ISSUED 27 MARCH PROVIDER SECTOR Just FINANCIAL STRENGTH ASSESSMENT

Transcription

1 ISSUED 27 MARCH 218 PROVIDER SECTOR Just FINANCIAL STRENGTH ASSESSMENT

2 Just P R O V I D E R S E C T O R ABOUT THIS FINANCIAL STRENGTH ASSESSMENT This AKG report and the analysis and ratings contained within it provide assessment of financial strength and associated considerations. Financial Strength is focused on the ability of a company to deliver ongoing operational capability in the interest of its customers and in line with their fairly held expectations. AKG s perspective in the assessment of financial strength is wholly that of a customer of a product or service. From that foundation, this analysis is specifically designed to inform financial advisers and assist in their required understanding of a company s operational financial strength. Given the underlying customer perspective, the financial strength of companies needs to be focused at an operational level (i.e. the elements and functions of an organisation which operate to specifically deliver and manage a proposition or service to the customer), specifically on the company that is effecting the product or service that a customer is selecting. This is important, because from the customer s perspective it is that company that needs to survive in a form that maintains the requisite operational characteristics to meet their fairly held requirements. And it is thus at this level that the selection needs of the customers advisers must be met. This contrasts to credit rating, which will be undertaken at group or parent company level where investment or debt placement etc. is made. Further details on how analysis is undertaken is provided at the end of this report and may also be obtained from AKG. TABLE OF CONTENTS Company Analysis Rating & Assessment Commentary... 3 Ratings... 3 Summary... 3 Commentary... 3 Group & Parental Context... 6 Background... 6 Group Structure (simplified)... 7 Company Analysis: Just Retirement Ltd... 8 Basic Information... 8 Operations... 9 Strategy Key Company Financial Data Company Analysis: Partnership Life Assurance Company Ltd Basic Information Operations Strategy Key Company Financial Data Guide Introduction Rating Definitions About AKG CONTACT INFORMATION Guide AKG Financial Analytics Ltd, Anderton House, 92 South Street, Dorking, Surrey, RH4 2EW Tel: +44 () akg@akg.co.uk Web: AKG Financial Analytics Ltd 2 27 March 218

3 Just P R O V I D E R S E C T O R Rating & Assessment Commentary Rating & Assessment Commentary RATINGS Overall Financial Strength B+ B+ PROVIDER SECTOR VERY STRONG PROVIDER SECTOR VERY STRONG JUST RETIREMENT LTD PARTNERSHIP LIFE ASSURANCE COMPANY LTD Additional Financial Strength and Supporting Ratings Group & Parental Context Non Profit Financial Strength Unit Linked Financial Strength With Profits Financial Strength Service Image & Strategy Business Performance Just Retirement Ltd Partnership Life Assurance Company Ltd SUMMARY Company Analysis On 4 April 216, the merger of Just Retirement Group plc and Partnership Assurance plc was completed and JRP Group plc (renamed as Just Group plc on 18 May 217) was formed With both component operations initially impacted by Pension Freedoms, merger was a logical step both (initially) as a defensive move and (ongoing) as an opportunity to exploit synergies/cost savings and greater scale/resources to grow within chosen markets Integration is now largely complete and 52m of run-rate cost synergies have been announced, ahead of the original 4m and revised 45m targets Stability and growth opportunities are now apparent in chosen markets Both operations, separately and combined, are highly regarded for service in the intermediary market. COMMENTARY Guide Financial Strength Ratings Just Retirement Ltd The Just Retirement Group, and similarly Partnership, were undoubtedly negatively impacted by the announcement and subsequent introduction of Pension Freedoms. However, both have reacted positively to the new environment and the challenges that this brings, with the merger seen as a sensible and positive development. Whilst not without its own challenges, a successful merger with Partnership brings advantages in terms of strategic development as well as providing significant comfort over long term prospects. Indications to date, however, in terms of market acceptance, performance and cost savings are positive. AKG Financial Analytics Ltd 3 27 March 218

4 Just P R O V I D E R S E C T O R Guide Company Analysis Group and company solvency levels are at an acceptable level with the group's SII solvency position estimated at 141% as at 31 December 217, and boosted further by additional Tier 3 debt raised in February 218, which would have increased this ratio to 156% had it been included as at the 217 year end. Just Retirement Ltd (JRL) is now the main company both in size and new business writing terms. Partnership Life Assurance Company Ltd Considerations similar to JRL apply to Partnership Life Assurance Company Ltd (PLACL) and whilst it is not the primary life company in the group, it is still an important component part. Service Rating Both Just Retirement and Partnership had stressed a customer focused, service orientated philosophy within their respective businesses and both were highly regarded in the intermediary market for service delivery. Whilst this excellence and similarity is a strength of the merged business, the tasks of integration and maintaining service excellence during the merger process have been no less significant. Now, following this activity, Just has announced 1m in investment to enable it to step off from integration to innovation and power diversification developments, which will include further digitalisation, product launches and service enhancement. At the heart of the service credentials is an integrated approach to continuous improvement in customer experience. This includes: The active use of the Temkin model of Customer Experience to develop all aspects of processing and communicating to ensure the three dimensions of outcome, effort and emotion are considered An extensive programme of training and coaching on Customer Centric Call Taking to develop mastery skills for telephone support staff A network of Customer Champions who specialise in areas of customer vulnerability such as dementia, physical impairment and mental emotional distress with a view to educating staff and adapting processes to accommodate these customer needs A balanced scorecard which accentuates customer outcomes and staff development over historic operational performance measures. Image & Strategy Rating Now under the single and simplified Just brand the business is able to demonstrate a clear and established retirement solutions market position. With ongoing growth opportunities the aspiration of sustainable model and increased scale appears achievable with the business having demonstrated progress to date. The operational strategy remains focused firmly on this at and in-retirement market where it seeks to leverage its experience, specific expertise and intellectual property (which has the potential of being further developed and delivering further differentiation and diversified growth, post the combination of the two businesses' IP sets). An example of diversified growth has been the establishment and maturity of the buy-out/buy-in proposition. As above, this side of the business has become increasingly important and has grown significantly in terms of its scale and contribution in a relatively short space of time. Since the March 214 Budget, both Just Retirement and Partnership pursued an imperative to adjust and develop their propositions in the light of implications for annuity volumes. The merged group has two embryonic overseas ventures. These reflect initial activity from each of the two constituent businesses: a South African business previously being developed by Just Retirement (offering Risk shared annuities, a non profit guaranteed annuity and longevity swaps); and a US business previously being developed by Partnership, offering an immediate needs annuity. Both businesses are currently very small and still in start up phase, but present further growth avenues longer term for the group, alongside its UK growth focus. AKG Financial Analytics Ltd 4 27 March 218

