We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register to chat with like-minded investors on our interactive forums.
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| JRP Group | LSE:JRP | London | Ordinary Share | GB00BCRX1J15 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 135.10 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMJRP
RNS Number : 8841J
JRP Group PLC
15 September 2016
NEWS RELEASE www.jrpgroup.com
15 September 2016
JRP GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHSED 30 JUNE 2016
DELIVERING SUSTAINABLE GROWTH
Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/8841J_1-2016-9-14.pdf
JRP Group plc ("the Group") announces its interim results for the six months ended 30 June 2016.
Highlights
Hot Features
Premium
Merger delivering
benefits ahead * Annual run-rate synergy target increased by 13% to
of schedule GBP45m by end of 2018
* GBP15m of run-rate synergies achieved to date since
the beginning of April
* Guaranteed Income for Life (GIfL) sales increased by
New business 52% to GBP321m, or a pro-forma increase of 17% to
sales momentum GBP397m, making JRP the largest provider of GIfL
solutions in the Open Market
* Defined Benefit De-risking (DB) sales of GBP164m were
lower than in 2015 as expected. Since the end of June
over GBP330m of DB sales have been transacted
* Lifetime Mortgage (LTM) advances of GBP255m up 71%,
or a pro-forma increase of 57% to GBP322m, making JRP
the largest funder of LTMs in the period
Profit and margin * Improved IFRS new business margins up from 4% to 6%,
improvement or pro-forma margins up from 2% to 5%, before the
benefit of merger synergies
* IFRS operating profit up 55% to GBP51m, or a
pro-forma increase of 12%, to GBP48m
* IFRS profit before tax of GBP226m
Strong balance * IFRS Tangible Net Asset Value of GBP1,424m, or 153p
sheet and resilient per share
capital position
* Embedded value of GBP2,116m, or 227p per share
* Solvency II SCR coverage ratio of 134%
* Economic capital ratio of 185%
* Interim dividend of 1.1p on expanded shareholder base
Rodney Cook, Group Chief Executive, said:
"We were delighted to have completed the merger of Just Retirement and Partnership at the beginning of April and I am pleased to announce we are ahead of schedule in delivering synergy benefits. In addition we have raised our synergy target from GBP40m and now expect to achieve annualised savings of at least GBP45m by the end of 2018. Our new business margin is starting to demonstrate the opportunity we have for potential further improvement as we deliver the cost synergies.
We have seen a considerable increase in Guaranteed Income for Life sales, which demonstrates the capability of the combined organisation and our competitive positioning in the open market. Our progress in DB is also strong, with sales of over GBP330m since the end of June, more than double the amount we completed in the whole of the first half. We continue to see a large and increasing pipeline of DB opportunities. Mortgage advances have also performed strongly, which positions the Group well for a strong second half in retirement product sales.
We are successfully adapting our business model to the new capital environment. The combination of increased margins, synergy delivery and a current coverage ratio of 134%, together with low gearing, gives us confidence in the long term growth prospects of the Group.
We look forward to giving you more detail on JRP, the attractiveness of our growing markets, competitive strengths and capital model at our capital markets day planned on 5th October."
Notes
The merger of Just Retirement and Partnership is required for accounting purposes to be treated as an acquisition by Just Retirement of Partnership with an effective date of the beginning of April 2016. Accordingly the statutory information only includes the results of Partnership for the three months from April 2016. As a consequence pro-forma financial performance measures as though the merger took place at the beginning of January 2015 have been presented to give the market an understanding of the business of the merged group.
These interim results comprise the second set of interim results for the period from 1 July 2015 to 30 June 2016. The commentary above focuses on the half year from 1 January 2016 to 30 June 2016.
Enquiries
Investors / Analysts Media
James Pearce, Group Investor Relations Stephen Lowe, Group Communications
Director Director
Telephone: +44 (0) 7715 085 099 Telephone: +44 (0) 1737 827 301
james.pearce@justretirement.com press.office@justretirement.com
Temple Bar Advisory
Alex Child-Villiers
William Barker
Telephone: +44 (0) 20 7002 1080
A presentation for analysts will take place at 9.30am today at Numis Securities Limited, The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT
UK FreeCall: 08006940257
United States FreeCall: 18669669439
Std International Dial-In: +44 (0) 1452 555566
Conference ID: 69388382
A copy of this announcement, the presentation slides and a transcript of the conference call will be available on the Group's website www.jrpgroup.com
JRP GROUP PLC
GROUP COMMUNICATIONS
Vale House, Roebuck Close
Bancroft Road, Reigate
Surrey RH2 7RU
FINANCIAL CALAR:
Date
---------------------------------------- ------------------
Record date for second interim dividend 23 September 2016
Capital Markets Day 5 October 2016
Payment of second interim dividend 28 October 2016
Business update for the period ending 3 November 2016
30 September 2016
---------------------------------------- ------------------
Chief Executive Officer's Report
Introduction
I am pleased to present the inaugural half year report for the new JRP Group plc, which was formed at the beginning of April 2016 following the completion of the merger between Just Retirement Group plc ("Just Retirement") and Partnership Assurance Group plc ("Partnership").
The completion of the merger represents the culmination of a significant amount of hard work over the last year and I would like to thank those people who contributed to bringing the two groups together successfully. On behalf of the Chairman I would like to welcome the new members of the Board and to thank those directors who have stepped down from both the Just Retirement and Partnership Boards.
I am excited about the opportunities that the merger opens up for our larger and stronger business as we begin to demonstrate our combined strength and expertise in our chosen markets.
We have made a good start to integrating the two businesses, with progress helped by the significant similarities between the two and by the strong management team that we have appointed to help deliver the opportunities before us.
It will take time to complete the integration with some significant complexities to overcome, but we have managed to deliver GBP15m of annualised savings in the first five months following completion of the merger. As we have been able to review the potential for the integration in greater detail, we are upgrading our target savings to at least GBP45m pa with the full run-rate being achieved by 2018.
I am pleased to be able to report continued progress in 2016 in our key GIfL and DB markets. This has been achieved after allowing for changes in pricing driven by the Solvency II capital requirements which became effective at the beginning of the period.
Our distribution franchise across our retail and wholesale markets is well developed and continues to strengthen. Our corporate solutions business has deepened its penetration to reach over 20 per cent of FTSE 100 companies through our innovative worksite offering of retirement focused member services. Additionally we have extended the services we provide to a range of existing corporate clients and secured new mandates to provide a range of outsourced product, software and administration solutions to banks, life insurance companies and affinity partners.
Performance review
The merger of Just Retirement and Partnership is required for accounting purposes to be treated as an acquisition by Just Retirement of Partnership with an effective date of the beginning of April 2016. As a consequence pro-forma financial performance measures, as though the merger took place at the beginning of January 2015, have been presented to give the market an understanding of the business of the merged group. Pro-forma financial information is shown in the commentary below and at the front of the Business review section.
DB sales stand at GBP164m on a pro-forma basis for the six months to 30 June 2016 (2015 pro-forma DB sales: GBP322m). In the current period, the pattern of DB sales has been influenced by expected pricing disruption following the introduction of the Solvency II regime and increased capital requirements. However the DB pipeline remains strong and since the period end the Group has written over GBP330m of further DB business.
