from reinsurers R0770 935,499Deferred tax liabilities R0780 -Derivatives R0790 248,416Debts owed to credit institutions R0800 126,171Financial liabilities other than debts owed to credit institutions R0810 -Insurance & intermediaries payables R0820 1,467Reinsurance payables R0830 7,036Payables (trade, not insurance) R0840 23,904Subordinated liabilities R0850 684,491

Subordinated liabilities not in BOF R0860 -Subordinated liabilities in BOF R0870 684,491

Any other liabilities, not elsewhere shown R0880 -Total liabilities R0900 21,178,707Excess of assets over liabilities R1000 1,912,788

108

F.1.1 Just Group plcS.05.01.02Premiums, claims and expenses by line of business(Unaudited)£000

Total

Health insurance

Insurance with profit

participation

Index-linked and unit-linked insurance

Other life insurance

Annuities stemming from

non-life insurance contracts and

relating to health insurance

obligations



relating to insurance

obligations other than health insurance

obligations

Health reinsurance

Life reinsurance

C0210 C0220 C0230 C0240 C0250 C0260 C0270 C0280 C0300Premiums written Gross R1410 - - 26,679 1,890,353 - - - - 1,917,032 Reinsurers' share R1420 - - - (439,527) - - - - (439,527) Net R1500 - - 26,679 2,329,880 - - - - 2,356,560Premiums earned Gross R1510 - - 26,679 1,890,353 - - - - 1,917,032 Reinsurers' share R1520 - - - (439,527) - - - - (439,527) Net R1600 - - 26,679 2,329,880 - - - - 2,356,560Claims incurred Gross R1610 - - 36,729 1,283,771 - - - - 1,320,500 Reinsurers' share R1620 - - - 386,385 - - - - 386,385 Net R1700 - - 36,729 897,386 - - - - 934,114Changes in other technical provisions Gross R1710 - - 104,125 (1,662,178) - - - - (1,558,053) Reinsurers' share R1720 - - - 507,202 - - - - 507,202 Net R1800 - - 104,125 (2,169,380) - - - - (2,065,256)Expenses incurred R1900 - - 0 121,516 - - - - 121,516Other expenses R2500 83,072Total expenses R2600 204,588

Line of Business for: life insurance obligationsLife reinsurance

obligations

109

F.1.1 Just Group plcS.22.01.22Impact of long term guarantees and transitional measures£000

Amount with Long Term Guarantee measures and transitionals

Impact of transitional on technical provisions

Impact of transitional on interest rate

Impact of volatility adjustment set to zero

Impact of matching adjustment set to zero

C0010 C0030 C0050 C0070 C0090

Technical provisions R0010 19,149,925 1,891,006 - 39,631 2,706,022Basic own funds R0020 2,587,754 (1,571,997) - (31,010) (2,219,637)

Eligible own funds to meet Solvency Capital Requirement

R00502,561,700 (2,788,266) - (37,361) (2,674,262)

Solvency Capital Requirement R0090 1,813,735 86,294 - 3,004 1,184,093

110

F.1.1 Just Group plcS.23.01.22Own funds£000

TotalTier 1 -

unrestricted Tier 1 -

restricted Tier 2 Tier 3

C0010 C0020 C0030 C0040 C0050

Basic own funds before deduction for participations in other financial sector

Ordinary share capital (gross of own shares) R0010 103,508 103,508 -Non-available called but not paid in ordinary share capital at group level R0020 - - -Share premium account related to ordinary share capital R0030 158,863 158,863 -Iinitial funds, members' contributions or the equivalent basic own - fund item for mutual and mutual-type undertakings R0040 - - -Subordinated mutual member accounts R0050 - - - -Non-available subordinated mutual member accounts at group level R0060 - - - -Surplus funds R0070 - -Non-available surplus funds at group level R0080 - -Preference shares R0090 - - - -Non-available preference shares at group level R0100 - - - -Share premium account related to preference shares R0110 - - - -Non-available share premium account related to preference shares at group level R0120 - - - -

Reconciliation reserve R0130 1,288,161 1,288,161Subordinated liabilities R0140 684,491 - 445,930 238,561Non-available subordinated liabilities at group level R0150 - - - -An amount equal to the value of net deferred tax assets R0160 63,044 63,044The amount equal to the value of net deferred tax assets not available at the group level R0170 - -Other items approved by supervisory authority as basic own funds not specified above R0180 293,975 - 293,975 - -Non available own funds related to other own funds items approved by supervisory authority R0190 - - - - -Minority interests (if not reported as part of a specific own fund item) R0200 (793) (793) - - -Non-available minority interests at group level R0210 (793) (793) - - -

Own funds from the financial statements that should not be represented by the reconciliation reserve and do not meet the criteria to be classified as Solvency II own funds


R0220468

DeductionsDeductions for participations in other financial undertakings, including non-regulated undertakings carrying out financial activities

R02303,820 3,820 - -

whereof deducted according to art 228 of the Directive 2009/138/EC R0240 - - - - -Deductions for participations where there is non-availability of information (Article 229) R0250 - - - - -Deduction for participations included by using D&A when a combination of methods is used R0260 - - - - -Total of non-available own fund items R0270 (793) (793) - - -

Total deductions R0280 3,028 3,028 - - -Total basic own funds after deductions R0290 2,587,754 1,546,244 293,975 445,930 301,605Ancillary own funds

Unpaid and uncalled ordinary share capital callable on demand R0300 - -Unpaid and uncalled initial funds, members' contributions or the equivalent basic own fund item for mutual and mutual - type undertakings, callable on demand

R0310- -

Unpaid and uncalled preference shares callable on demand R0320 - -Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC R0350 - -Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC R0340 - -

- - - - -Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0360 - -Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0370 - - -Non available ancillary own funds at group level R0380 - - -Other ancillary own funds R0390 - - -

Total ancillary own funds R0400 - - -Own funds of other financial sectorsReconciliation reserve R0410 3,820 3,820 - -

Institutions for occupational retirement provision R0420 - - - - -Non regulated entities carrying out financial activities R0430 - - - -Total own funds of other financial sectors R0440 3,820 3,820 - -

Own funds when using the D&A, exclusively or in combination of method 1Own funds aggregated when using the D&A and combination of method R0450 - - - - -Own funds aggregated when using the D&A and a combination of method net of IGT R0460 - - - - -

Total available own funds to meet the consolidated group SCR (excluding own funds from other financial sector and from the undertakings included via D&A )

R05202,587,754 1,546,244 293,975 445,930 301,605

Total available own funds to meet the minimum consolidated group SCR R0530 2,286,149 1,546,244 293,975 445,930 -Total eligible own funds to meet the consolidated group SCR (excluding own funds from other financial sector and from the undertakings included via D&A )

R05602,557,880 1,546,244 293,975 445,930 271,731

Total eligible own funds to meet the minimum consolidated group SCR R0570 1,929,106 1,546,244 293,975 88,887Minimum consolidated Group SCR R0610 444,434Ratio of Eligible own funds to Minimum Consolidated Group SCR R0650 434.1%Total eligible own funds to meet the group SCR (including own funds from other financial sector and from the undertakings included via D&A )

R0660 2,561,700 1,550,064 293,975 445,930 271,731Group SCR R0680 1,813,735Ratio of Eligible own funds to group SCR including other financial sectors and the undertakings included via D&A R0690 141.2%

C0060Reconciliation reserve

Excess of assets over liabilities R0700 1,912,788Own shares (included as assets on the balance sheet) R0710 6,029Forseeable dividends, distributions and charges R0720 -Other basic own fund items R0730 618,597Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced funds R0740 -Other non available own funds R0750 -

Reconciliation reserve before deduction for participations in other financial sector R0760 1,288,161Expected profitsExpected profits included in future premiums (EPIFP) - Life business R0770 -Expected profits included in future premiums (EPIFP) - Non- life business R0780 -Total EPIFP R0790 -

111

F.1.1 Just Group plcS.25.02.22Solvency Capital Requirement - for groups using the standard formula and partial internal model(Unaudited)£000

Unique number of component Components descriptionCalculation of the Solvency Capital

RequirementAmount modelled USP Simplifications

C0010 C0020 C0030 C0070 C0080 C00901***** Market Risk 1,551,449 1,147,839 - -2***** Counterparty Risk 4,418 - - -3***** Life underwriting risk 959,968 739,909 - -7***** Operational Risk 91,050 68,754 - -801*** Other risks - - - -803*** LACoDT (281,227) (259,703) - -804*** Other adjustments 49,398 49,398 - -