5 Just P R O V I D E R S E C T O R Rating & Assessment Commentary Group & Parental Context Business Performance Rating The Just Group is a leading specialist provider of retirement income products and services to both individuals and corporates, and a major provider of lifetime mortgages (LTM). 216 was a year that demonstrated Just s products are well placed in attractive growth markets. Momentum has been maintained in both the defined benefit (DB) de-risking and LTM markets, and stability looks to have emerged in the market for individual Guaranteed Income for Life (GIfL) or annuity products. The focus is on growing operating profits rather than sales volumes, which has seen the new business operating profit increasing to 124m and adjusted operating profit to 164m in the 12 months to 31 December 216 [ 17m and 221m respectively in 217]. The decision was taken subsequent to the merger to write the principal lines of business in JRL, with 95% of sales in that company during the final quarter of 216, and over 2bn of new business in 216 as a whole. In future, PLACL will focus on Care products in both the UK and through underwriting United States business generated by its partner Genworth. Both businesses have reacted positively to the prospect of a radically different decumulation landscape from 215. Against this backdrop, the formation of the Just Group plc was a welcome development, further enhanced by the raising of 48m of additional capital, which increases flexibility, improves the regulatory capital structure, enabled the repayment of around 1m of senior bank debt and also provides greater growth opportunities. The group announced an 11% reduction in overall sales on a pro forma basis in 216 [Up by 2% from 2,47.9m to 2,457.1m in 217]. In 218, Just announced that 52m of run-rate cost synergies had been achieved, one year ahead of schedule and ahead of the original 4m and revised 45m targets. Outside of the life companies, HUB Financial Solutions continued to win new mandates, including deals with Prudential and Phoenix Life. Guide Company Analysis AKG Financial Analytics Ltd 5 27 March 218

6 Just P R O V I D E R S E C T O R BACKGROUND Group & Parental Context On 4 April 216, the merger of Just Retirement Group plc and Partnership Assurance plc was completed and JRP Group plc (renamed as Just Group plc on 18 May 217) was formed, with former Just Retirement and Partnership shareholders owning 6% and 4% respectively of the group. The group has around 5, customers and over 1, employees. Its principal subsidiaries are JRL and PLACL. JRL was launched in August 24 having been established with financing from Langholm Capital Partners LLP. In December 26 Just Retirement carried out an IPO, with just over 2% of its issued shares being placed on AIM, raising an additional 56m in capital. At the same time the group launched its distribution business, Just Retirement Solutions Ltd. In October 21 the group acquired The Open Market Annuity Service Ltd (TOMAS), a move designed to improve Just Retirement's presence in the annuity platform space. In November 29 Avalon Acquisitions Ltd (renamed Just Retirement Group Holdings Ltd in August 213), a newly incorporated company owned by Avallux Sarl, itself controlled by private equity funds advised by Permira Advisers LLP, acquired Just Retirement, valuing the group at 228m. Avalon subsequently injected 25m into the group. The AIM listing was also withdrawn. In June 213, Just Retirement Group plc was established as the new group holding company in anticipation of an IPO. On 15 November 213 the group was admitted to the London Stock Exchange, valued at around 1.1bn. Permira and other shareholders sold 19m shares equal to 3.8% of the shares on offer and the group raised around 28m after costs. PLACL came into operation at the end of September 25, established by Phoenix Equity Nominees Ltd (Phoenix) using their Phoenix Equity Partners Fund IV. On 3 September 25, The Pension Annuity Friendly Society Ltd demutualised and its business was transferred to PLACL. On 5 August 28, Cinven Ltd became the principal owner taking a 77% ownership, having agreed to buyout the Phoenix Equity Partners' holding. The remainder stayed under management ownership. On 26 February 213 Partnership Assurance Group plc was incorporated, becoming the holding company, ahead of its listing on the London Stock Exchange on 12 June 213, a flotation, valuing the group at around 1.5bn, which raised 125m. The Just Group's other subsidiaries include its operations in South Africa and the USA and HUB Financial Solutions Ltd, formed by the merger of Just Retirement Solutions Ltd and The Open Market Annuity Service Ltd and a provider of a range of retirement-focused services, including software development and customer services as well as its operations in South Africa and the USA. In October 216, Just issued 25m of subordinated debt part of which was used to repay bank borrowings. At 31 December 216, Just Group held 76m [217: 663m, estimated] of excess own funds representing a capital coverage ratio of 151% [217: 141%, estimated] of SCR. Excess Own Funds and coverage ratios were 442m and 147% for JRL, and 67m and 115% for PLACL respectively. February 218 saw the group issue 23m of Tier 3 regulatory qualifying capital, so increasing its capital ratios and enhancing its financial resilience. Both Cinven and Permira have been gradually reducing their ownership of the group, with Cinven completing its divestment in January 218. AKG Financial Analytics Ltd 6 27 March 218