We have seen a good return to growth in the GIfL market, with pro-forma sales up 17% compared to the same period in 2015 (pro-forma GIfL sales: GBP397m vs GBP340m). This demonstrates a continued improving trend in the GIfL market now that the pensions reforms announced in the 2014 budget have taken place, and advisers and consumers have had a chance to adjust to the new pensions landscape.
We have seen impressive growth in Care Plan sales of 42%, based on pro-forma sales of GBP58m (pro-forma 2015 Care Plan sales, GBP41m).
Lifetime mortgages ("LTM") of GBP322m on a pro-forma basis (pro-forma 2015, GBP205m) were advanced for the six months. Our longer term target of advances as a proportion of Retirement Income sales remains at around 25%, and the sales in the first half provide us with capacity to write profitable DB and GIfL business in the second half of the year.
The pro-forma new business operating profit margin, which is measured as the ratio of new business operating profit to Retirement Income sales (comprising DB, GIfL and Care), was 5.0%. The pro-forma margin is higher than the margin achieved in the six months to June 2015 and the increase reflects higher margins achieved on GIfL business after pricing changes following the implementation of Solvency II capital requirements, together with higher backing asset yields, partially offset by lower sales of DB business.
Overall, operating profit before tax, on a pro-forma basis for the six months ended 30 June 2016, was GBP48.4m, up 12% on the comparative period, mainly driven by the increase in new business operating profit.
The Group's financial investments increased by GBP2.8bn from 30 June 2015 to GBP16.2bn at 30 June 2016, on a pro-forma basis. This is as a result of the new business premiums written during the period and asset value appreciation as a result of lower risk free interest rates.
The Group's total equity on a statutory basis at 30 June 2016 was GBP1,676.4m (30 June 2015: GBP814.0m), and the profit before tax for the year ended 30 June 2016 on a statutory basis was GBP252.5m (2015: loss of GBP29.6m), reflecting the merger with Partnership, increase in new business volumes and margins, and a positive overall impact in this period from investment and economic profits, compared to significant economic losses in the prior period (investment and economic profits 2016: GBP147.0m; 2015 loss of GBP74.1m).
Group European Embedded Value amounted to GBP2,116.1m at 30 June 2016 or GBP2.27 per share (30 June 2015: GBP1,019.3m). The primary drivers for this increase relate to the merger with Partnership (GBP685.0m), economic variances of GBP190.3m, new business written in the period of GBP115.3m and basis harmonisation following the merger (GBP47.6m).
The Group remains comfortably capitalised under Solvency II with a Solvency Capital ratio of 134% at 30 June 2016. The Group has low gearing and the significant majority of current own funds is comprised of Tier 1 capital. The Group's economic capital ratio at 30 June 2016 was 185%. The Group continues to explore, on an ongoing basis, a range of balance sheet options, including accessing the debt capital markets, with a view to providing further financial strength and growth potential.
As we announced in March we are very proud to have received recognition from the industry for the quality of our service, receiving 5 star ratings at the 2015 Financial Adviser Service Awards. This continued success means that we have held 5 star ratings for an impressive 11 years for Life & Pensions and eight years for Mortgage Lenders and Packagers, demonstrating our excellent quality of support and customer focus. In addition I am delighted that Just Retirement in 2016 was placed first in the Quality Service Provider award by the Institute of Customer Service.
I am also pleased to report that as Just Retirement Group plc we were for the 6(th) time ranked within "The Sunday Times 100 Best Companies to Work For" list for 2016, achieving a rating of "Outstanding" and the ranking of 92.
Outlook
JRP Group plc has had a very successful start to the year. We have continued to deliver growth at the same time as we integrate our businesses and our focus remains on delivering simple to understand, good value products and services to our Retail and Wholesale customers.
I also want to thank our colleagues once again, not just for achieving these strong results, but also for coping with a significant period of uncertainty and for maintaining high quality customer service.
I am excited about the opportunities that the merger of Just Retirement and Partnership will open up for the new enlarged and stronger JRP Group plc. We are already demonstrating our combined strength and expertise in our chosen markets, and we look to the future with confidence that we can continue to deliver growth and value for our shareholders.
Rodney Cook
Group Chief Executive
Business review
Overview
The merger between Just Retirement Group plc ("Just Retirement") and Partnership Assurance Group plc ("Partnership") completed at the beginning of April 2016, creating JRP Group plc ("JRP"). This is JRP's first interim report following the merger, and the statutory results explained below represent the results of Just Retirement for the entire current period, plus three months' results of Partnership, from the date of acquisition to 30 June 2016.
The transaction was achieved through an all-share merger by way of an acquisition by Just Retirement Group plc of Partnership Assurance Group plc and Just Retirement Group plc changed its name to JRP Group plc on 4 April 2016. Post-merger, Just Retirement shareholders own approximately 60% of the Combined Group and Partnership Assurance shareholders own approximately 40% of the Combined Group.
The Board of JRP Group plc is made up of 13 directors, comprising directors from both Just Retirement Group plc's and Partnership Assurance Group plc's previous Boards, with suitable individuals selected to create a balanced Board with appropriate skills and relevant experience:
Executive directors:
Rodney Cook, Group Chief Executive Officer
David Richardson, Deputy Group Chief Executive Officer (appointed 4 April 2016)
Simon Thomas, Group Chief Financial Officer
Non-executive directors:
Chris Gibson-Smith, Chairman (appointed 4 April 2016)
Tom Cross Brown, Deputy Chairman
Keith Nicholson, Senior Independent Director
Paul Bishop (appointed 4 April 2016)
Peter Catterall (appointed 4 April 2016)
Ian Cormack (appointed 4 April 2016)
Michael Deakin
James Fraser
Steve Melcher
Clare Spottiswoode (appointed 4 April 2016)
Shayne Deighton and Kate Avery resigned from the Just Retirement Board on 4 April 2016.
Following the completion of the transaction the new Board remains confident of delivering the significant strategic and financial benefits to attain even better returns for policyholders and shareholders.
Following the transaction, JRP changed its accounting reference date from 30 June to 31 December. JRP's next full audited statutory results will be for the 18 month period ending 31 December 2016.
In addition to the statutory financial information, illustrative financial information prepared on the basis that the transaction had taken place at 1 January 2015 has been provided on an unreviewed and unaudited pro-forma basis, and is shown below, followed by the statutory view of the results.
Illustrative pro-forma financial information for JRP Group plc
The following pro-forma financial information is provided for illustrative purposes and is presented on the basis that the merger between Just Retirement and Partnership had taken place as at 1 January 2015. Pro-forma information is unreviewed and unaudited. A reconciliation of pro-forma financial information to statutory financial information is given in Note 3 to the Condensed consolidated financial statements.
New business sales - pro-forma basis
New business sales on a pro-forma basis represent sales for the six months ended 30 June 2016 for both Just Retirement and Partnership, together with comparative information on a pro-forma basis representing sales for the six months ended 30 June 2015 for both Just Retirement and Partnership.