Calculation of Solvency Capital Requirement C0100Total undiversified components R0110 2,375,056Diversification R0060 (563,516)Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC R0160 -Solvency capital requirement excluding capital add-on R0200 1,811,540Capital add-ons already set R0210 -Solvency capital requirement for undertakings under consolidated method R0220 1,813,735Other information on SCRAmount/estimate of the overall loss-absorbing capacity of technical provisions R0300 0Amount/estimate of the overall loss-absorbing capacity ot deferred taxes R0310 (281,227)Capital requirement for duration-based equity risk sub-module R0400 -Total amount of Notional Solvency Capital Requirements for remaining part R0410 1,149,780Total amount of Notional Solvency Capital Requirements for ring fenced funds (other than those related to business operated in accordance with Art. 4 of Directive 2003/41/EC (transitional))

R0420-

Total amount of Notional Solvency Capital Requirement for matching adjustment portfolios R0430 971,815Diversification effects due to RFF nSCR aggregation for article 304 R0440 (310,055)Minimum consolidated group solvency capital requirement R0470 444,434Information on other entitiesCapital requirement for other financial sectors (Non-insurance capital requirements) R0500 2,195Capital requirement for other financial sectors (Non-insurance capital requirements) - Credit institutions, investment firms and financial institutions, alternative investment funds managers, UCITS management companies

R05102,195

Capital requirement for other financial sectors (Non-insurance capital requirements) - Institutions for occupational retirement provisions

R0520-

Capital requirement for other financial sectors (Non-insurance capital requirements) - Capital requirement for non- regulated entities carrying out financial activities

R0530-

Capital requirement for non-controlled participation requirements R0540 -Capital requirement for residual undertakings R0550 -

C0100Overall SCRSCR for undertakings included via D and A R0560 -Solvency capital requirement R0570 1,813,735

112

F.1.1 Just Group plcS.32.01.22Undertakings in the scope of the group

Country Identification code of the undertakingType of code of the

ID of the undertakingLegal name of the undertaking Type of undertaking Legal form

Category (mutual/non mutual)

Supervisory Authority

C0010 C0020 C0030 C0040 C0050 C0060 C0070 C0080

GB 5493006456YEZEELRR90 LEI Just Group plcInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Public Limited Company Non-mutual 0

GB P5SP0XPUO3I6PBITKC96 LEI Just Retirement Limited Life insurance undertaking Limited Company Non-mutual Prudential Regulation AuthorityGB 213800CBWLV4ZIFSL551 LEI Partnership Life Assurance Company Limited Life insurance undertaking Limited Company Non-mutual Prudential Regulation Authority

GB 549300GCBOHKFJJAPE23 LEI Just Retirement Money LimitedCredit institution, investment firm and financial institution Limited Company Non-mutual Financial Conduct Authority

GB 5493003W8JS1XYTM0O22 LEI HUB Financial Solutions Limited Other Limited Company Non-mutual Financial Conduct Authority

GB 549300HSTP9B7NWRYX93 LEI Partnership Home Loans LimitedCredit institution, investment firm and financial institution Limited Company Non-mutual Financial Conduct Authority

GB CL37F72IHHVQKFJYQU50 LEI Just Retirement (Holdings) LimitedInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Limited Company Non-mutual 0

GB JREB Specific code Just Retirement Employee Benefit Trust Other Trust Non-mutual 0GB 549300IAERQ88IEB7Q62 LEI Just Retirement Finance plc Other Public Limited Company Non-mutual 0

GB 549300O2RJG4POJCT414 LEI Just Retirement Group Holdings LimitedInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Limited Company Non-mutual 0

GB 549300PFCWHQEKP3RX50 LEI Just Retirement Management Services LimitedAncillary services undertaking as defined in Article 1 (53) of Delegated Regulation (EU) 2015/35 Limited Company Non-mutual 0

GB 549300YC1K6V4K44NH40 LEI Just Re 1 Limited Other Limited Company Non-mutual 0GB 549300ESHO4MEK1F1Q39 LEI Just Re 2 Limited Other Limited Company Non-mutual 0GB HUBAqL Specific code HUB Acquisitions Limited Other Limited Company Non-mutual 0GB HUBPS Specific code HUB Pension Solutions Limited Other Limited Company Non-mutual 0GB SPS Specific code Spire Platform Solutions Limited Other Limited Company Non-mutual 0GB 549300XOY061F28LXY46 LEI The Open Market Annuity Service Limited Other Limited Company Non-mutual 0GB 549300YNECUYY4YCB995 LEI TOMAS Online Development Limited Other Limited Company Non-mutual 0

GB 5493000EXZL6KSS4SC88 LEI PAG Finance LimitedInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Limited Company Non-mutual 0

GB 549300DOYZUFZS0VRK64 LEI PAG Holdings LimitedInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Limited Company Non-mutual 0

GB 2138006K6GMGKWPFO418 LEI Partnership Assurance Group LimitedInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Limited Company Non-mutual 0

GB 549300R20XQ1RR0MNC23 LEI Partnership Group Holdings LimitedInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Limited Company Non-mutual 0

GB 549300KM5KU04ID09S69 LEI Partnership Holdings LimitedInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Limited Company Non-mutual 0

GB 549300R8EKHUSIGVKP12 LEI Partnership Life US Company Other Limited Company Non-mutual 0

GB 549300KI18CEVNU8JU80 LEI Partnership Services LimitedAncillary services undertaking as defined in Article 1 (53) of Delegated Regulation (EU) 2015/35 Limited Company Non-mutual 0

GB 549300LMRJMK7XLKDQ49 LEI PASPV Limited Other Limited Company Non-mutual 0GB CGL Specific code Corinthian Group Limited Other Limited Company Non-mutual 0GB HUBPC Specific code Corinthian Pension Consulting Limited Other Limited Company Non-mutual 0GB 549300Q6T12B1QQXPW72 LEI Just Retirement Nominees Limited Other Limited Company Non-mutual 0GB 549300ZI5LM7ITZMZY23 LEI Just Retirement Solutions Limited Other Limited Company Non-mutual 0GB 549300JQTR8MBMPNH544 LEI JRP Group Limited Other Limited Company Non-mutual 0GB 5493007S6CL4Q1UWOU03 LEI JRP Nominees Limited Other Limited Company Non-mutual 0GB 549300ZQKFZQWUVTPX41 LEI Just Annuities Limited Other Limited Company Non-mutual 0GB 549300T2SSXODFKX3O83 LEI Just Equity Release Limited Other Limited Company Non-mutual 0GB 549300PKXGOLNGFNT953 LEI Just Incorporated Limited Other Limited Company Non-mutual 0GB 549300D198Z4OWXF4P82 LEI Just Protection Limited Other Limited Company Non-mutual 0GB 5493000WL98XFIGVUI18 LEI Enhanced Retirement Limited Other Limited Company Non-mutual 0GB 549300YRNMRMP7K0ED70 LEI HUB Online Development Limited Other Limited Company Non-mutual 0GB HUBPCL Specific code HUB Pension Consulting Limited Other Limited Company Non-mutual 0GB 549300GSQOVFZY0HWN30 LEI HUB Transfer Solutions Limited Other Limited Company Non-mutual 0GB 5493005H4ZZ8SSBXAQ56 LEI TOMAS Acquisitions Limited Other Limited Company Non-mutual 0GB 549300FUZHQ7I1L8V156 LEI Payingforcare Limited Other Limited Company Non-mutual 0GB 549300KGKT9MJVUVDI55 LEI PLACL RE 1 Limited Other Limited Company Non-mutual 0GB 549300RC7UEKHC6ES538 LEI PLACL RE 2 Limited Other Limited Company Non-mutual 0

113

F.1.1 Just Group plcS.32.01.22Undertakings in the scope of the group (continued)

Group solvency calculation

Legal name of the undertaking % capital share

% used for the establishment of

consolidated accounts

% voting rights Other criteria Level of influenceProportional share used

for group solvency calculation

YES/NODate of

decision if art. 214 is applied

Method used and under method 1, treatment of the undertaking

C0040 C0180 C0190 C0200 C0210 C0220 C0230 C0240 C0250 C0260Just Group plc Included in the scope Method 1: Full consolidation

Just Retirement Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Partnership Life Assurance Company Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Just Retirement Money Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

HUB Financial Solutions Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Partnership Home Loans Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Just Retirement (Holdings) Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Just Retirement Employee Benefit Trust 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Just Retirement Finance plc 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Just Retirement Group Holdings Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Just Retirement Management Services Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Just Re 1 Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Just Re 2 Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

HUB Acquisitions Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

HUB Pension Solutions Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Spire Platform Solutions Limited 33% 100% 33% Majority Board Representation Dominant 33% Included in the scope Method 1: Adjusted equity method

The Open Market Annuity Service Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

TOMAS Online Development Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

PAG Finance Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

PAG Holdings Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Partnership Assurance Group Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Partnership Group Holdings Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Partnership Holdings Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Partnership Life US Company 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

Partnership Services Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Full consolidation

PASPV Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Corinthian Group Limited 75% 100% 75% Dominant 75% Included in the scope Method 1: Adjusted equity method