7 Just P R O V I D E R S E C T O R GROUP STRUCTURE (SIMPLIFIED) AKG Financial Analytics Ltd 7 27 March 218

8 Just Retirement Ltd P R O V I D E R S E C T O R Company Analysis: Just Retirement Ltd BASIC INFORMATION Company Type Life Insurer Ownership & Control Just Group plc Year Established 24 Country of Registration UK Head Office Vale House, Roebuck Close, Bancroft Road, Reigate, Surrey RH2 7RU Contact Key Personnel Role Group Chairman Group Chief Executive Officer Group Deputy Chief Executive & MD UK Corporate Business Group Chief Financial Officer Group Marketing & Distribution Director Group Chief Risk Officer Group Regulation & Audit Director Managing Director UK Retail Business Group Chief Digital Information Officer MD Retirement Lending, International & Group Development Name Dr C S Gibson-Smith R M Cook D L Richardson S G Thomas D P Cooper A Duncan S W B Kyle H McKee G Offen P J Turner Company Background JRL was established in 24 with a capitalisation of 25m from Langholm Capital. Around 2% of the group was floated on AIM in December 26, raising an additional 56m. November 29 saw the group acquired by Avalon Acquisitions Ltd, a company established by private equity advisers Permira and now renamed as Just Retirement Group Holdings Ltd. Admitted to the London Stock Exchange in November 213, April 216 saw Just Retirement merge with Partnership and the formation of Just Group plc (formerly JRP Group plc). JRL is the group's main life company, now writing around 95% of the group's principal products. AKG Financial Analytics Ltd 8 27 March 218

9 Just Retirement Ltd P R O V I D E R S E C T O R OPERATIONS Governance System and Structure The business operates a governance model which it believes is effective and proportionate and is characterised by being active at all stages, including at the most senior board level. Key components are: the Board; the Group Risk & Compliance Committee; the Group Chief Risk Officer; the Group Executive Officer; and Subsidiary Boards. 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 is committed to the highest levels 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. Through delegation to the various committees and functions, the application of best practice across the Just Group is considered by it to be efficient and effective. The terms of reference of the various committees are tightly defined enabling robust governance supportive of strong decision making. Oversight is provided by the Risk and Compliance Committee of the risk management and compliance activities across the Just Group including within JRL and PLACL. Audit activities are overseen by the Audit Committee. The aim is then to have governance embedded via the established three lines of defence model. Clear distinction is made between the three lines of defence, with the Risk function, Compliance function and the Chief Actuary s function representing the second line which is independent of the Finance and Actuarial reporting teams constituting the first line, and the Audit function as the third line. Risk Management The Risk Management Framework enables risk management to be integrated into Just s organisational and decision making processes, with the preparation of Just s group-wide Own Risk and Solvency Assessment (ORSA) document providing 'a comprehensive assessment' of the regulated group companies risk and solvency positions. Risk identification is performed on a continuous basis, and is embedded in the ORSA. The primary risks to which Just is exposed arise through its regulated insurance entities JRL and PLACL. 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 guarantees provided within lifetime mortgages, and Underwriting risk arising through the exposure to longevity, mortality and morbidity risks. Risk is measured qualitatively and quantitatively, including through the Solvency II SCR calculations. The Just operation has developed a strong and central risk management approach, with significant evolution having taken place in recent years. The risk management framework seeks to align overall business strategy with financial and non-financial risk exposures, capital allocation and sustainable growth. Central to this has been work to engage all employees in making more effective decisions which incorporate a better understanding of risk. And within this, alongside business outcomes Just articulates the following in terms of desired stakeholder outcomes: Creating and protecting value Competitive advantage Security of policyholder benefits Improved returns and lower volatility Reduced capital requirements and lower cost of capital Increasing confidence of stakeholders. AKG Financial Analytics Ltd 9 27 March 218

10 Just Retirement Ltd P R O V I D E R S E C T O R Administration Since the launch of both constituent businesses, management philosophy has been that the quality of service to the intermediary is a key driver to long term success, along with an ability to deliver such in a cost effective and consistent manner; with both operations having constructed appropriate infrastructure to do this and consequently developing positive reputations in this area. The ongoing Just strategy is to utilise the benefits of technology to improve the quality of its service and proposition whilst also controlling costs. Overall the company regards service quality and customisation to be key factors for selection in each of its chosen markets. All areas of operations have published and measured service standards. The company compares well against these whether judged by customer satisfaction rates or by independent research. Just has proved itself able to also cope with the rapid growth of DB scheme derisking, including a significant medically underwritten element. Benchmarks Just Retirement has won a number of product focused awards, including recently a Moneyfacts 5 star rating for its Roll Up Life Time Mortgage Plan and a Moneywise 213 award for best individually underwritten annuity Provider. Partnership was voted Investment Life & Pensions Moneyfacts 'Best Enhanced Annuity Provider' for the fifth year in a row in 214. It has also been named as 'European Pensions Buyout Firm of the Year' in the bulk market at the European Pension Awards 215. Both Just Retirement and Partnership have gathered a wealth of service awards and standards in recent years. Including five stars for both businesses over many consecutive years leading up to the merger and since, and other awards such as Moneyfacts for annuity service. Outsourcing 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. As a result of the merger of Just Retirement and Partnership Assurance there has been an increase in the number and range of material outsourced arrangements reflecting the companies different operational strategies. The principal activities that are outsourced are: Investment Management - outsourced by JRL to service providers in the UK and the Netherlands, and by PLACL to service providers in the UK Defined benefit (buy out/buy in) policy administration - outsourced by JRL to JLT Scanning of customer applications and other paper records - outsourced by JRL to Data Capture Ltd Administration of Post Completion policies - outsourced by PLACL to Capita Hartshead (annuities) and Direct Group Ltd (life protection). AKG Financial Analytics Ltd 1 27 March 218