Six months Six months
ended ended
30 June 30 June 2015
2016 GBPm
Pro-forma (unreviewed and unaudited) GBPm
===================================== ========== =============
Defined Benefit De-risking Solutions
("DB") 164.4 322.1
======================================= ========== =============
Guaranteed Income for Life Solutions
("GIfL") 397.1 339.6
======================================= ========== =============
Care Plans ("CP") 57.7 40.6
======================================= ========== =============
Retirement Income sales 619.2 702.3
======================================= ========== =============
Drawdown 5.4 13.4
======================================= ========== =============
Total Retirement sales 624.6 715.7
======================================= ========== =============
Protection 2.3 2.1
======================================= ========== =============
LTM loans advanced 321.8 204.8
======================================= ========== =============
Total new business sales 948.7 922.6
======================================= ========== =============
Total new business sales for the Group on a pro-forma basis increased by 3%, from GBP922.6m for the six months to 30 June 2015, to GBP948.7m for the six months to 30 June 2016. The drivers for this increase are explained below.
DB sales on a pro-forma basis for the six months to 30 June 2016 were down 49% compared to the same period in the prior year, falling from GBP322.1m to GBP164.4m. In the current period, the pattern of DB sales has been influenced by expected pricing disruption following the introduction of the Solvency II regime and increased capital requirements. However the DB pipeline remains strong and since the period end the Group has written over GBP330m of further DB business.
GIfL sales on a pro-forma basis for the six months to 30 June 2016 have increased by 17% compared to the same period in the prior year (H1 2016: GBP397.1m; H1 2015: GBP339.6m). This demonstrates a continuing improving trend in the GIfL market now that the pensions reforms announced in the 2014 budget have taken place, and advisers and consumers have had a chance to adjust to the new pensions landscape.
Sales of Care Plans were up 42% on a pro-forma basis, from GBP40.6m in H1 2015 to GBP57.7m in H1 2016. The Group benefits from strong performance in this sector, reflecting our increased competitiveness and scale.
Drawdown sales, which include Capped Drawdown ("CD") and Flexible Pension Plan ("FPP") sales, decreased on a pro-forma basis from GBP13.4m in H1 2015 to GBP5.4m in H1 2016. This is in line with expectation and reflects the closure of the CD product to new business, and the launch of the FPP product which allows customers to take advantage of the new pensions freedoms.
Protection sales increased slightly from GBP2.1m in H1 2015 to GBP2.3m in H2 2016 on a pro-forma basis.
LTM sales have increased by 57% on a pro-forma basis, from GBP204.8m in H1 2015 to GBP321.8m in H1 2016. The Group has performed strongly in this sector. On a pro-forma basis, these sales are ahead of our longer-term target of c. 25% of Retirement Income sales; the proportion is expected to reduce towards the longer-term target as these sales will be used to match DB pipeline business and the Group's second half sales.
Operating profit - pro-forma basis
Operating profit on a pro-forma basis represents the operating profit for the six months ended 30 June 2016 for both Just Retirement and Partnership, together with comparative information on a pro-forma basis representing the operating profit for the six months ended 30 June 2015 for both Just Retirement and Partnership. The underlying assumptions have been aligned to be consistent across both Group companies in the current and prior year pro-forma periods.
Six months Six months
ended ended
30 June 30 June 2015
2016 GBPm
Pro-forma (unreviewed and unaudited) GBPm
========================================= ========== =============
New business operating profit 31.0 14.0
========================================== ========== =============
In-force operating profit 36.6 34.3
========================================== ========== =============
Underlying operating profit 67.6 48.3
========================================== ========== =============
Operating experience and assumption
changes (3.4) 8.2
========================================== ========== =============
Other Group companies' operating results (4.8) (4.5)
========================================== ========== =============
Reinsurance and finance costs (11.0) (8.6)
========================================== ========== =============
Operating profit before tax 48.4 43.4
========================================== ========== =============
Operating profit before tax
Operating profit before tax represents the operating results of the Group, including the acquired Partnership business, before taking into account non-recurring and project expenditure, investment and economic profits/(losses), amortisation costs of intangible assets including the acquired in-force business asset, and gain on acquisition of Partnership Assurance Group plc.
New business operating profit
New business operating profit represents the profit generated from new business written in the period after allowing for the setting up of prudent reserves and for acquisition expenses.
New business operating profit has increased compared to the prior period, reflecting changes in pricing following the implementation of Solvency II, particularly for GIfL pricing. The result also benefitted from higher effective yields on backing assets.
In-force operating profit
In-force operating profit captures the expected margin to emerge from the in-force book of business and free surplus, and results from the gradual release of product reserving margins over the lifetime of the policies.
In-force operating profit has increased compared to the prior period. This is as a result of growth in the overall size of the in-force book of business.
Underlying operating profit
Underlying operating profit is 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 and position.
The increase in underlying operating profit reflects movements in new business and in-force operating profit as explained above.
Operating experience and assumption changes
Operating experience and assumption changes capture the impact of the actual operating experience differing from that assumed at the start of the period, plus the impact of changes to future operating assumptions applied during the period. It also includes the impact of any expense reserve movements, and other sundry operating items.
Other Group companies' operating results
Other Group companies' operating results include the results of Group companies which provide regulated advice and intermediary services, and professional services to corporates, as well as corporate costs incurred by Group holding companies.
Reinsurance and finance costs
Reinsurance and finance costs includes the interest charge on bank loans and reinsurance financing, together with reinsurance fees incurred in the period, and also includes interest costs in relation to the Tier 2 Notes issued by Partnership Life Assurance Company Limited.
Embedded Value - pro-forma basis
Embedded Value on a pro-forma basis represents the Embedded Value result for the six months ended 30 June 2016 for both Just Retirement and Partnership, as if the merger had taken place on 1 January 2016. Accordingly, pro-forma comparative Embedded Value information has not been presented. The underlying assumptions have been aligned to be consistent across both Group companies.
Total
for six
months
Group EEV ended
Covered Non-covered 30 June
business business 2016
Pro-forma (unreviewed and unaudited) GBPm GBPm GBPm
====================================== ========= =========== ========
Opening Group EEV (Pro-forma)(1) 1,523.1 340.6 1,863.7
======================================== ========= =========== ========
Operating EEV earnings 43.1 (7.5) 35.6
======================================== ========= =========== ========
Non-operating EEV earnings 238.4 (18.1) 220.3
======================================== ========= =========== ========
Total EEV earnings 281.5 (25.6) 255.9
======================================== ========= =========== ========
Other movements in IFRS net
equity - 6.7 6.7
======================================== ========= =========== ========
Dividend and capital flows 10.0 (20.2) (10.2)
======================================== ========= =========== ========
Closing Group EEV 1,814.6 301.5 2,116.1
======================================== ========= =========== ========
(1) The Opening Group EEV has been stated on harmonised assumptions, and after methodology changes made following the introduction of the Solvency II regulatory regime at 1 January 2016.