Corinthian Pension Consulting Limited 75% 100% 75% Dominant 75% Included in the scope Method 1: Adjusted equity method

Just Retirement Nominees Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Just Retirement Solutions Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

JRP Group Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

JRP Nominees Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Just Annuities Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Just Equity Release Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Just Incorporated Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Just Protection Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Enhanced Retirement Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

HUB Online Development Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

HUB Pension Consulting Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

HUB Transfer Solutions Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

TOMAS Acquisitions Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Payingforcare Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

PLACL RE 1 Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity methodPLACL RE 2 Limited 100% 100% 100% Dominant 100% Included in the scope Method 1: Adjusted equity method

Criteria of influence Inclusion in the scope of group supervision

114

F.1.2 Just Retirement Limited

31 December 2019




S.12.01.02 Life and Health SLT Technical Provisions



S.25.03.21 Solvency Capital Requirement - for undertakings on Full Internal Models

S.28.01.01 Minimum Capital Requirement

115

Just Retirement LimitedS.02.01.02Balance sheet£000 Solvency II value

Assets C0010Intangible assets R0030 -Deferred tax assets R0040 64,641Pension benefit surplus R0050 -Property, plant & equipment held for own use R0060 17,238Investments (other than assets held for index-linked and unit-linked contracts) R0070 8,562,584

Property (other than for own use) R0080 -Holdings in related undertakings, including participations R0090 13Equities R0100 -


Bonds R0130 7,270,619Government Bonds R0140 258,986Corporate Bonds R0150 7,000,642Structured notes R0160 -Collateralised securities R0170 10,991

Collective Investments Undertakings R0180 924,017Derivatives R0190 265,986Deposits other than cash equivalents R0200 101,950Other investments R0210 -

Assets held for index-linked and unit-linked contracts R0220 20Loans and mortgages R0230 7,414,851

Loans on policies R0240 - Loans and mortgages to individuals R0250 6,318,352 Other loans and mortgages R0260 1,096,499Reinsurance recoverables from: R0270 690,542

Non-life and health similar to non-life R0280 -Non-life excluding health R0290 -Health similar to non-life R0300 -

Life and health similar to life, excluding health and index-linked and unit-linked R0310 690,542Health similar to life R0320 -Life excluding health and index-linked and unit-linked R0330 690,542

Life index-linked and unit-linked R0340 -Deposits to cedants R0350 -Insurance and intermediaries receivables R0360 671Reinsurance receivables R0370 25Receivables (trade, not insurance) R0380 183,032Own shares (held directly) R0390 -Amounts due in respect of own fund items or initial fund called up but not yet paid in R0400 -Cash and cash equivalents R0410 200,028Any other assets, not elsewhere shown R0420 -Total assets R0500 17,133,633

116

Just Retirement LimitedS.02.01.02Balance sheet (continued)£000 Solvency II value

Liabilities C0010Technical provisions – non-life R0510 -



Technical provisions - life (excluding index-linked and unit-linked) R0600 14,195,248Technical provisions - health (similar to life) R0610 -

TP calculated as a whole R0620 -Best Estimate R0630 -Risk margin R0640 -Technical provisions – life (excluding health and index-linked and unit-linked) R0650 14,195,248TP calculated as a whole R0660 -Best Estimate R0670 14,081,549Risk margin R0680 113,699

Technical provisions – index-linked and unit-linked R0690 20TP calculated as a whole R0700 -Best Estimate R0710 20Risk margin R0720 0

Contingent liabilities R0740 -Provisions other than technical provisions R0750 500Pension benefit obligations R0760 -Deposits from reinsurers R0770 935,499Deferred tax liabilities R0780 -Derivatives R0790 218,208Debts owed to credit institutions R0800 126,171Financial liabilities other than debts owed to credit institutions R0810 -Insurance & intermediaries payables R0820 1,151Reinsurance payables R0830 6,981Payables (trade, not insurance) R0840 70,263Subordinated liabilities R0850 487,323


Any other liabilities, not elsewhere shown R0880 -Total liabilities R0900 16,041,364Excess of assets over liabilities R1000 1,092,269

117

Just Retirement LimitedS.05.01.02Premiums, claims and expenses by line of business(Unaudited)£000

Total

Health insurance


participation

Index-linked and unit-linked

insurance


Annuities stemming from non-life

insurance contracts and relating to

health insurance obligations




obligations other than health insurance

obligations

Health reinsurance

Life reinsurance

C0210 C0220 C0230 C0240 C0250 C0260 C0270 C0280 C0300Premiums written Gross R1410 - - 26,679 1,816,030 - - - - 1,842,709 Reinsurers' share R1420 - - - (440,992) - - - - (440,992) Net R1500 - - 26,679 2,257,022 - - - - 2,283,701Premiums earned Gross R1510 - - 26,679 1,816,030 - - - - 1,842,709 Reinsurers' share R1520 - - - (440,992) - - - - (440,992) Net R1600 - - 26,679 2,257,022 - - - - 2,283,701Claims incurred Gross R1610 - - 36,729 868,167 - - - - 904,896 Reinsurers' share R1620 - - - 131,602 - - - - 131,602 Net R1700 - - 36,729 736,565 - - - - 773,294

Changes in other technical provisions

Gross R1710 - - 104,125 (1,629,235) - - - - (1,525,110) Reinsurers' share R1720 - - - 490,738 - - - - 490,738 Net R1800 - - 104,125 (2,119,973) - - - - (2,015,849)Expenses incurred R1900 - - 0 103,507 - - - - 103,507Other expenses R2500 71,225Total expenses R2600 174,732

Line of Business for: life insurance obligations Life reinsurance obligations

118

Just Retirement LimitedS.12.01.02Life and Health SLT Technical Provisions£000

Contracts without options

and guarante

es

Contracts with options

or guarantees

Contracts without

options and guarantees

Contracts with

options or guarantee

s

C0020 C0030 C0040 C0050 C0060 C0070 C0080 C0090 C0100 C0150Technical provisions calculated as a whole R0010 - - - - - -Total Recoverables from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default associated to TP as a whole

R0020

- - - - - -Technical provisions calculated as a sum of BE and RMBest EstimateGross Best Estimate R0030 - 20 - 10,425,818 4,198,809 - - 14,624,647Total Recoverables from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default

R0080- - - 837,992 (147,450) - - 690,542

Best estimate minus recoverables from reinsurance/SPV and Finite Re - total

R0090- 20 - 9,587,826 4,346,259 - - 13,934,105

Risk Margin R0100 - - 662,214 - - 662,214Amount of the transitional on Technical Provisions

Technical Provisions calculated as a whole R0110- - - - - -

Best estimate R0120 - - - (543,078) - - - (543,078)Risk margin R0130 - - (548,515) - - (548,515)

Technical provisions - total R0200 - 20 14,195,248 - - 14,195,268

Total (Life other than

health insurance, incl. Unit-

Linked)

Insurance with profit participatio

n


Other life insuranceAnnuities

stemming from non-life

insurance contracts and

relating to insurance obligation other than

health insurance

Accepted reinsuranc

e

119

Just Retirement LimitedS.22.01.21Impact of long term guarantees and transitional measures£000






C0010 C0030 C0050 C0070 C0090

Technical provisions R0010 14,195,268 1,091,593 - - 2,425,476Basic own funds R0020 1,579,592 (908,484) - - (2,013,145)Eligible own funds to meet Solvency Capital Requirement

R00501,549,785 (1,863,751) - - (2,425,476)

Solvency Capital Requirement R0090 1,267,963 76,918 - - 1,069,340Eligible own funds to meet Minimum Capital Requirement

R01001,035,432 (1,349,398) - - (2,425,476)

Minimum Capital Requirement R0110 316,991 19,230 - - 267,335

120

Just Retirement LimitedS.23.01.01Own funds£000

TotalTier 1 -

unrestricted Tier 1 - restricted Tier 2 Tier 3

C0010 C0020 C0030 C0040 C0050Basic own funds before deduction for participations in other financial sector as foreseen in article 68 of Delegated Regulation (EU) 2015/35

Ordinary share capital (gross of own shares) R0010 33,900 33,900 -Share premium account related to ordinary share capital R0030 305,100 305,100 -Iinitial funds, members' contributions or the equivalent basic own - fund item for mutual and mutual-type undertakings R0040 - - -Subordinated mutual member accounts R0050 - - - -Surplus funds R0070 - -Preference shares R0090 - - - -Share premium account related to preference shares R0110 - - - -

Reconciliation reserve R0130 438,627 438,627Subordinated liabilities R0140 487,323 - 331,964 155,360An amount equal to the value of net deferred tax assets R0160 64,641 64,641.Other own fund items approved by the supervisory authority as basic own funds not specified above R0180 250,000 - 250,000 - -



R0220-

DeductionsDeductions for participations in financial and credit institutions R0230 - - - -