11 Just Retirement Ltd P R O V I D E R S E C T O R STRATEGY Market Positioning In January 217 the business moved to operate under the single 'Just' brand. The group has three areas of strategic focus: UK retail (retirement income, lifetime mortgages and long-term care) UK Defined Benefit De-risking International (US care and South Africa retirement income). As a single operation, Just has a specialist but increasingly balanced distribution strategy. This sees a balance between the DB solutions arena, which draws on the recent strengths and growth of both businesses, and the strong specialist position of each in the retail space. Within this overall balance there is then further balance sought within the retail space. Here the primary focus of the merged business remains on the intermediary market, although the company continues to seek to widen and re-balance its distribution through the development of other complementary channels and opportunities overseas. Alongside the 'mainstream' intermediary channel other distribution partnerships include relationships with other life companies, such as Phoenix Life, aggregators and media organisations. Further, Just is able to provide a range of options and components for the B2B2C market, including white labelling and outsourcing of advice, software and database support. In July 217, Just Retirement Solutions Ltd merged with a sister company in the JRP Group, The Open Market Annuity Service Ltd (TOMAS). The combined business was renamed as HUB Financial Solutions Limited. HUB Financial Solutions is seen as a prime enabler, including with corporate pension schemes to enable simplified advice to members and offers Retirement Income Services and Equity Release Advice Services for a number of different audiences, as well as software and consultancy services that are provided to businesses and their employees. Proposition With its strategy firmly focused on the at-and-in-retirement impaired life market, Just has seven core products with JRL focusing on providing retirement income products to individual and corporate clients and lifetime mortgages and PLACL on care products. Protection, previously written into PLACL, is being discontinued in 218. The following are written into JRL: Defined Benefit De-risking Solutions (DB) Guaranteed Income for Life (GIfL - annuities) Flexible Pension Plan (FPP) Lifetime Mortgages (LTM). Written by PLACL: Care Plans (CP) United States Care business. Its markets, which are all relatively attractive from a growth perspective, and where the business has an established track record, as well as highly developed relevant intellectual property in certain areas, are positioned to also form a complementary environment from a funding perspective. Lifetime mortgages products complement the annuity business, with a controlled proportion of annuity proceeds invested in them. Lifetime mortgages products are an investment of annuity funds on more favourable terms than normally available through corporate bonds, the more conventional investment medium for annuities. Whilst potentially providing a higher return, this diversifies the investment portfolio and is therefore beneficial from a Solvency II perspective. A small proportion of the funds are invested in index-linked gilts to match indexed annuities. AKG Financial Analytics Ltd March 218

12 Just Retirement Ltd P R O V I D E R S E C T O R As above the use of technological solutions is seen as a key part of enabling the development of the market and its own growth. As well as its own web presence, Just continues to develop links with portal services and is keen to meet the requirements of its distributors as they evolve. 215 saw Just Retirement partner with GBST to deliver platform capability and enable a flexible pension plan proposition. Just Retirement also upgraded its GIfL offering to include extended guarantees and taxable lump sums. The company also moved into regulated advice with the launch of an automated simplified advice proposition. In recent years Just has also invested heavily in its systems for appropriate underwriting, with current activity now benefiting from use of its PrognoSys system. Since outset, JRL had used Robeco, an investment house based in the Netherlands and experienced in the matching of liabilities with appropriate fixed interest investments, as the sole manager of the bond portfolio. This changed in 212, when Just Retirement appointed an additional fund manager, BlackRock. BlackRock has since taken on further responsibility for specific sectors such as industrials and utilities within the public bond portfolio. Robeco and Blackrock manage 4.4bn in assets. In June 214, MetLife was appointed to manage 25m in private bond issues, since extended to 35m. In June 215, Westbourne was appointed to manage 25m in infrastructure related debt. KEY COMPANY FINANCIAL DATA Last 3 reporting periods up to 31 December 216 Assets Fixed interest 5,794 Equities Collectives 186 Property Linked 3 Derivatives 56 Loans and mortgages 4,826 Reinsurance recoverables 2,692 Cash 4 Other 58 Total Assets 14,24 Liabilities Technical provisions - nonlife Technical provisions - health (similar to life) Technical provisions - life 9,87 Technical provisions - linked 3 Other 3,295 Total Liabilities 13,132 Excess of assets over liabilities The main asset classes are fixed interest (41% - reflecting the nature of the liabilities), lifetime mortgages (34%) and reinsurance recoverables (19%). As at 31 December 216, the Just Group had total assets of around of 24bn. 1,72 AKG Financial Analytics Ltd March 218