Total
for six
months
Covered business EEV ended
30 June
2016
Net worth VIF EEV
Pro-forma (unreviewed and unaudited) GBPm GBPm GBPm
====================================== ========= ================ ========
Restated opening EEV (Pro-forma) 1,020.5 502.6 1,523.1
======================================== ========= ================ ======== New business value 25.2 20.5 45.7 ======================================== ========= ================ ======== Expected existing business contribution (reference rate and in excess of reference rate) 4.7 11.1 15.8 ======================================== ========= ================ ======== Transfers from VIF and required capital to free surplus 13.2 (13.2) - ======================================== ========= ================ ======== Experience variances (3.5) (1.1) (4.6) ======================================== ========= ================ ======== Assumption changes (0.6) (0.3) (0.9) ======================================== ========= ================ ======== Other operating variances (13.3) 0.4 (12.9) ======================================== ========= ================ ======== Operating EEV earnings 25.7 17.4 43.1 ======================================== ========= ================ ======== Economic variances 146.4 91.6 238.0 ======================================== ========= ================ ======== Other non-operating variances (1.4) 1.8 0.4 ======================================== ========= ================ ======== Total EEV earnings 170.7 110.8 281.5 ======================================== ========= ================ ======== Dividend and capital flows 10.0 - 10.0 ======================================== ========= ================ ======== Closing EEV 1,201.2 613.4 1,814.6 ======================================== ========= ================ ========
Operating EEV earnings include GBP45.7m from new business written in the period. The other material positive item included in operating EEV earnings is the expected contribution from existing business which has been offset by the impact of the negative experience on lifetime mortgage redemptions and interest paid on subordinated debt.
The key driver for the large increase in embedded value from the non-operating earnings is the impact of the large fall in risk-free interest rates over the period. The non-operating earnings also include transaction and integration costs with regards to the merger (GBP23.9m pre-tax).
Share based payments was the main driver for the increase in EEV included in the "Other movements in IFRS net equity" line. The JRP Group paid dividends in the period of GBP10.2m which led to a corresponding reduction in EEV.
Capital management
Summary of JRP Group plc economic capital position
As at 30
June 2016
GBPm
=================================== ==========
Total available capital 2,118
==================================== ==========
Capital required 1,145
==================================== ==========
Excess available capital resources 973
==================================== ==========
Coverage ratio 185%
==================================== ==========
Summary of JRP Group plc Solvency II capital position
The Solvency II regime came into effect on 1 January 2016. The Group has approval to apply the matching adjustment and transitionals in its calculation of Technical Provisions and uses a combination of an Internal Model and the Standard Formula to calculate its Group Solvency Capital Requirement. The Group has received approval to recalculate the transitional relief as at 30 June 2016 in light of the significant interest rate falls that have been experienced in the period.
As at 30 June 2016
GBPm
================================================== ==================
Capital resources
================================================== ==================
Total eligible own funds to meet the consolidated
Group solvency capital requirement 1,944
================================================== ==================
Solvency capital requirement 1,453
================================================== ==================
Excess capital resources 491
================================================== ==================
Capital ratio 134%
================================================== ==================
Both Just Retirement and Partnership managed their businesses on a basis of both economic and regulatory capital, and the combined JRP Group will continue to do so.
Statutory financial information and Key Performance Indicators
The financial information presented below includes the results of Partnership Assurance Group from the date of acquisition on 1 April 2016. The results for the six months ended 30 June 2016 reflect six months of Just Retirement and three months of Partnership (1 April 2016 to 30 June 2016) and the results for the twelve months ended 30 June 2016 reflect twelve months of Just Retirement and three months of Partnership (1 April 2016 to 30 June 2016). Comparative information for the six and twelve months ended 30 June 2015 reflects the results of Just Retirement only.
Key Performance Indicators ("KPI's")
The Board has adopted the following metrics, which are considered to give an understanding of the Group's underlying performance. These measures are referred to as key performance indicators.
Six months Six months
ended ended Twelve months Twelve months
30 June 30 June ended ended
2016 2015 30 June 2016 30 June 2015
GBPm GBPm GBPm GBPm
============================== ========== ========== ============= =============
New business sales 788.2 635.6 2,021.4 1,455.8
=============================== ========== ========== ============= =============
New business operating profit 32.8 18.6 78.8 36.8
=============================== ========== ========== ============= =============
In-force operating profit 31.4 25.2 50.6 49.6
=============================== ========== ========== ============= =============
Underlying operating profit 64.2 43.8 129.4 86.4
=============================== ========== ========== ============= =============
European embedded value 2,116.1 1,019.3 2,116.1 1,019.3
=============================== ========== ========== ============= =============
Solvency II capital coverage
ratio 134% n/a 134% n/a
=============================== ========== ========== ============= =============
Economic capital coverage
ratio 185% 176% 185% 176%
=============================== ========== ========== ============= =============
New business sales
GBP2,021.4m (2014/15: GBP1,455.8m)
New business sales are a key indicator of the Group's growth and realisation of its strategic objectives. New business sales comprise Retirement Income sales, Drawdown sales, Protection sales and LTM advances in the reporting period.
The table below sets out a breakdown of new business sales for the six months ended 30 June 2016, the six months 30 June 2015, the twelve months ended 30 June 2016 and the twelve months ended 30 June 2015. New business sales for the six months to 30 June 2016 and for the twelve months to 30 June 2016 benefit from three months of Partnership Assurance Group plc sales arising post-merger.
Six months Six months Twelve months Twelve months
ended ended ended ended
30 June 2016 30 June 2015 30 June 2016 30 June 2015
GBPm GBPm GBPm GBPm
=========================== ============= ============= ============= =============
Defined Benefit De-risking
Solutions ("DB") 164.4 254.2 865.6 608.9
============================ ============= ============= ============= =============
Guaranteed Income for Life
Solutions ("GIfL") 320.7 211.6 591.9 478.0
============================ ============= ============= ============= =============
Care Plans ("CP") 41.4 7.3 58.0 12.1
============================ ============= ============= ============= =============
Retirement Income sales 526.5 473.1 1,515.5 1,099.0
============================ ============= ============= ============= =============
Drawdown 5.4 13.4 12.6 48.7
============================ ============= ============= ============= =============
Total Retirement sales 531.9 486.5 1,528.1 1,147.7
============================ ============= ============= ============= =============
Protection 1.0 - 1.0 -
============================ ============= ============= ============= =============
Lifetime mortgage ("LTM")
loans advanced 255.3 149.1 492.3 308.1
============================ ============= ============= ============= =============
Total new business sales 788.2 635.6 2,021.4 1,455.8
============================ ============= ============= ============= =============
New business sales totalled GBP2,021.4m for the twelve months ended 30 June 2016, an increase of 39% compared to the same period last year (2014/15: GBP1,455.8m). The increase is attributable to a combination of new business sales written by Just Retirement, which show an increase of 28%, from GBP1,456m to GBP1,858m, plus new business sales written by Partnership which are included in the Group result post-merger, of GBP163m.
DB sales for the twelve months to 30 June 2016 were GBP865.6m, compared to GBP608.9m for the same period last year, an increase of 42%. These sales experienced disruption in the run into and following the introduction of the Solvency II regime which changed the timing pattern of sales. The increase in sales was a result of growth in the overall DB market together with continued growth in the medically underwritten segment. Our DB sales pipeline remains strong and our proposition is differentiated by using our expertise in medically underwriting schemes. Since the end of June 2016, we have written over GBP330m of further DB business.