Total basic own funds after deductions R0290 1,579,592 777,627 250,000 331,964 220,001Ancillary own funds


R0310- -

Unpaid and uncalled preference shares callable on demand R0320 - - -A legally binding commitment to subscribe and pay for subordinated liabilities on demand R0330 - - -Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC R0340 - -Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC R0350 - - - Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0360 - -Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0370 - - -Other ancillary own funds R0390 - - -

Total ancillary own funds R0400 - - -Available and eligible own funds

Total available own funds to meet the SCR R0500 1,579,592 777,627 250,000 331,964 220,001Total available own funds to meet the MCR R0510 1,359,591 777,627 250,000 331,964Total eligible own funds to meet the SCR R0540 1,549,785 777,627 194,407 387,557 190,194Total eligible own funds to meet the MCR R0550 1,035,432 777,627 194,407 63,398

SCR R0580 1,267,963.MCR R0600 316,991.Ratio of Eligible own funds to SCR R0620 122%Ratio of Eligible own funds to MCR R0640 327%


Excess of assets over liabilities R0700 1,092,269Own shares (held directly and indirectly) R0710 -Foreseeable dividends, distributions and charges R0720 -Other basic own fund items R0730 653,641Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced funds

R0740-

Reconciliation reserve R0760 438,627Expected profits

Expected profits included in future premiums (EPIFP) - Life business R0770 -Expected profits included in future premiums (EPIFP) - Non- life business R0780 -

Total Expected profits included in future premiums (EPIFP) R0790 -

121

Just Retirement LimitedS.25.03.21Solvency Capital Requirement - for undertakings on Full Internal Models(Unaudited)£000

Unique number of component Components descriptionCalculation of the Solvency Capital

Requirement

C0010 C0020 C00301***** Market Risk 1,147,8392***** Counterparty Risk -3***** Life underwriting risk 739,9097***** Operational Risk 35,004801*** Other risks -803*** LACoDT (259,703)804*** Other adjustments 49,398

Calculation of Solvency Capital Requirement C0100Total undiversified components R0110 1,712,447Diversification R0060 (444,484)

Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC (transitional) R0160-

Solvency capital requirement excluding capital add-on R0200 1,267,963Capital add-ons already set R0210 -Solvency capital requirement R0220 1,267,963Other information on SCRAmount/estimate of the overall loss-absorbing capacity of technical provisions R0300 -Amount/estimate of the overall loss-absorbing capacity ot deferred taxes R0310 (259,703)Total amount of Notional Solvency Capital Requirements for remaining part R0410 821,580Total amount of Notional Solvency Capital Requirements for ring fenced funds (other than those related to business operated in accordance with Art. 4 of Directive 2003/41/EC (transitional))

R0420-

Total amount of Notional Solvency Capital Requirement for matching adjustment portfolios R0430 756,438Diversification effects due to RFF nSCR aggregation for article 304 R0440 (310,055)

Approach to tax rate Approach based on average tax rate R0590 Yes

LAC DTC0130

Amount/estimate of LAC DT R0640 (259,703)Amount/estimate of LAC DT justified by reversion of deferred tax liabilities R0650 64,641Amount/estimate of LAC DT justified by reference to probable future taxable economic profit R0660 (257,845)Amount/estimate of AC DT justified by carry back, current year R0670 (36,500)Amount/estimate of LAC DT justified by carry back, future years R0680 (30,000)Amount/estimate of Maximum LAC DT R0690 (365,894)

122

Just Retirement LimitedS.28.01.01Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity £000

Linear formula component for life insurance and reinsurance obligationsC0040

MCRL Result R0200 281,215Net (of

reinsurance/SPV) best

estimate and TP calculated

as a whole

Net (of reinsurance/SPV) total capital at

risk

C0050 C0060Obligations with profit participation - guaranteed benefits R0210 -Obligations with profit participation - future discretionary benefits R0220 -Index-linked and unit-linked insurance obligations R0230 20Other life (re)insurance and health (re)insurance obligations R0240 13,391,007Total capital at risk for all life (re)insurance obligations R0250 4,613

Overall MCR calculationC0070

Linear MCR R0300 281,215SCR R0310 1,267,963MCR cap R0320 570,583MCR floor R0330 316,991Combined MCR R0340 316,991Absolute floor of the MCR R0350 3,187

C0070Minimum Capital Requirement R0400 316,991

123

F.1.3 Partnership Life Assurance Company Limited

31 December 2019




S.12.01.02 Life and Health SLT Technical Provisions



S.25.03.21 Solvency Capital Requirement - for undertakings on Standard Formula

S.28.01.01 Minimum Capital Requirement

124

Partnership Life Assurance Company LimitedS.02.01.02Balance sheet£000 Solvency II value

Assets C0010Intangible assets R0030 -Deferred tax assets R0040 -Pension benefit surplus R0050 -Property, plant & equipment held for own use R0060 -Investments (other than assets held for index-linked and unit-linked contracts) R0070 3,598,680

Property (other than for own use) R0080 -Holdings in related undertakings, including participations R0090 -Equities R0100 -


Bonds R0130 3,002,260 Government Bonds R0140 554,825 Corporate Bonds R0150 2,447,435 Structured notes R0160 -Collateralised securities R0170 -

Collective Investments Undertakings R0180 519,118 Derivatives R0190 12,846 Deposits other than cash equivalents R0200 64,456 Other investments R0210 -

Assets held for index-linked and unit-linked contracts R0220 -Loans and mortgages R0230 1,832,440

Loans on policies R0240 - Loans and mortgages to individuals R0250 1,399,691 Other loans and mortgages R0260 432,750 Reinsurance recoverables from: R0270 504,741

Non-life and health similar to non-life R0280 -Non-life excluding health R0290 -Health similar to non-life R0300 -

Life and health similar to life, excluding health and index-linked and unit- R0310 504,741 Health similar to life R0320 -Life excluding health and index-linked and unit-linked R0330 504,741

Life index-linked and unit-linked R0340 -Deposits to cedants R0350 -Insurance and intermediaries receivables R0360 2,485 Reinsurance receivables R0370 8,188 Receivables (trade, not insurance) R0380 9,434 Own shares (held directly) R0390 -Amounts due in respect of own fund items or initial fund called up but not yet R0400 -Cash and cash equivalents R0410 30,032 Any other assets, not elsewhere shown R0420 -Total assets R0500 5,985,999

125

Partnership Life Assurance Company LimitedS.02.01.02Balance sheet (continued)£000 Solvency II value

Liabilities C0010Technical provisions – non-life R0510 -



Technical provisions - life (excluding index-linked and unit-linked) R0600 4,954,657 Technical provisions - health (similar to life) R0610 -

TP calculated as a whole R0620 -Best Estimate R0630 -Risk margin R0640 -

Technical provisions – life (excluding health and index-linked and unit-linked) R0650 4,954,657 TP calculated as a whole R0660 -Best Estimate R0670 4,942,508 Risk margin R0680 12,150

Technical provisions – index-linked and unit-linked R0690 -TP calculated as a whole R0700 -Best Estimate R0710 -Risk margin R0720 -

Contingent liabilities R0740 -Provisions other than technical provisions R0750 -Pension benefit obligations R0760 -Deposits from reinsurers R0770 0 Deferred tax liabilities R0780 7,696 Derivatives R0790 76,088 Debts owed to credit institutions R0800 -Financial liabilities other than debts owed to credit institutions R0810 -Insurance & intermediaries payables R0820 316 Reinsurance payables R0830 54 Payables (trade, not insurance) R0840 40,525 Subordinated liabilities R0850 166,762


Any other liabilities, not elsewhere shown R0880 -Total liabilities R0900 5,246,099 Excess of assets over liabilities R1000 739,901

126

Partnership Life Assurance Company LimitedS.05.01.02Premiums, claims and expenses by line of business(Unaudited)£000

Total

Health insurance


participation

Index-linked and unit-

linked insurance



non-life insurance

contracts and relating to

health insurance

obligations

Annuities stemming from non-life

insurance contracts and relating to

insurance obligations other

than health insurance

obligations

Health reinsurance

Life reinsurance

C0210 C0220 C0230 C0240 C0250 C0260 C0270 C0280 C0300Premiums written Gross R1410 - - - 74,323 - - - - 74,323 Reinsurers' share R1420 - - - 1,465 - - - - 1,465 Net R1500 - - - 72,858 - - - - 72,858 Premiums earned Gross R1510 - - - 74,323 - - - - 74,323 Reinsurers' share R1520 - - - 1,465 - - - - 1,465 Net R1600 - - - 72,858 - - - - 72,858 Claims incurred Gross R1610 - - - 415,604 - - - - 415,604 Reinsurers' share R1620 - - - 254,783 - - - - 254,783 Net R1700 - - - 160,821 - - - - 160,821