13 Just Retirement Ltd P R O V I D E R S E C T O R Life & Health SLT Technical Provisions Insurance with profit participation Linked insurance 3 Other life insurance 9,87 Annuities - from non-life health Annuities - from non-life non-health Health insurance Health reinsurance Life reinsurance Total life and health SLT technical provisions 9,836 Life Expenses Health insurance Insurance with profit participation Linked insurance Other life insurance 87 Annuities - from non-life health Annuities - from non-life non-health Health reinsurance Life reinsurance Other expenses 129 Total life expenses 216 JRL has two lines of business under Solvency II: 'Other life', in which all of its principal products are reported and 'Indexlinked and Unit-linked' within which the Flexible Pension Plan (FPP) product is reported, representing less than.5% of total provisions. Solvency Capital Requirement (SCR) Market risk 1,1 Counterparty default risk Life underwriting risk 551 Health underwriting risk Non-life underwriting risk Diversification (396) Intangible asset risk Operational risk 33 Capital add-ons already set Other items (237) Solvency capital requirement 951 Own Funds Tier 1 unrestricted 1,72 Tier 1 restricted Tier Tier 3 Eligible own funds 1,394 Excess of own funds over SCR 442 SCR coverage ratio (%) 147. Just Group and JRL calculated their Solvency II capital requirements using a full internal model. The capital requirement for PLACL was assessed using the standard formula, although this will move to an internal model in due course. As mentioned earlier, the most significant risks are market and underwriting. Tier 2 Own Funds relates to subordinated debt. Just Group issued 25m of subordinated debt in October 216. On the same date, JRL issued 25m of back to back debt to Just Group, enabling JRL to redeem 2m of debt previously held by Just Retirement (Holdings) Limited (JRH), leaving 5m outstanding. The JRH debt had been issued by JRL in tranches commencing in October 212, including 3m in June 216. AKG Financial Analytics Ltd March 218

14 Just Retirement Ltd P R O V I D E R S E C T O R At 31 December 216, Just Group held 76m of excess own funds representing a capital coverage ratio of 151% of SCR. Excess Own Funds and coverage ratios were 442m and 147% for JRL, and 67m and 115% for PLACL respectively. 23m of Tier 3 debt was issued in February 218. Gross Life Premiums Written By Line of Business Health insurance Insurance with profit participation Linked insurance 29 Other life insurance 2,588 Annuities - from non-life health Annuities - from non-life non-health Health reinsurance Life reinsurance Total gross life premiums written 2,617 Gross Life Premiums Written By Country Home country 2,617 Country 1 Country 2 Country 3 Country 4 Country 5 Other countries Total gross life premiums written Total new business sales for the group reduced by 11% from 2.7bn to 2.4bn in 216 (JRL: 2.bn, PLACL:.4bn). Within this: DB sales fell by 24% from 1.2bn to 943.4m (JRL: 945.9m, PLACL; - 2.5m, a negative premium adjustment), with the second half of 215 benefitting from exceptionally high sales, as sales were brought forward ahead of the introduction of Solvency II. Underlying sales were reported as being positive as momentum grew through 216 with sales in the second half of the year of 779m, approaching five times sales of 164m in the first half. GifL sales increased by 2% from 762.8m to 778.1m (JRL: 624.2m, PLACL: 148.4m) as the market stabilised following the introduction of Pension Freedoms. Sales of care plans increased by 5% up from 92.2m to 97.2m (JRL: 26.5m. PLACL: 7.7m). Drawdown Sales, all written in JRL, including Flexible Pension Plan and Capped Drawdown, increased by 22% from 2.6m to 25.2m. Capped Drawdown is no longer open to new business. Protection sales, all written in PLACL, remained stable at 4.7m and Lifetime Mortgage Loans decreased by 6% from 598.m to 559.3m (JRL: 387.6m, PLACL 171.7m). Protection is being discontinued in ,617 AKG Financial Analytics Ltd March 218

15 Just Retirement Ltd P R O V I D E R S E C T O R Profit Profit (loss) before taxation 133 (3) 215 Taxation (25) 8 (41) Profit (loss) after taxation 18 (22) 174 Other comprehensive income Dividends Retained profit (loss) 18 (22) 174 Life Business Flows Net life premiums earned 1,54 1,985 2,285 Net life claims incurred (216) (272) (625) Net flow of business 838 1,713 1,66 JRL declared a pre-tax profit of 214.6m for the 18 months to 31 December 216 [215 restated: 3.1m loss] and again did not declare a dividend for the year [215: nil]. At group level and on a pro forma basis, new business operating profit in the 12 months to 31 December 216 increased to 123.9m [215: 68.m]. Of this, JRL s new business operating profit was 132.9m as margins improved over the period, reflecting pricing changes following implementation of Solvency II, favourable mortgage yields, initial benefits from delivering the post-merger cost synergies, and a focus on profits over volumes. PLACL s new business operating loss was 9.m, as it largely stopped selling GIfL business after the merger. Group in-force operating profit also increased, to 75.3m [215: 7.9m], due to the growth in the size of the in-force business offset by the impact of lower interest rates on the returns earned on surplus assets and the effect of narrowing bond spreads reducing the corporate bond default margin emerging. As a result, group underlying operating profit grew by 43% to 199.2m [215: 138.9m]. The European embedded value increased to 2.bn [215 pro forma: 1.8bn]. [NOTE: Differences in Group R&As and SFCR] AKG Financial Analytics Ltd March 218