The GIfL market has continued to improve over the last twelve months, with 2015/16 sales increasing by 24% compared to the prior period (GIfL sales 2015/16: GBP591.9m; 2014/15: GBP478.0m). The current period GIfL sales include the benefit of GBP63m sales written through Partnership; GIfL sales written through Just Retirement in the period increased by 11% from GBP478m to GBP529m. This demonstrates a continuing improving trend in the GIfL market now that the pensions reforms announced in the 2014 budget have taken place, and advisers and consumers have had a chance to adjust to the new pensions landscape.
Sales of Care Plans increased from GBP12.1m for the twelve months to 30 June 2015 to GBP58.0m for the twelve months to 30 June 2016. The result for the current period includes GBP16m of sales attributable to Partnership post-merger, and the overall significant increase from the prior period reflects our increased competitiveness and scale in this sector.
Drawdown sales include Capped Drawdown ("CD") and Flexible Pension Plan ("FPP") sales. Our CD product is now closed to new customers and has been replaced with the Flexible Pension Plan, which allows consumers to take advantage of the new pensions freedoms (CD and FPP sales 2015/16: GBP12.6m; 2014/15: GBP48.7m).
Protection sales of GBP1.0m relate to Protection business written through Partnership since the merger; Just Retirement did not previously write protection business and the acquisition of Partnership brings this new product into the Group.
LTM sales have increased from GBP308.1m for the twelve months to 30 June 2015 to GBP492.3m for the same period to 30 June 2016. Of the increase of GBP184m, GBP83m relates to LTMs written through Partnership post-merger. LTM sales are managed in line with our overall Retirement Income sales; and although over the twelve month period to 30 June 2016 LTM sales are ahead of our longer-term target of c. 25% of Retirement Income sales, the proportion will reduce towards the longer-term target as these sales will be used to match DB pipeline business and second half sales.
New business operating profit
GBP78.8m (2014/15: GBP36.8m)
New business operating profit represents the profit generated from new business written in the period after allowing for the setting up of prudent reserves and for acquisition expenses.
New business operating profit has increased compared to the prior period, reflecting the growth in new business written in the period, positive changes to GIfL pricing following the implementation of Solvency II, and the contribution from DB sales which have a closer durational fit with LTM assets and which deliver higher margins. New business operating profit in the prior year was impacted by competitive pricing for GIfL products and by the disruption to the individual retirement market following the 2014 Budget announcement. New business operating profit for the twelve months to 30 June 2016 includes a small contribution from Partnership of GBP2.5m, recognising that most DB and GIfL sales in this period relate to Just Retirement, with Partnership sales relating to its pipeline of GIfL sales.
In-force operating profit
GBP50.6m (2014/15: GBP49.6m)
In-force operating profit captures the expected margin to emerge from the in-force book of business and free surplus, and results from the gradual release of product reserving margins over the lifetime of the policies.
In-force operating profit has increased slightly during the twelve months to 30 June 2016. The size of the in-force book of business has grown as a direct result of the merger, which has led to an increase in the amount of margin now emerging. Excluding the impact of the merger, the in-force operating profit has reduced compared to the prior period. This is as a result of a change to a slower recognition of in-force mortgage returns from 1 July 2015, although the in-force book continues to grow. Of the in-force operating profit for the twelve months to 30 June 2016, GBP9.7m relates to profit contributed from the Partnership in-force book in the three months post-merger.
Underlying operating profit
GBP129.4m (2014/15: GBP86.4m)
Underlying operating profit is 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 and position.
The increase in underlying operating profit reflects the movements in new business and in-force operating profit explained above and is a combination of an underlying increase in the volume of business written by Just Retirement, at an increased margin compared to the prior period, plus the benefit of the underlying operating profit attributable to Partnership and included within the Group's results for the three months post-merger.
European embedded value ("EEV")
GBP2,116.1m (30 June 2015: GBP1,019.3m)
EEV represents the sum of the shareholders' net assets and the value of in-force business, and is a key measure in assessing the future profit streams of the Group's long-term business. It also recognises the additional value of profits in the existing book of business which have not yet been recognised under IFRS accounting.
EEV at 30 June 2016 was GBP2,116.1m, a significant increase of GBP1,096.8m compared to the closing value at 30 June 2015. The increase reflects the acquisition of Partnership, the value of new business written in the period, positive investment and economic variances, and basis harmonisation.
Solvency II capital coverage ratio
134%
Solvency II is the Group's regulatory capital basis, and came into force on 1 January 2016.
Economic capital coverage ratio
185% (30 June 2015: 176%)
Economic capital is a key risk-based capital measure.
IFRS results
The analysis of the IFRS results for the six months ended 30 June 2016, the six months ended 30 June 2015, the twelve months ended 30 June 2016 and the twelve months ended 30 June 2015 is presented in the table below.
The Group acquired Partnership Assurance Group plc on 1 April 2016, and accordingly the results below include the results of Partnership Assurance Group plc for the three month period from the date of acquisition to the period end.
Six months
ended Six months Twelve months Twelve months
30 June ended ended ended
2016 30 June 2015 30 June 2016 30 June 2015
GBPm GBPm GBPm GBPm
========================================= ========== ============= ============= =============
New business operating profit 32.8 18.6 78.8 36.8
========================================== ========== ============= ============= =============
In-force operating profit 31.4 25.2 50.6 49.6
========================================== ========== ============= ============= =============
Underlying operating profit 64.2 43.8 129.4 86.4
========================================== ========== ============= ============= =============
Operating experience and assumption
changes 0.1 (0.3) (3.4) 2.4
========================================== ========== ============= ============= =============
Other Group companies' operating
results (5.0) (4.8) (10.9) (8.7)
========================================== ========== ============= ============= =============
Reinsurance and finance costs (8.7) (6.0) (14.7) (12.5)
========================================== ========== ============= ============= =============
Operating profit before tax 50.6 32.7 100.4 67.6
========================================== ========== ============= ============= ============= Non-recurring and project expenditure (5.5) (9.5) (13.5) (19.4) ========================================== ========== ============= ============= ============= Investment and economic profits/(losses) 144.6 (41.8) 147.0 (74.1) ========================================== ========== ============= ============= ============= Profit/(loss) before acquisition transaction and amortisation costs, before tax 189.7 (18.6) 233.9 (25.9) ========================================== ========== ============= ============= ============= Acquisition integration costs (15.9) - (15.9) - ========================================== ========== ============= ============= ============= Acquisition transaction costs (7.9) - (24.2) - ========================================== ========== ============= ============= ============= Amortisation costs (12.3) (1.8) (14.1) (3.7) ========================================== ========== ============= ============= ============= Gain on acquisition of Partnership Assurance Group plc 72.8 - 72.8 - ========================================== ========== ============= ============= ============= Profit/(loss) before tax 226.4 (20.4) 252.5 (29.6) ========================================== ========== ============= ============= =============
Operating profit before tax
Operating profit before tax represents the operating results of the Group, including the acquired Partnership business, before taking into account non-recurring and project expenditure, investment and economic profits/(losses), acquisition integration and transaction costs, amortisation costs of intangible assets including the acquired in-force business asset, and gain on acquisition of Partnership Assurance Group plc.