Changes in other technical provisions

Gross R1710 - - - (32,943) - - - - (32,943) Reinsurers' share R1720 - - - 16,464 - - - - 16,464 Net R1800 - - - (49,407) - - - - (49,407)Expenses incurred R1900 - - - 18,009 - - - - 18,009 Other expenses R2500 11,847 Total expenses R2600 29,856

Line of Business for: life insurance obligations Life reinsurance

127

Partnership Life Assurance Company LimitedS.12.01.02Life and Health SLT Technical Provisions£000

Contracts without



or guarantees

Contracts without



or guarantees

C0020 C0030 C0040 C0050 C0060 C0070 C0080 C0090 C0100 C0150Technical provisions calculated as a whole R0010 - - - - - -Total Recoverables from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default associated to TP as a whole

R0020

- - - - - -Technical provisions calculated as a sum of BE and RMBest EstimateGross Best Estimate R0030 - - - 4,898,516 644,344 - - 5,542,860 Total Recoverables from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default

R0080- - - 368,343 136,398 - - 504,741

Best estimate minus recoverables from reinsurance/SPV and Finite Re - total

R0090- - - 4,530,173 507,946 - - 5,038,119

Risk Margin R0100 - - 211,210 - - 211,210 Amount of the transitional on Technical Provisions

Technical Provisions calculated as a wholeR0110

- - - - - -Best estimate R0120 - - - (600,352) - - - (600,352)Risk margin R0130 - - (199,060) - - (199,060)

Technical provisions - total R0200 - - 4,954,657 - - 4,954,657

Total (Life other than

health insurance, incl. Unit-

Linked)


participation


Other life insuranceAnnuities

stemming from non-life

insurance contracts and


obligation other than health insurance

obligations

Accepted reinsurance

128

Partnership Life Assurance Company LimitedS.22.01.21Impact of long term guarantees and transitional measures£000






C0010 C0030 C0050 C0070 C0090

Technical provisions R0010 4,954,657 799,413 - 39,631 280,546 Basic own funds R0020 906,662 (663,512) - (31,010) (206,492)Eligible own funds to meet Solvency Capital Requirement

R0050906,662 (951,366) - (37,361) (248,785)

Solvency Capital Requirement R0090 509,775 9,375 - 3,004 114,753 Eligible own funds to meet Minimum Capital Requirement

R0100765,389 (784,136) - (37,211) (243,048)

Minimum Capital Requirement R0110 127,444 2,344 - 751 28,688

129

Partnership Life Assurance Company LimitedS.23.01.01Own funds£000

TotalTier 1 -

unrestricted Tier 1 -

restricted Tier 2 Tier 3

C0010 C0020 C0030 C0040 C0050Basic own funds before deduction for participations in other financial sector as foreseen in article 68 of Delegated Regulation (EU) 2015/35

Ordinary share capital (gross of own shares) R0010 147,190 147,190 -Share premium account related to ordinary share capital R0030 - - -Iinitial funds, members' contributions or the equivalent basic own - fund item for mutual and mutual-type undertakings R0040 - - -Subordinated mutual member accounts R0050 - - - -Surplus funds R0070 - -Preference shares R0090 - - - -Share premium account related to preference shares R0110 - - - -

Reconciliation reserve R0130 542,711 542,711 Subordinated liabilities R0140 166,762 - 166,762 -An amount equal to the value of net deferred tax assets R0160 - -Other own fund items approved by the supervisory authority as basic own funds not specified above R0180 50,000 - 50,000 - -



R0220-

DeductionsDeductions for participations in financial and credit institutions R0230 - - - -

Total basic own funds after deductions R0290 906,662 689,901 50,000 166,762 -Ancillary own funds


R0310- -

Unpaid and uncalled preference shares callable on demand R0320 - - -A legally binding commitment to subscribe and pay for subordinated liabilities on demand R0330 - - -Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC R0340 - -Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC R0350 - - -Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0360 - -Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0370 - - -Other ancillary own funds R0390 - - -

Total ancillary own funds R0400 - - -Available and eligible own funds

Total available own funds to meet the SCR R0500 906,662 689,901 50,000 166,762 -Total available own funds to meet the MCR R0510 906,662 689,901 50,000 166,762 Total eligible own funds to meet the SCR R0540 906,662 689,901 50,000 166,762 -Total eligible own funds to meet the MCR R0550 765,389 689,901 50,000 25,489

SCR R0580 509,775 MCR R0600 127,444 Ratio of Eligible own funds to SCR R0620 178%Ratio of Eligible own funds to MCR R0640 601%


Excess of assets over liabilities R0700 739,901 Own shares (held directly and indirectly) R0710 -Foreseeable dividends, distributions and charges R0720 -Other basic own fund items R0730 197,190 Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced funds

R0740-

Reconciliation reserve R0760 542,711 Expected profits

Expected profits included in future premiums (EPIFP) - Life business R0770 -Expected profits included in future premiums (EPIFP) - Non- life business R0780 -

Total Expected profits included in future premiums (EPIFP) R0790 -

130


S.25.01.21

Solvency Capital Requirement - for undertakings on Standard Formula

£000

Gross solvency capital

requirementUSP Simplifications

C0110 C0090 C0100

Market risk R0010 405,121 - -Counterparty default risk R0020 4,435 - -Life underwriting risk R0030 220,916 - -Health underwriting risk R0040 - - -Non-life underwriting risk R0050 - - -Diversification R0060 (121,469)

Intangible asset risk R0070 -

Basic Solvency Capital Requirement R0100 509,003

Calculation of Solvency Capital Requirement C0100

Operational risk R0130 22,296 Loss-absorbing capacity of technical provisions R0140 -Loss-absorbing capacity of deferred taxes R0150 (21,524)Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC R0160 -Solvency Capital Requirement excluding capital add-on R0200 509,775 Capital add-ons already set R0210 -Solvency capital requirement R0220 509,775

Other information on SCR

Capital requirement for duration-based equity risk sub-module R0400 -Total amount of Notional Solvency Capital Requirements for remaining part R0410 294,397 Total amount of Notional Solvency Capital Requirements for ring fenced funds R0420 -Total amount of Notional Solvency Capital Requirements for matching adjustment portfolios R0430 215,377 Diversification effects due to RFF nSCR aggregation for article 304 R0440 -

Approach to tax rate

Approach based on average tax rate R0590 No

LAC DT

C0130

LAC DT R0640 7,696LAC DT justified by reversion of deferred tax liabilities R0650 14,808LAC DT justified by reference to probable future taxable economic profit R0660 -LAC DT justified by carry back, current year R0670 (7,111)LAC DT justified by carry back, future years R0680 -Maximum LAC DT R0690 -

131

Partnership Life Assurance Company LimitedS.28.01.01Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity £000

Linear formula component for life insurance and reinsurance obligationsC0040

MCRL Result R0200 93,262 Net (of

reinsurance/SPV) best estimate and TP calculated as a

whole

Net (of reinsurance/SPV) total capital at

risk

C0050 C0060Obligations with profit participation - guaranteed benefits R0210 -Obligations with profit participation - future discretionary benefits R0220 -Index-linked and unit-linked insurance obligations R0230 -Other life (re)insurance and health (re)insurance obligations R0240 4,437,767 Total capital at risk for all life (re)insurance obligations R0250 98,880

Overall MCR calculationC0070

Linear MCR R0300 93,262 SCR R0310 509,775 MCR cap R0320 229,399 MCR floor R0330 127,444 Combined MCR R0340 127,444 Absolute floor of the MCR R0350 3,187

C0070Minimum Capital Requirement R0400 127,444

132

133

F.2 Directors’ statement

We acknowledge our responsibility for preparing the Solvency and Financial Condition Report of Just Group plc,

including the SFCR contents for Just Retirement Limited and Partnership Life Assurance Company Limited (together the ‘Companies’) at 31 December 2019 in all material respects in accordance with the PRA Rules and Solvency II Regulations, and the approvals, determinations and modifications in Section F.3 in each case as

applicable to the Companies as at 31 December 2019.

We draw your attention to the uncertainties outlined in Sections E.1.1 and how they might impact the Companies.

The Directors of each of the Companies are satisfied that to the best of their knowledge and belief:

a) throughout the financial year to 31 December 2019, the Companies have complied in all material respects with the requirements of the PRA Rules and Solvency II Regulations and with the approvals, determinations and modifications set out in Section F.3 in each case as applicable to the Companies

throughout such period; and b) subject to the uncertainties outlined in Sections E.1.1, it is reasonable to believe that in respect of the

period from 31 December 2019 to the date of the publication of the SFCR and for the remainder of the

financial year to 31 December 2020, the Companies have continued to comply and that they will continue to comply with the PRA Rules and Solvency II Regulations and with the approvals, determinations and modifications referred to in paragraph (a), in each case as applicable to the Companies throughout the

relevant period.