16 Partnership Life Assurance Company Ltd P R O V I D E R S E C T O R Company Analysis: Partnership Life Assurance Company Ltd BASIC INFORMATION Company Type Life Insurer Ownership & Control Just Group plc Year Established 25 Country of Registration UK Head Office Vale House, Roebuck Close, Bancroft Road, Reigate, Surrey RH2 7RU Contact Key Personnel Role See Just Retirement Ltd Company Background Partnership Life Assurance Company Ltd (PLACL) was established in October 25 to receive the business of the Pension Annuity Friendly Society (PAFS) following its demutualisation, the first ever by a UK Friendly Society. PAFS was founded in 1995 to provide financial services products for people with non-standard medical requirements. The Anderton Mortality Tables were constructed specifically for PAFS to assess the anticipated life expectancy for individuals with medical conditions. These were replaced with the Enhanced Mortality Tables (EMT) in saw the company change ownership, from Phoenix Equity Partners to Cinven Ltd. 28 also saw a capital injection of 9.8m. There were also further drawdowns of its 16m subordinated debt arrangement with Lloyds Banking Group in 28 and 29 - at which stage it was fully drawn down. 212 saw capital injections totalling 111.8m from funds raised partly by Cinven and partly by Lloyds Banking Group. This enabled the company to repay the subordinated debt and also, along with retained profits, substantially boost its solvency coverages. In October 213, the company acquired B&CE's annuity portfolio. April 216 saw the merger of Just Retirement with Partnership and the formation of JRP Group plc, now known as Just Group plc. OPERATIONS Governance System and Structure See JRL Risk Management See JRL Name Administration See JRL AKG Financial Analytics Ltd March 218

17 Partnership Life Assurance Company Ltd P R O V I D E R S E C T O R Benchmarks See JRL Outsourcing See JRL STRATEGY Market Positioning See JRL Proposition See JRL KEY COMPANY FINANCIAL DATA Last 3 reporting periods up to 31 December 216 Assets Fixed interest 3,57 Equities Collectives 164 Property Linked Derivatives 27 Loans and mortgages 1,959 Reinsurance recoverables 3,468 Cash 35 Other 36 Total Assets 9,26 Liabilities Technical provisions - nonlife Technical provisions - health (similar to life) Technical provisions - life 5,972 Technical provisions - linked Other 2,887 Total Liabilities 8,859 Excess of assets over liabilities The main asset classes are fixed interest (39% - reflecting the nature of the liabilities), lifetime mortgages (21%) and reinsurance recoverables (37%) As at 31 December 216, the Just Group had total assets of around of 24bn. 41 AKG Financial Analytics Ltd March 218

18 Partnership Life Assurance Company Ltd P R O V I D E R S E C T O R Life & Health SLT Technical Provisions Insurance with profit participation Linked insurance Other life insurance 5,972 Annuities - from non-life health Annuities - from non-life non-health Health insurance Health reinsurance Life reinsurance Total life and health SLT technical provisions 5,972 PLACL has one line of business under Solvency II: 'Other life'. Solvency Capital Requirement (SCR) Market risk 37 Counterparty default risk 2 Life underwriting risk 25 Health underwriting risk Non-life underwriting risk Diversification (95) Intangible asset risk Operational risk 27 Capital add-ons already set Other items (25) Solvency capital requirement 439 Life Expenses Health insurance Insurance with profit participation Linked insurance Other life insurance 61 Annuities - from non-life health Annuities - from non-life non-health Health reinsurance Life reinsurance Other expenses 12 Total life expenses 73 Own Funds Tier 1 unrestricted 386 Tier 1 restricted Tier 2 15 Tier 3 15 Eligible own funds 56 Excess of own funds over SCR SCR coverage ratio (%) 115. Just Group and JRL received approval to calculate their Solvency II capital requirements using a full internal model which continued to be used for those parts of the Group at December 216. The capital requirement for PLACL was assessed using the standard formula, although this will move to an internal model in due course. As mentioned earlier, the most significant risks are market and underwriting. The PLACL debt had initially been issued to Partnership Assurance Group plc (PAG) in March 215 in a back to back arrangement with PAG s external debt issued at the same time. In April 216, PLACL replaced PAG as the principal obligator for the externally held Tier 2 subordinated debt of 15.4m shown above. PLACL s deferred tax asset of 14.7m is classified as Tier 3 capital. 67 In June 216, PLACL issued 1m of ordinary shares at par to its immediate parent company, Partnership Group Holdings Ltd. AKG Financial Analytics Ltd March 218

19 Partnership Life Assurance Company Ltd P R O V I D E R S E C T O R At 31 December 216, Just Group held 76m of excess own funds representing a capital coverage ratio of 151% of SCR. Excess Own Funds and coverage ratios were 442m and 147% for JRL, and 67m and 115% for PLACL respectively. 23m of Tier 3 debt was issued in February 218. Gross Life Premiums Written By Line of Business Health insurance Insurance with profit participation Linked insurance Other life insurance 185 Annuities - from non-life health Annuities - from non-life non-health Health reinsurance Life reinsurance Total gross life premiums written 185 Gross Life Premiums Written By Country Home country 185 Country 1 Country 2 Country 3 Country 4 Country 5 Other countries Total gross life premiums written Total new business sales for the group reduced by 11% from 2.7bn to 2.4bn in 216 (JRL: 2.bn, PLACL:.4bn). Within this: DB sales fell by 24% from 1.2bn to 943.4m (JRL: 945.9m, PLACL; - 2.5m, a negative premium adjustment), with the second half of 215 benefitting from exceptionally high sales, as sales were brought forward ahead of the introduction of Solvency II. Underlying sales were reported as being positive as momentum grew through 216 with sales in the second half of the year of 779m, approaching five times sales of 164m in the first half. GifL sales increased by 2% from 762.8m to 778.1m (JRL: 624.2m, PLACL: 148.4m) as the market stabilised following the introduction of Pension Freedoms. Sales of care plans increased by 5% up from 92.2m to 97.2m (JRL: 26.5m. PLACL: 7.7m). Drawdown Sales, all written in JRL, including Flexible Pension Plan and Capped Drawdown, increased by 22% from 2.6m to 25.2m. Capped Drawdown is no longer open to new business. Protection sales, all written in PLACL, remained stable at 4.7m and Lifetime Mortgage Loans decreased by 6% from 598.m to 559.3m (JRL: 387.6m, PLACL 171.7m). Protection is being discontinued in AKG Financial Analytics Ltd March 218