Operating profit before tax for the twelve months ended 30 June 2016 totalled GBP100.4m, an increase of GBP32.8m compared to the twelve months ended 30 June 2015 (GBP67.6m) The movement has been mainly driven by an increase in new business operating profit, as explained above.
Operating experience and assumption changes
Operating experience and assumption changes capture the impact of the actual operating experience differing from that assumed at the start of the period, plus the impact of changes to future operating assumptions applied during the period. It also includes the impact of any expense reserve movements, and other sundry operating items.
For the twelve months to 30 June 2016, operating experience and assumption changes amounted to a small loss of GBP3.4m, compared to a small profit of GBP2.4m for the twelve months to 30 June 2015.
Other Group companies' operating results
Other Group companies' operating results include the results of Group companies which provide regulated advice and intermediary services, and professional services to corporates, as well as corporate costs incurred by Group holding companies. These companies reported an operating loss for the twelve months to 30 June 2016 of GBP10.9m (2014/15: loss of GBP8.7m).
Reinsurance and finance costs
Reinsurance and finance costs include the interest charge on bank loans and reinsurance financing, together with reinsurance fees incurred in the period, and also include interest costs in relation to the Tier 2 Notes issued by Partnership Life Assurance Company Limited.
Reinsurance and bank finance costs are in line with the prior period; the increase compared to the prior period relates to the interest cost on the Tier 2 Notes issued by Partnership Life Assurance Company Limited for the three months post-merger (Reinsurance and bank finance costs 2015/16: GBP14.7m; 2014/15: GBP12.5m).
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 and are explained further below.
Non-recurring and project expenditure decreased to GBP13.5m for the twelve months to 30 June 2016, from GBP19.4m for the twelve months to 30 June 2015. These costs include the costs of implementing the new Solvency II regime which came into force on 1 January 2016, and the launch of Just Retirement Money Limited, through which all new mortgage advances are now written. Non-recurring costs in the prior period related to preparation for the Solvency II regime and also to the cost of developing new products in response to the pensions reforms announced in the 2014 Budget, including the Flexible Pension Plan.
Investment and economic profits/(losses)
Investment and economic profits/(losses) reflect the difference in the period between expected investment returns, based on investment and economic assumptions at the start of the period, and the actual returns earned. Investment and economic profits/(losses) also reflect the impact of assumption changes in future expected risk-free rates, corporate bond defaults and house price inflation and volatility.
For the twelve months to 30 June 2016, investment and economic profits were GBP147.0m (2014/15: loss of GBP74.1m), mainly reflecting the impact of the significant reduction of risk free rates during the period, and the positive impact from the difference between actual and expected investment returns earned, offset by a widening in credit spreads and property valuation movements. Of the investment and economic profits for the current period, GBP66m is attributable to the Just Retirement business and GBP81m to the Partnership business.
Acquisition integration costs
Acquisition integration costs of GBP15.9m relate to the cost arising from the post-merger integration of the Just Retirement and Partnership businesses and operations. This amount includes a provision of GBP5m in respect of staff redundancies. The restructuring changes made to date have already delivered approximately GBP15m of synergies on an annualised basis.
Acquisition transaction costs
Acquisition transaction costs of GBP24.2m reflect the one-off costs incurred during the period in relation to the acquisition of Partnership Assurance Group plc. These costs include advisory, legal and stamp duty costs.
Amortisation costs
Amortisation costs relate to the amortisation of the Group's intangible assets, including the amortisation of intangible assets newly recognised in relation to the acquisition of Partnership Assurance Group plc by JRP Group plc. Acquired in-force business and other intangibles of GBP192m were recognised on acquisition of Partnership Assurance Group plc. The acquired in-force business asset of GBP165m is being amortised in line with the run-off of the in-force business. Amortisation of the acquired in-force business relating to Partnership Assurance Group plc during the twelve month period to 30 June 2016 totalled GBP7.8m.
Gain on acquisition of Partnership Assurance Group plc
Although the combination of Just Retirement and Partnership was a merger between the two companies, under IFRS 3 "Business Combinations" an acquirer must be identified, and on a statutory basis Just Retirement is considered to have acquired Partnership.
The acquisition of Partnership during the period has given rise to a gain of GBP72.8m because the consideration was less than the fair value of the identified assets and liabilities acquired. The acquisition consideration was agreed to be an exchange ratio of Just Retirement shares to Partnership shares fixed at the time the transaction was announced in August 2015. Subsequent to this date market uncertainty and sentiment, linked to the changes in the annuity and retirement market, lead to a decline in the market value of Just Retirement shares at the date of the completion of the transaction on 1 April 2016. The market value of the consideration therefore declined below the fair value of the identified assets and liabilities acquired, when assessed separately. In accordance with IFRS 3, Business Combinations, the gain on acquisition is recognised immediately in the income statement. Further information on the accounting for the acquisition is given in Note 2 to the Condensed consolidated financial statements within this interim report.
Highlights from Condensed consolidated statement of comprehensive income
The table below presents the Condensed consolidated statement of comprehensive income for the Group, with key line item explanations. The information below is extracted from the statutory consolidated statement of comprehensive income, and for the six months ended 30 June 2016 and twelve months ended 30 June 2016 includes the results of Just Retirement, together with the results of Partnership for the three months from the date of acquisition on 1 April 2016. Prior year comparative figures reflect the results of Just Retirement only.
Six months Twelve months
Six months ended Twelve months ended
ended 30 June ended 30 June
30 June 2016 2015 30 June 2016 2015
GBPm GBPm GBPm GBPm
========================================== ============= ========== ============= =============
Gross premiums written 505.1 473.1 1,494.1 1,099.0
========================================== ============= ========== ============= ============= Reinsurance premiums ceded (124.9) (9.5) (1,543.6) (122.9) ========================================== ============= ========== ============= ============= Reinsurance recapture - 950.9 1,166.9 950.9 ========================================== ============= ========== ============= ============= Net premium revenue 380.2 1,414.5 1,117.4 1,927.0 ========================================== ============= ========== ============= ============= Net investment income 947.0 86.8 1,252.3 635.2 ========================================== ============= ========== ============= ============= Gain on acquisition 72.8 - 72.8 - ========================================== ============= ========== ============= ============= Fee and commission income 3.3 2.7 6.1 5.1 ========================================== ============= ========== ============= ============= Total revenue 1,403.3 1,504.0 2,448.6 2,567.3 ========================================== ============= ========== ============= ============= Net claims paid (242.9) (131.0) (397.5) (250.5) ========================================== ============= ========== ============= ============= Change in insurance liabilities (747.1) (1,278.7) (1,451.7) (2,095.9) ========================================== ============= ========== ============= ============= Change in investment contract liabilities (8.3) 6.2 (12.1) (3.5) ========================================== ============= ========== ============= ============= Acquisition costs (9.9) (8.9) (23.3) (18.5) ========================================== ============= ========== ============= ============= Other operating expenses: ========================================== ============= ========== ============= ============= Acquisition integration costs (15.9) - (15.9) - ========================================== ============= ========== ============= ============= Acquisition transaction costs (7.9) - (24.2) - ========================================== ============= ========== ============= ============= Other (95.2) (67.9) (160.1) (127.6) ========================================== ============= ========== ============= ============= Finance costs (49.7) (44.1) (111.3) (100.9) ========================================== ============= ========== ============= ============= Total claims and expenses (1,176.9) (1,524.4) (2,196.1) (2,596.9) ========================================== ============= ========== ============= ============= Profit/(loss) before tax 226.4 (20.4) 252.5 (29.6) ========================================== ============= ========== ============= ============= Income tax (37.6) 3.9 (41.8) 4.8 ========================================== ============= ========== ============= ============= Profit/(loss) after tax 188.8 (16.5) 210.7 (24.8) ========================================== ============= ========== ============= =============
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 period, gross of commission paid.