Andy Parsons Director Just Group plc Just Retirement Limited Partnership Life Assurance Company Limited 23 April 2020

134

F.3 Approvals, determinations and modifications

The following approvals apply for Just Group, JRL and PLACL at 31 December 2019:

Approval

PRA Regulated entity

PRA reference

Single SFCR JRL PLACL JRL PLACL

3184789 3184790 (effective to 31 December 2019) 5274628 5274629 (effective from 1 January 2020)

Exclusion of Just Retirement South Africa from Group supervision

JRL PLACL JRL PLACL


Internal model in the calculation of the SCR

JRL 2201474 (effective to 27 September 2016)

Partial Internal Model (JRP Group Model)

JRL 2868770 (effective from 28 September 2016)

Use of JRP Group Model for group SCR PLACL 2868780 (effective from 28 September 2016)

Matching Adjustment JRL PLACL

2201079 2200601

Volatility Adjustment

PLACL 2200623

Transitional Measure on Technical Provisions (TMTP)

JRL PLACL

2794519 2794559

Variation and Recalculation of Transitional Measure of Technical Provisions (TMTP)

JRL JRL PLACL PLACL

5349115 (at 30 September 2019) 5446539 (at 31 December 2019) 5349120 (at 30 September 2019) 5446499 (at 31 December 2019)

Single ORSA document JRL PLACL JRL PLACL


Equity accounted contingent convertible notes treated as restricted Tier 1

JRL PLACL

5091854 5091855

Intra-group subordinated loan treated as restricted Tier 1

JRL PLACL

5206304 5206352

135

F.4 Audit opinion Report of the external independent auditor to the Directors of Just Group plc (“the Group”), Just Retirement Limited (“JRL”) and Partnership Life Assurance Company Limited (“PLACL”) pursuant to Rule 4.1 (2) of the External Audit Chapter of the PRA Rulebook applicable to Solvency II firms

Report on the Audit of the Relevant Elements of the Group Solvency and Financial Condition Report Except as stated below, we have audited the following documents prepared by the Group, JRL and PLACL as at 31 December 2019:

• The ‘Valuation for solvency purposes’ and ‘Capital Management’ sections of the Group Solvency and Financial Condition Report as at 31 December 2019 (‘the Narrative Disclosures subject to audit’); and

• Group templates S02.01.02, S22.01.22, S23.01.22, S32.01.22 for the Group, Solo templates S02.01.02, S12.01.02, S22.01.21, S23.01.01, S28.01.01 for JRL and Solo templates S02.01.02, S12.01.02, S22.01.21, S23.01.01, S25.01.21, S28.01.01 for PLACL (‘the Templates subject to audit’).

The Narrative Disclosures subject to audit and the Templates subject to audit are collectively referred to as the ‘Relevant Elements of the Group Solvency and Financial Condition Report’.

We are not required to audit, nor have we audited, and as a consequence do not express an opinion on the Other Information which comprises:

• Information contained within the Relevant Elements of the Group Solvency and Financial Condition Report set out about above which are, or derive from the Solvency Capital Requirement, as identified in the Appendix to this report;

• The ‘Business and performance’, ‘System of governance’ and ‘Risk profile’ sections of the Group Solvency and Financial Condition Report;

• Group templates S.05.01.02, S.25.02.22;

• Company templates S.05.01.02, S.25.03.21 for JRL and Company templates S.05.01.02 for PLACL;

• Information calculated in accordance with the previous regime used in the calculation of the transitional measure on technical provisions, and as a consequence all information relating to the transitional measures on technical provisions as set out in the Appendix to this report;

• The written acknowledgement by the Directors of their responsibilities, including for the preparation of the Group Solvency and Financial Condition Report (‘the Responsibility Statement’);

• Information which pertains to an undertaking that is not a Solvency II undertaking and has been prepared in accordance with PRA rules other than those implementing the Solvency II Directive or in accordance with an EU instrument other than the Solvency II regulations (‘the sectoral information’).

To the extent the information subject to audit in the relevant elements of the Group Solvency and Financial Condition Report includes amounts that are totals, sub-totals or calculations derived from the Other Information, we have relied without verification on the Other Information.

In our opinion, the information subject to audit in the Relevant Elements of the Group Solvency and Financial Condition Report of the Group, JRL and PLACL as at 31 December 2019 is prepared, in all material respects, in accordance with the financial reporting provisions of the PRA Rules and Solvency II regulations on which they are based, as modified by relevant supervisory modifications, and as supplemented by supervisory approvals and determinations.

Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) including ISA (UK) 800 and ISA (UK) 805, and applicable law. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Relevant Elements of the Group Solvency and Financial Condition Report section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the Group Solvency and Financial Condition Report in the UK, including the FRC’s Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

136

Emphasis of Matter – special purpose basis of accounting and determination of matching adjustment

We draw attention to the Valuation for Solvency Purposes (section D) and Capital Management (section E) sections of the Group Solvency and Financial Condition Report, which describe the basis of accounting. The Group Solvency and Financial Condition Report is prepared in compliance with the financial reporting provisions of the PRA Rules and Solvency II regulations, and therefore in accordance with a special purpose financial reporting framework.

In particular, as explained in section D.2.6, JRL has applied a matching adjustment to the relevant risk-free interest rate term structure in the calculation of the best estimate liability of certain life insurance obligations in the preparation of the Group Solvency and Financial Condition Report. JRL is required to, and has received approval from the Prudential Regulation Authority to calculate a matching adjustment (the ‘MA Approval’). The matching adjustment includes an adjustment calculated by reference to the value of loan notes issued by Just Re 1 Limited and Just Re 2 Limited, both subsidiaries of JRL. The MA Approval was granted on the basis of the information set out in JRL’s applications to the Prudential Regulation Authority and that the conditions set out in regulation 42 of The Solvency II Regulations 2015 and any directly applicable regulations made under Directive 2009/138/ EC of the European Parliament and of the Council of 25 November 2009 have been met.

The Group Solvency and Financial Condition Report is required to be published, and intended users include but are not limited to the Prudential Regulation Authority. As a result, the Group Solvency and Financial Condition Report may not be suitable for another purpose. Our opinion is not modified in respect of this matter.

Emphasis of Matter – Level of Uncertainty in Management of Own Funds

We draw attention to Section E.1.1 Management of Own Funds of the Group Solvency and Financial Condition Report which notes that the Group and JRL capital positions can be adversely affected by a number of factors, in particular factors that erode the Group and JRL capital resources and/or which impact the quantum of risk to which the Group and JRL are exposed. Section E.1.1 notes that the Group and JRL continue to engage in discussion with the PRA around the SCR methodology. Section E.1.1 further notes that uncertainty remains as to how the introduction of an Effective Value Test in stress will ultimately be implemented by the Group and JRL. Section E.1.1 further notes that given that the Group and JRL continue to experience a high level of regulatory activity and intense regulatory supervision, there is also the risk of PRA intervention, not limited to the aforementioned matters, which could negatively impact on the Group and JRL capital positions. Section E.1.1 further notes that the Group and JRL recognise the need to continue to strengthen its capital position. Our opinion is not modified in respect of these matters.

The impact of uncertainties due to the UK exiting the European Union on our audit

Uncertainties related to the effects of Brexit are relevant to understanding our audit of the Group Solvency and Financial Condition Report. All audits assess and challenge the reasonableness of estimates made by the directors, such as the valuation of technical provisions and valuation of loans secured by residential mortgages and related disclosures and the appropriateness of the going concern basis of preparation of the Group Solvency and Financial Condition Report. All of these depend on assessments of the future economic environment and the Group’s, JRL’s and PLACL’s future prospects and performance.

Brexit is one of the most significant economic events for the UK, and its effects are subject to unprecedented levels of uncertainty of consequences, with the full range of possible effects unknown. We applied a standardised firm-wide approach in response to that uncertainty when assessing the Group’s, JRL’s and PLACL’s future prospects and performance. However, no audit should be expected to predict the unknowable factors or all possible future implications for a company and this is particularly the case in relation to Brexit.

137

Going concern

The Directors have prepared the Group Solvency and Financial Condition Report on the going concern basis as they do not intend to liquidate the Group, JRL or PLACL or to cease their operations, and as they have concluded that the Group, JRL and PLACL’s financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their abilities to continue as going concerns for at least a year from the date of approval of the Group Solvency and Financial Condition Report (“the going concern period”).

We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least a year from the date of approval of the Group Solvency and Financial Condition Report.

In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Group, JRL and PLACL business models, including the impacts of Brexit and COVID-19, and analysed how those risks might affect the Group, JRL and PLACL’s financial resources or ability to continue operations over the going concern period. The risks that we considered most likely to adversely affect the Group, JRL and PLACL’s available financial resources over this period were:

• the impact of regulatory requirements (whether known or subject to change) on the solvency capital coverage ratio of the Group and JRL; and

• the impacts of Brexit and COVID-19 on the valuation of technical provisions and loans secured by residential mortgages and associated impact on the solvency capital coverage ratio of the Group, JRL and PLACL.