20 Partnership Life Assurance Company Ltd P R O V I D E R S E C T O R Profit Profit (loss) before taxation 24 (5) 152 Taxation (3) 1 (27) Profit (loss) after taxation 2 (3) 124 Other comprehensive income Dividends Retained profit (loss) 2 (3) 124 Life Business Flows Net life premiums earned Net life claims incurred (135) (15) (161) Net flow of business (74) PLACL declared a pre-tax profit of 151.5m [215 restated: 4.8m loss] and again did not declare a dividend for the year [215: nil]. At group level and on a pro forma basis, new business operating profit in the 12 months to 31 December 216 increased to 123.9m [215: 68.m]. Of this, JRL s new business operating profit was 132.9m as margins improved over the period, reflecting pricing changes following implementation of Solvency II, favourable mortgage yields, initial benefits from delivering the post-merger cost synergies, and a focus on profits over volumes. PLACL s new business operating loss was 9.m, as it largely stopped selling GIfL business after the merger. Group in-force operating profit also increased, to 75.3m [215: 7.9m], due to the growth in the size of the in-force business offset by the impact of lower interest rates on the returns earned on surplus assets and the effect of narrowing bond spreads reducing the corporate bond default margin emerging. As a result, group underlying operating profit grew by 43% to 199.2m [215: 138.9m]. The European embedded value increased to 2.bn [215 pro forma: 1.8bn]. AKG Financial Analytics Ltd 2 27 March 218

21 Just P R O V I D E R S E C T O R INTRODUCTION Guide For over 2 years AKG has particularly focused on the financial strength requirements of financial advisers, who when acting on behalf of their clients, need to ascertain a company's ability to deliver sustained provision. From this customer perspective, the financial strength of companies needs to be focused at an operational level, specifically on the company that is effecting the product or service that a customer is selecting. This is important, because from the customer s perspective it is that company (not some higher corporate entity) that needs to survive in a form that maintains the requisite operational characteristics to meet their fairly held requirements. And it is thus at this level that the selection needs of the customers advisers must be met. It is also important to understand the sector approach (comparative peer groups) that is adopted in financial strength assessment and rating process. At AKG, this is again driven by the end customer perspective and the fact that assessment is designed solely for this purpose, i.e. as a component in helping customers advisers to select between comparable companies competing to deliver relevant products or services. AKG s focus and approach has remained consistent over the years since it commenced assessment and rating support for the market. However, coverage, format and presentation has rightly evolved over this period, in line with the needs and expectations of assessment and rating users in the market. And AKG considers further changes on a continual basis. Further details including an explanation of what is included in the assessment reports and coverage can be found online at AKG s process for assessment and rating is to use a balanced scorecard of measures and comparative information, relevant to the companies contained within each peer group. This is gathered via Public Information only for non-participatory assessments and public information plus company interactions with companies for participatory assessments. Further details on AKG s process can be found at This includes further information on the different participatory and non-participatory basis and for companies wishing to learn more about participatory assessment AKG is pleased to outline this and welcomes contact. This is a participatory assessment. RATING DEFINITIONS Overall Financial Strength Rating The objective is to provide a simple indication of the general financial strength of a company from the perspective of those financial advisers who when acting on behalf of their clients need to ascertain a company's ability to deliver sustained operational provision of products or services. The overall rating inherently reflects the mix of business within the company, since different types of customer or policyholder have different requirements and expectations, and the company may have particular strengths and weaknesses in respect of its key product or service areas. However, it also takes account of comparison across the sector in which it is assessed. The rating takes into account those of the following criteria which are relevant (depending upon the company's mix of business in-force): capital and asset position, expense position and profitability, any specifically onerous elements such as guarantees, structure (and size) of funds within the company, parental strength (and likely attitude towards supporting the company), operational capability, management strength and capability, strategic position and rationale, brand and image, AKG Financial Analytics Ltd March 218

22 Just P R O V I D E R S E C T O R typical fund performance achievements or product / service features, its operating environment and ability to withstand external forces. Rating Scale A B+ B B- C D Superior Very Strong Strong Satisfactory Weak Very Weak Not applicable With Profits Financial Strength Rating The objective is to assess the overall strength of the company s with profits funds. The initial concern is the company's ability to meet its ongoing guaranteed, or promised, commitments to customers, i.e. existing sum assured and bonuses. However, the company's ability to continue to compete successfully in the with profits market is also particularly relevant, given that closed funds are sometimes bad news for policyholders. In such situations, overall expenses tend to increase as a proportion of the fund and investment performance may well deteriorate. These, together with other factors, may make it difficult for companies in such situations to maintain competitive bonus rates at future declarations, although existing declared bonuses are not affected (other than possibly by MVRs). This is from the perspective of those financial advisers who when acting on behalf of their clients, for this product type, need to ascertain a company's ability to deliver sustained operational provision of with profits funds, products or propositions. Its comparison is with other companies within the assessment sector that offer or have with profits business. The main criteria taken into account are: capital and asset position, expense position and profitability, the amount of with profits business in-force, parental strength (and likely attitude towards supporting the company), and image and strategy. NOTE: More detailed analysis of with profits companies is included in AKG s UK Life Office With Profits Reports. Rating Scale Excellent Very Good Good Adequate Poor Not Rated Unit Linked Financial Strength Rating The objective is to provide a simple indication of the unit linked financial strength of a company, where it currently offers unit linked business or has existing unit linked business within it. This is from the perspective of those financial advisers who when acting on behalf of their clients, for this product type, need to ascertain a company's ability to deliver sustained operational provision of unit linked products or propositions. Its comparison is with other companies within the assessment sector that offer or have unit linked business. The main criteria taken into account are: capital and asset position, expense position and profitability, structure (and size) of funds within the company, parental strength (and likely attitude towards supporting the company), operational capability, management strength and capability, strategic position and rationale, brand and image, typical fund performance achievements or product / service features, its operating environment and ability to withstand external forces. Rating Scale Excellent Very Good Good Adequate Poor Not Rated Non Profit Financial Strength Rating The objective is to provide a simple indication of the non profit financial strength of a company, where it currently offers or has existing products and propositions such as term assurance and annuities. This includes the company s ability to meet all guaranteed payments arising from such products, but also the company s wider ability to deliver sustained operational provision of such non profit products or propositions. Its comparison is with other companies within the assessment sector that offer or have non profit business. AKG Financial Analytics Ltd March 218