Gross premiums written for the twelve months ended 30 June 2016 were GBP1,494.1m, compared to GBP1,099.0m for the twelve months ended 30 June 2015. Sales of both DB and GIfL solutions have increased in the current period compared to the prior period, representing an underlying growth in Just Retirement-related sales as well as the benefit of recognising Partnership-related GIfL sales for the three months from April to June.
Net premium revenue
Net premium revenue represents the sum of gross premiums written and reinsurance recapture, less reinsurance premium ceded.
Net premium revenue decreased from GBP1,927.0m for the twelve months ended 30 June 2015 to GBP1,117.4m for the twelve months ended 30 June 2016. Net premium revenue for the current period includes reinsurance recapture of GBP1,166.9m offset by reinsurance premiums ceded of GBP1,543.6m (twelve months ended 30 June 2015: reinsurance recapture of GBP950.9m offset by reinsurance premiums ceded of GBP122.9m). Reinsurance premiums ceded during the period relate to the reinsurance of certain GIfL business written in prior years, as well as continuing to reinsure a proportion of the new business written during the current period.
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 investment income increased by GBP617.1m, from GBP635.2m for the twelve months ended 30 June 2015 to GBP1,252.3m for the twelve months ended 30 June 2016. During the first six months of 2016 there were significant falls in interest rates which have led to unrealised gains in relation to the Group's corporate bond and mortgage portfolios.
Gain on acquisition
The gain on acquisition of Partnership Assurance Group plc is explained within the IFRS Operating Profit analysis above.
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 claims paid increased by GBP147.0m in the twelve months to 30 June 2016 compared to the twelve months to 30 June 2015, reflecting the continued growth of Just Retirement's in-force book, together with claims paid in respect of Partnership's in-force book, offset by the reinsurers' share of claims paid.
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.
Change in insurance liabilities decreased from GBP2,095.9m for the twelve months ended 30 June 2015 to GBP1,451.7m for the twelve months ended 30 June 2016.
This line item comprises the gross change in insurance liabilities together with the change in the reinsurers' share of insurance liabilities and the impact of reinsurance recaptures. The gross change in insurance liabilities during the twelve months to 30 June 2016 was GBP1.8bn which was driven by the new business written and by the fall in the valuation interest rate over the period.
The reinsurers' share of change in insurance liabilities and reinsurance recapture together total GBP381m. This reflects the increase in reinsurance assets, which have increased as a result of new business reinsured during the year, offset by claims paid, and the impact of the reinsurance recaptures.
Acquisition costs
Acquisition costs comprise the direct costs (such as commissions) of obtaining new business. Acquisition costs are not deferred.
Acquisition costs have increased by GBP4.8m from GBP18.5m for the twelve months ended 30 June 2015 to GBP23.3m for the twelve months ended 30 June 2016. This is a result of increases in both GIfL and LTM sales compared to the previous period.
Acquisition integration costs and acquisition transaction costs
These costs are explained within the IFRS Operating Profit analysis above.
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. Acquisition-related costs are analysed separately from other operating expenses as explained above.
Other operating expenses increased by GBP32.5m from GBP127.6m to GBP160.1m. The increase principally relates to operating expenses for Partnership group companies for the three months from April to June.
Finance costs
Finance costs represent interest payable on the deposits received from reinsurers, interest on reinsurance financing and bank finance costs, and the interest cost on the Group's Tier 2 Notes issued by Partnership Life Assurance Company Limited.
Finance costs increased by GBP10.4m from GBP100.9m for the twelve months ended 30 June 2015 to GBP111.3m for the twelve months ended 30 June 2016. The increase relates to interest on the reinsurance deposit back balances, which have increased compared to the prior year, and the interest cost on the Tier 2 Notes issued by Partnership Life Assurance Company Limited for the three months from April to June.
Income tax
There is an income tax charge of GBP41.8m for the twelve months ended 30 June 2016 (twelve months ended 30 June 2015: credit of GBP4.8m). The effective tax rate is 17%, and includes the impact of certain transitional rules regarding life company taxation.
Highlights from Condensed consolidated statement of financial position
The following table presents selected items from the Condensed consolidated statement of financial position, with key line item explanations below. The information below is extracted from the statutory consolidated statement of financial position and as at 30 June 2016 reflects the statements of financial position of both Just Retirement and Partnership on a consolidated basis. Prior year comparative figures reflect the statement of financial position of Just Retirement only.
As at
As at 30 June
30 June 2016 2015
GBPm GBPm
========================================= ============= ========
Assets
========================================= ============= ========
Financial investments 16,204.8 8,577.7
========================================== ============= ========
Reinsurance assets 6,123.1 2,477.1
========================================== ============= ========
Other assets 672.3 193.8
========================================== ============= ========
Total assets 23,000.2 11,248.6
========================================== ============= ========
Share capital and share premium 185.0 51.3
========================================== ============= ========
Other reserves 880.1 347.4
========================================== ============= ========
Accumulated profit and other adjustments 611.3 415.3
========================================== ============= ========
Total equity 1,676.4 814.0
========================================== ============= ========
Liabilities
========================================= ============= ========
Insurance liabilities 14,827.7 7,440.3
========================================== ============= ========
Other financial liabilities 5,871.1 2,643.2
========================================== ============= ========
Insurance and other payables 109.2 22.7
========================================== ============= ========
Other liabilities 515.8 328.4
========================================== ============= ========
Total liabilities 21,323.8 10,434.6
========================================== ============= ========
Total equity and liabilities 23,000.2 11,248.6
========================================== ============= ========
The significant increase in the assets, liabilities and total equity of the group from 30 June 2015 to 30 June 2016 is largely as a result of the acquisition of Partnership Assurance Group plc on 1 April 2016. JRP Group plc owns the entire share capital of Partnership and its assets and liabilities are reflected on a line by line basis in the group consolidated statement of financial position.
Financial investments
The following table provides a breakdown by credit rating of financial investments where applicable as at 30 June 2016 compared with the position as at 30 June 2015.
As at As at
30 June 30 June
2016 2015
GBPm GBPm
=========================== ========= ========
AAA* and gilts 1,727.3 1,053.8
=========================== ========= ========
AA 825.4 246.0
=========================== ========= ========
A 3,032.8 1,731.8
=========================== ========= ========
BBB 3,630.1 1,741.1
=========================== ========= ========
BB or below 148.2 123.6
=========================== ========= ========
Unrated* 327.7 209.6
=========================== ========= ========
Loans secured by mortgages 6,513.3 3,471.8
=========================== ========= ========
Total 16,204.8 8,577.7
=========================== ========= ========
* Includes units held in liquidity funds
Financial investments increased by GBP7.6bn from GBP8.6bn at 30 June 2015 to GBP16.2bn at 30 June 2016, the significant increase being mainly a result of the acquisition of Partnership Assurance Group plc, which accounts for GBP5.3bn of the increase. The remainder of the increase relates to the continued investment of new business premiums into gilts, corporate bonds and LTM contracts, together with the impact of falling interest rates. The quality of the corporate bond portfolio remains high and is well balanced across a range of industry sectors. The loan to value ratio of the mortgage portfolio is approximately 29%.