We have nothing to report in these respects other than to draw attention to the disclosure in section D that sets out that the directors have considered a scenario in which the Group, JRL and PLACL cease to write new business and continue to trade in run-off. In a run-off scenario, the going concern basis would continue to be applicable because the Group, JRL and PLACL would be continuing to trade with their existing business.

However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Group, JRL and PLACL will continue in operation.

Other Information

The Directors are responsible for the Other Information.

Our opinion on the Relevant Elements of the Group Solvency and Financial Condition Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the Group Solvency and Financial Condition Report, our responsibility is to read the Other Information and, in doing so, consider whether the Other Information is materially inconsistent with the Relevant Elements of the Group Solvency and Financial Condition Report, or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the Relevant Elements of the Group Solvency and Financial Condition Report or a material misstatement of the Other Information. If, based on the work we have performed, we conclude that there is a material misstatement of the Other Information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Directors for the Group Solvency and Financial Condition Report

The Directors are responsible for the preparation of the Group Solvency and Financial Condition Report in accordance with the financial reporting provisions of the PRA rules and Solvency II regulations which have been modified by the approval(s) and modifications granted by the PRA under The Solvency 2 Regulations 2015 and section 138A of FSMA respectively.

138

The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of a Group Solvency and Financial Condition Report that is free from material misstatement, whether due to fraud or error; assessing the group and company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the group or the companies or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Relevant Elements of the Group Solvency and Financial Condition Report

It is our responsibility to form an independent opinion as to whether the Relevant Elements of the Group Solvency and Financial Condition Report are prepared, in all material respects, with financial reporting provisions of the PRA Rules and Solvency II regulations on which it they based, as modified by relevant supervisory modifications, and as supplemented by supervisory approvals and determinations.

Our objectives are to obtain reasonable assurance about whether the Relevant Elements of the Group Solvency and Financial Condition Report are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the decision making or the judgement of the users taken on the basis of the Group Solvency and Financial Condition Report.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities.

Other Matter – models and inputs

The Group has authority to calculate its Group Solvency Capital Requirement using a partial internal model and JRL has the authority to calculate its Company Solvency Capital Requirement using an internal model approved by the Prudential Regulation Authority in accordance with the Solvency II Regulations. In forming our opinion (and in accordance with PRA Rules), we are not required to audit the inputs to, design of, operating effectiveness of and outputs from the Model, or whether the Model is being applied in accordance with the Company's application or approval order obtained by Group, JRL and PLACL.

JRL has the authority to apply a matching adjustment to the relevant risk-free interest rate term structure in the calculation of the best estimate liability of certain life insurance obligations following an approval from the Prudential Regulation Authority dated 7 November 2015. In forming our opinion (and in accordance with PRA guidance set out in Supervisory Statement 11/16: Solvency II: external audit of the public disclosure requirement), we have not sought to audit the validity of the valuation methodology and assumptions applied to the loan notes issued by Just Re 1 Limited and Just Re 2 Limited as set out in the Company’s application or MA Approval order obtained by JRL.

Report on Other Legal and Regulatory Requirements. Sectoral Information

In our opinion, in accordance with Rule 4.2 of the External Audit Chapter of the PRA Rulebook, the sectoral information has been properly compiled in accordance with the PRA rules and EU instruments relating to that undertaking from information provided by members of the group and the relevant insurance group undertaking.

Other Information

In accordance with Rule 4.1 (3) of the External Audit Chapter of the PRA Rulebook we are also required to consider whether the Other Information is materially inconsistent with our knowledge obtained in the audit of Group, PLACL and JRL statutory financial statements. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

http://www.frc.org.uk/auditorsresponsibilities

http://www.frc.org.uk/auditorsresponsibilities

139

The purpose of our audit work and to whom we owe our responsibilities

This report of the external auditor is made solely to the Directors of the Group, JRL and PLACL as their governing body, in accordance with the requirement in Rule 4.1(2) of the External Audit Part of the PRA Rulebook and the terms of our engagement. We acknowledge that the directors are required to submit the report to the PRA, to enable the PRA to verify that an auditor’s report has been commissioned by the Directors and issued in accordance with the requirement set out in Rule 4.1(2) of the External Audit Part of the PRA Rulebook and to facilitate the discharge by the PRA of its regulatory functions in respect of the company, conferred on the PRA by or under the Financial Services and Markets Act 2000.

Our audit has been undertaken so that we might state to the Directors those matters we are required to state to them in an auditor’s report issued pursuant to Rule 4.1(2) and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than Group, JRL and PLACL through their governing body, for our audit, for this report, or for the opinions we have formed.

Daniel Cazeaux for and on behalf of KPMG LLP Chartered Accountants 15 Canada Square London E14 5GL

23 April 2020

• The maintenance and integrity of the Group website is the responsibility of the directors; thework carried out by the auditors does not involve consideration of these matters and,accordingly, the auditors accept no responsibility for any changes that may have occurredto the Group Solvency and Financial Condition Report since it was initially presented on thewebsite.

• Legislation in the United Kingdom governing the preparation and dissemination of G r o u pSolvency and Financial Condition Reports may differ from legislation in other jurisdictions.

140

Appendix – relevant elements of the Group Solvency and Financial Condition Report that are not subject

to audit

Group - internal model

The relevant elements of the Group Solvency and Financial Condition Report that are not subject to audit

comprise:

• The following elements of Group template S.02.01.02: • Row R0550: Technical provisions - non-life (excluding health) - risk margin • Row R0590: Technical provisions - health (similar to non-life) - risk margin • Row R0640: Technical provisions - health (similar to life) - risk margin • Row R0680: Technical provisions - life (excluding health and index-linked and unit-linked) - risk

margin • Row R0720: Technical provisions - Index-linked and unit-linked - risk margin

• The following elements of Group template S.22.01.22 • Column C0030 – Impact of transitional on technical provisions • Row R0010 – Technical provisions • Row R0090 – Solvency Capital Requirement

• The following elements of Group template S.23.01.22 • Row R0020: Non-available called but not paid in ordinary share capital at group level • Row R0060: Non-available subordinated mutual member accounts at group level • Row R0080: Non-available surplus at group level • Row R0100: Non-available preference shares at group level • Row R0120: Non-available share premium account related to preference shares at group level • Row R0150: Non-available subordinated liabilities at group level • Row R0170: The amount equal to the value of net deferred tax assets not available at the group

level • Row R0190: Non-available own funds related to other own funds items approved by supervisory

authority • Row R0210: Non-available minority interests at group level • Row R0380: Non-available ancillary own funds at group level • Rows R0410 to R0440 – Own funds of other financial sectors • Row R0680: Group SCR • Row R0740: Adjustment for restricted own fund items in respect of matching adjustment portfolios

and ring fenced funds • Row R0750: Other non-available own funds

• Elements of the Narrative Disclosures subject to audit identified as ‘unaudited’.

141

JRL - Solo internal model

The relevant elements of the Group Solvency and Financial Condition Report that are not subject to audit comprise:

• The following elements of template S.02.01.02:

• Row R0550: Technical provisions - non-life (excluding health) - risk margin

• Row R0590: Technical provisions - health (similar to non-life) - risk margin

• Row R0640: Technical provisions - health (similar to life) - risk margin

• Row R0680: Technical provisions - life (excluding health and index-linked and unit-linked) - risk margin

• Row R0720: Technical provisions - Index-linked and unit-linked - risk margin

• The following elements of template S.12.01.02

• Row R0100: Technical provisions calculated as a sum of BE and RM - Risk margin

• Rows R0110 to R0130 – Amount of transitional measure on technical provisions


• Column C0030 – Impact of transitional measure on technical provisions

• Row R0010 – Technical provisions

• Row R0090 – Solvency Capital Requirement


• Row R0580: SCR

• Row R0740: Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced funds


• Row R0310: SCR


PLACL – Solo standard formula

The Relevant Elements of the Group Solvency and Financial Condition Report that are not subject to audit comprise:


• Rows R0110 to R0130 – Amount of transitional measure on technical provisions


• Column C0030 – Impact of transitional measure on technical provisions


142

F.5. Glossary and definitions

Acquisition costs – acquisition costs comprise the direct costs (such as commissions) of obtaining new business.

Adjusted operating profit before tax – one of the Group’s KPIs, this is the sum of the new business operating profit and in-force operating profit together with the impact of one-off assumption changes, experience variances, results of the other Group companies and financing costs.

Amortisation and impairment of intangible assets – amortisation costs relate to the amortisation of the Group’s intangible assets, including the amortisation of intangible assets recognised in relation to the acquisition of Partnership Assurance Group plc by Just Retirement Group plc.

Auto-enrolment – new legal duties being phased in that require employers to automatically enrol workers into a workplace pension.