23 Just P R O V I D E R S E C T O R The main criteria taken into account are: capital and asset position, expense position and profitability, structure (and size) of funds within the company, parental strength (and likely attitude towards supporting the company), operational capability, management strength and capability, strategic position and rationale, brand and image, product / service features, its operating environment and ability to withstand external forces. Rating Scale Excellent Very Good Good Adequate Poor Not Rated Service Rating The objective is to assess the quality of the organisation's service to the intermediary market in respect of the brand concerned. Criteria taken into account include: performance in surveys, awards and benchmarking exercises (external and internal), the organisation's philosophy, service charters, the extent of investments designed to improve service, and feedback from intermediaries. Rating Scale Excellent Very Good Good Adequate Poor Not Rated Image & Strategy Rating The objective is to assess the effectiveness of the means by which the organisation currently positions itself to distribute its products for the brand concerned and the plans it has to maintain and/or develop its position. Criteria taken into account include: overall trends in the company s market share position, brand visibility and reputation, feedback from intermediaries and industry commentators, and AKG s view of the company s general strategy. Rating Scale Excellent Very Good Good Adequate Poor Not Rated Business Performance Rating This review is an assessment of how the company and the brand has fared against its peers, and how it is perceived externally. Effectively this is how it has performed recently in the market. Whilst it will include performance indicators from the most recent available statutory reporting (report and accounts and SFCRs in the case of insurance companies, for example) it will also draw on other recent key performance elements before and after such disclosure, up to the point at which the assessment is undertaken. Criteria taken into account include: increase/decrease in market shares, expense containment, publicity good or bad, press or market commentary, regulatory fines, and competitive position. Rating Scale Excellent Very Good Good Adequate Poor Not Rated AKG Financial Analytics Ltd March 218

24 Just P R O V I D E R S E C T O R ABOUT AKG AKG is an independent organisation. Originally established as an actuarial consultancy AKG has, for over 2 years, specialised in the provision of assessment, ratings, information and market assistance to the financial services industry. As the market has evolved over this period, the range of entities considered by AKG has expanded. Consequently, AKG has brought additional skill sets into its operations. This has meant the inclusion of accounting, corporate finance, IT and market intelligence experience, alongside actuarial resources, to deliver an expanded professional capability. Today AKG s core purpose is in the provision of financial analysis and review services to support the wider financial services sector and its customers. AKG Financial Analytics Ltd (AKG) 218 This report is issued as at a certain date, and it remains AKG's current assessment with current ratings until it is superseded by a subsequently issued report or subsequently issued ratings (at which point the newly issued report or ratings should be used), or until AKG ceases to make such a report or ratings available. The report contains assessment based on available information at the date as shown on the report s cover and in its page footer. This includes prior regulatory data which may have an earlier date associated with it, but the report also takes into account all relevant events and information, available to and considered by AKG, which have occurred prior to this stated cover and footer date. Events and information subsequent to this date are not covered within it, but AKG continually monitors and reviews such events and information and where individually or in aggregate such events or information give rise to rating revision an updated report under an updated date is issued as soon as possible. All rights reserved. This report is protected by copyright. This report and the data/information contained herein is provided on a single site multi user basis. It may therefore be utilised by a number of individuals within a location. If provided in paper form this may be as part of a physical library arrangement, but copying is prohibited under copyright. If provided in electronic form, this may be by means of a shared server environment, but copying or installation onto more than one computer is prohibited under copyright. Printing from electronic form is permitted for own (single location) use only and multiple printing for onward distribution is prohibited under copyright. Further distribution and uses of the report, either in its entirety or part thereof, may be permitted by separate agreement, under licence. Please contact AKG in this regard or with any questions: akg@akg.co.uk, Tel +44 () AKG has made every effort to ensure the accuracy of the content of this report and to ensure that the information contained is as current as possible at the date of issue, but AKG (inclusive of its directors, officers, staff and shareholders and any affiliated third parties) cannot accept any liability to any party in respect of, or resulting from, errors or omissions. AKG information, comments and opinion, as expressed in the form of its analysis and ratings, do not establish or seek to establish suitability in any individual regard and AKG does not provide, explicitly or implicitly, through this report and its content, or any other assessment, rating or commentary, any form of investment advice or fiduciary service. AKG Financial Analytics Ltd March 218

25 AKG Financial Analytics Ltd Anderton House, 92 South Street, Dorking, Surrey RH4 2EW Tel: +44 () Web: AKG Financial Analytics Ltd 218