Buy-in – an exercise enabling a pension scheme to obtain an insurance contract that pays a guaranteed stream of income sufficient to cover the liabilities of a group of the scheme’s members.

Buy-out – an exercise that wholly transfers the liability for paying member benefits from the pension scheme to an insurer which then becomes responsible for paying the members directly.

Capped Drawdown – a non-marketed product from Just Group previously described as Fixed Term Annuity. Capped Drawdown products ceased to be available to new customers when the tax legislation changed for pensions in April 2015.

Care Plan – a specialist insurance contract contributing to the costs of long-term care by paying a guaranteed income to a registered care provider for the remainder of a person’s life.

Change in insurance liabilities – change in insurance liabilities represents the difference between the year-on-year change in the carrying value of the Group’s insurance liabilities and the year-on-year change in the carrying value of the Group’s reinsurance assets including the effect of the impact of reinsurance recaptures.

Combined Group/Just Group – following completion of the merger with Partnership Assurance Group plc, Just Group plc and each of its consolidated subsidiaries and subsidiary undertakings comprising the Just Retirement Group and the Partnership Assurance Group.

Defined benefit pension scheme – a pension scheme, usually backed or sponsored by an employer, that pays members a guaranteed level of retirement income based on length of membership and earnings.

Defined contribution (“DC”) pension scheme – a work-based or personal pension scheme in which contributions are invested to build up a fund that can be used by the individual member to provide retirement benefits.

De-risk/de-risking – an action carried out by the trustees of a pension scheme with the aim of transferring investment, inflation and longevity risk from the sponsoring employer and scheme to a third party such as an insurer.

Development expenditure – development expenditure captures costs relating to the development of new products and new initiatives, and is included within adjusted operating profit.

Drawdown (in reference to Just Group sales or products) – collective term for Flexible Pension Plan and Capped Drawdown.

Economic capital coverage ratio – economic capital is a key risk-based capital measure and expresses the Board’s view of the available capital as a percentage of the required capital.

Employee benefits consultant – an adviser offering specialist knowledge to employers on the legal, regulatory and practical issues of rewarding staff including non-wage compensation such as pensions, health and life insurance and profit sharing.

Equity release – products and services enabling homeowners to generate income or lump sums by accessing some of the value of the home while continuing to live in it.

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External credit assessment institution (“ECAI”) – means a credit rating agency that is registered or certified in accordance with Regulation (EC) No 1060/2009 of the European Parliament and of the Council or a central bank issuing credit ratings which are exempt from the application of that regulation.

Finance costs – finance costs represent interest payable on reinsurance deposits and financing, the interest on the Group’s Tier 2 debt, and, in the prior year, bank finance costs.

Flexi-access drawdown – the option introduced in April 2015 for DC pension savers who have taken tax-free cash to take a taxable income directly from their remaining pension with no limit on withdrawals.

Gross premiums written – gross premiums written are the total premiums received by the Group in relation to its Retirement Income and Protection sales in the year, gross of commission paid.

Guaranteed Guidance – see Pensions Wise.

Guaranteed Income for Life (“GIfL”) – retirement income products which transfer the investment and longevity risk to the Company and provide the retiree a guarantee to pay an agreed level of income for as long as a retiree lives. On a “joint-life” basis, continues to pay a guaranteed income to a surviving spouse/partner. Just provides modern individually underwritten GIfL solutions.

IFRS net assets – one of the Group’s KPIs, representing the assets attributable to equity holders.

IFRS profit before tax – one of the Group’s KPIs, representing the profit before tax attributable to equity holders.

In-force operating profit – one of the Group’s KPIs, capturing the expected margin to emerge from the in-force book of business and free surplus, and results from the gradual release of prudent reserving margins over the lifetime of the policies.

Investment and economic profits – investment and economic profits reflect the difference in the year between expected investment returns, based on investment and economic assumptions at the start of the year, and the actual returns earned. Investment and economic profits also reflect the impact of assumption changes in future expected risk-free rates, corporate bond defaults and house price inflation and volatility.

Key performance indicators (“KPIs”) – KPIs are metrics adopted by the Board which are considered to give an understanding of the Group’s underlying performance drivers. The Group’s KPIs are new business sales, new business operating profit, in-force operating profit, adjusted operating profit, IFRS profit before tax, IFRS net assets, Solvency II capital coverage ratio and economic capital coverage ratio.

Lifetime mortgages (“LTM”) – an equity release product that allows homeowners to take out a loan secured on the value of their home, typically with the loan plus interest repaid when the home is no longer needed.

LTM notes – structured assets issued by a wholly owned special purpose entity, Just Re1 Ltd. Just Re1 Ltd holds two pools of lifetime mortgages, each of which provides the collateral for issuance of senior and mezzanine notes to Just Retirement Ltd, eligible for inclusion in its matching portfolio.

Medical underwriting – the process of evaluating an individual’s current health, medical history and lifestyle factors, such as smoking, when pricing an insurance contract.

Net claims paid – net claims paid represents the total payments due to policyholders during the accounting period, less the reinsurers’ share of such claims which are payable back to the Group under the terms of the reinsurance treaties.

Net investment income – net investment income comprises interest received on financial assets and the net gains and losses on financial assets designated at fair value through profit or loss upon initial recognition and on financial derivatives.

Net premium revenue – net premium revenue represents the sum of gross premiums written and reinsurance recapture, less reinsurance premium ceded.

New business operating profit – one of the Group’s KPIs, representing the profit generated from new business written in the year after allowing for the establishment of prudent reserves and for acquisition expenses.

New business sales – one of the Group’s KPIs, and a key indicator of the Group’s growth and realisation of its strategic objectives. New business sales include DB, GIfL, Care, FPP and Protection premiums written combined with LTM advances in the year.

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New business strain – represents the capital strain on new business written in the year after allowing for acquisition expense allowances and the establishment of Solvency II technical provisions and solvency capital requirements.

Non-recurring and project expenditure – non-recurring and project expenditure includes any one-off regulatory, project and development costs. This line item does not include acquisition integration, or acquisition transaction costs, which are shown as separate line items.

Operating experience and assumption changes – captures the impact of the actual operating experience differing from that assumed at the start of the year, plus the impact of changes to future operating assumptions applied during the year. It also includes the impact of any expense reserve movements, and other sundry operating items.

Other Group companies’ operating results – the results of Group companies including our HUB group of companies, which provides regulated advice and intermediary services, and professional services to corporates, and corporate costs incurred by Group holding companies and the overseas start-ups.

Other operating expenses – other operating expenses represent the Group’s operational overheads, including personnel expenses, investment expenses and charges, depreciation of equipment, reinsurance fees, operating leases, amortisation of intangibles, and other expenses incurred in running the Group’s operations.

Organic capital generation – an APM and one of the Group’s KPIs. Organic capital generation is the net increase in Solvency II excess own funds over the year, excluding the impacts of equity and debt capital raised, economic variances and regulatory changes. The Board believes that this measure provides a good view of the progress made towards achieving a sustainable capital model. Organic capital generation is reconciled to Solvency II excess own funds in the Financial Review.

Pension Freedoms/Pension Freedom and Choice/Pension Reforms – the UK Government’s pension reforms, implemented in April 2015.

Pensions Wise – the free and impartial service introduced in April 2015 to provide “Guaranteed Guidance” to defined contribution pension savers considering taking money from their pensions.

PrognoSys™ – a next generation underwriting system, which is based on individual mortality curves derived from Just Group’s own data collected since its launch in 2004.

Regulated financial advice – personalised financial advice for retail customers by qualified advisers who are regulated by the Financial Conduct Authority.

Reinsurance and finance costs – the interest on subordinated debt, bank loans and reinsurance financing, together with reinsurance fees incurred.

Retirement Income sales (in reference to Just Group sales or products) – collective term for GIfL, DB and Care Plan.

Retirement sales (in reference to Just Group sales or products) – collective term for Retirement Income sales and Drawdown.

Solvency II – an EU Directive that codifies and harmonises the EU insurance regulation. Primarily this concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency.

Solvency II capital coverage ratio – one of the Group’s KPIs. Solvency II capital is the regulatory capital measure and is focused on by the Board in capital planning and business planning alongside the economic capital measure. It expresses the regulatory view of the available capital as a percentage of the required capital.

Trustees – individuals with the legal powers to hold, control and administer the property of a trust such as a pension scheme for the purposes specified in the trust deed. Pension scheme trustees are obliged to act in the best interests of the scheme’s members.

Underlying operating profit – the sum of the new business operating profit and in-force operating profit. As this measure excludes the impact of one-off assumption changes and investment variances, the Board considers it to be a key indicator of the progress of the business and a useful measure for investors and analysts when assessing the Group’s financial performance. Underlying operating profit is reconciled to IFRS profit before tax in the Financial Review.

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