The sector analysis of the Group's corporate bond and gilt portfolio at 30 June 2016 is shown in the table below.
Sector analysis - corporate bond and gilt portfolio GBPm % ==================================================== ===== ==== Basic materials 212 2% ==================================================== ===== ==== Communications 882 10% ==================================================== ===== ==== Auto manufacturers 224 3% ==================================================== ===== ==== Consumer 779 9% ==================================================== ===== ==== Energy 251 3% ==================================================== ===== ==== Banks 2,018 22% ==================================================== ===== ==== Insurance 751 8% ==================================================== ===== ==== Financial - other 1,173 13% ==================================================== ===== ==== Government 751 8% ==================================================== ===== ==== Industrial 483 5% ==================================================== ===== ==== Utilities 1,392 16% ==================================================== ===== ==== Other 125 1% ==================================================== ===== ==== Total 9,041 100% ==================================================== ===== ====
The sector analysis shows that the Group's investment portfolio is well balanced across a variety of industry sectors.
Reinsurance assets increased from GBP2.5bn at 30 June 2015 to GBP6.1bn at 31 December 2015; of this increase GBP3.3bn relates to reinsurance assets acquired with Partnership. The reinsurance assets relating to Just Retirement increased slightly from GBP2.5bn to GBP2.8bn as a result of new business reinsured during the year, offset by claims paid and reinsurance recaptures.
Other assets mainly comprise cash and cash equivalents, and intangible assets.
Insurance liabilities increased from GBP7.4bn at 30 June 2015 to GBP14.8bn at 30 June 2016. Of this increase, GBP5.6bn relates to the acquisition of Partnership. Liabilities arising on new insurance business written less claims paid in the period, together with the impact of falling interest rates, have together driven an increase in insurance liabilities relating to Just Retirement of GBP1.8bn.
Other financial liabilities increased from GBP2.6bn at 30 June 2015 to GBP5.9bn at 30 June 2016. These liabilities are mainly reinsurance-related and include deposits received from reinsurers, reinsurance financing and other reinsurance-related balances. The increase mainly reflects the deposits received from reinsurers balances relating to Partnership.
Insurance and other payables increased by GBP86.5m from GBP22.7m at 30 June 2015 to GBP109.2m at 30 June 2016; this increase relates to insurance and other payables acquired with the Partnership business, and to timing differences on settlement of investments.
Other liability balances increased by GBP187.4m from GBP328.4m at 30 June 2015 to GBP515.8m at 30 June 2016. The increase mainly relates to the Tier 2 Notes issued by Partnership Life Assurance Company Limited of GBP94.1m and to the drawdown of a new GBP60m bank facility in August 2015, less amounts repaid during the period.
Total equity increased by GBP862.4m from GBP814.0m at 30 June 2015 to GBP1,676.4m at 30 June 2016, reflecting new equity raised in October 2015 and shares issued to acquire the Partnership Group in April 2016, a total of GBP666.4m, the profit after tax for the period of GBP210.7m, dividends paid of GBP22.6m, and small adjustments for foreign exchange differences and share-based payments.
Dividends
An interim dividend for the period of 1.1p per share will be paid in October 2016.
Principal risks and uncertainties
Through our strong risk culture, we are confident of making better decisions to achieve business success
Risk management
Purpose
We use risk management to make better informed business decisions that generate value for shareholders while delivering appropriate outcomes for our customers and providing confidence to other stakeholders. Our risk management processes are designed to ensure that our understanding of risk underpins how we run the business.
Risk framework
Our risk management framework is developed in line with the risk environment and best practice. The framework, owned by the Group Board, covers all aspects of risk management including risk governance, reporting and policies. Our appetite for different types of risk is embedded across the business to create a culture of confident risk taking.
Risk evaluation and reporting
We evaluate risks in our operating environment supported and decide how best to manage the risks within our risk appetite. Management regularly review their risks and produce reports to provide assurance that material risks in the business are being mitigated. The Risk team, led by the Chief Risk Officer ("CRO"), challenges the management team on the effectiveness of its risk management. The CRO provides the Group Board's Risk and Compliance Committee with his independent assessment of the principal risks to the business and emerging risk themes.
Financial risk modelling is used to assess the amount of each risk type against our risk appetite. This modelling is aligned to both our economic capital and regulatory capital to allow the Board to understand the capital requirements for our principal risks. By applying stress and scenario testing, we gain insights into how risks might impact the Group in different circumstances.
Own Risk and Solvency Assessment
The Group's Own Risk and Solvency Assessment ("ORSA") further embeds comprehensive risk reviews into our Group management structure. Our annual ORSA report is a key part of our business cycle and informs strategic decision making. ORSA updates are prepared each quarter to keep the Board appraised of the Group's evolving risk profile.
Principal risks and uncertainties
Risk description and impact Mitigation and management action
============================================== ============================================
Risks from our chosen market environment Risk outlook - No change
The Group operates in a market in Our approach to legislative change
which changes in pensions legislation is to participate actively and engage
can have a considerable effect on with policy makers in the UK, and
our strategy and could reduce our this will not change.
sales and profitability.
The Group offers a wider range of
The pension reforms introduced last options, allowing it to remain agile
year have had a fundamental impact in this changing environment and
on the retirement income market, has flexed its offerings in response
which will continue to evolve. Customers to market dynamics. We believe we
have reacted to Pension Freedoms are well placed to adapt to the changing
by looking for more flexible retirement customer demand, supported by our
solutions and some customers are brand promise, innovation credentials
deferring their retirement decisions. and financial strength.
Customer needs for a secure income
in retirement have however not changed The most influential factors in the
and the Group expects that a level successful delivery of the Group's
of demand for guaranteed income for plans are closely monitored to help
life solutions will continue. Other inform the business. The factors
changes being considered by the government include market forecasts and market
such as secondary annuity trading share, supported by insights into
and new approaches to the taxation customer and competitor behaviour.
of pension contributions may in time
affect our market.
============================================== ============================================
Risks from regulatory changes Risk outlook - Increased uncertainty
The financial services industry continues We monitor and assess regulatory
to see a high level of regulatory developments on an ongoing basis
change and intense regulatory supervision. and engage fully with the regulators.
The regulatory agenda for the coming Our aims are to implement any required
year covers many areas directly relevant changes effectively, and to deliver
to the Group. better outcomes for our customers
and competitive advantage for the
Following implementation of Solvency business.
II, the PRA is conducting an
industry-wide review of the valuation The Group is in the process of applying
and capital treatment of equity release for an internal model to calculate
mortgages, which could prompt changes the Solvency Capital Requirement
in the Group's approach in this respect. for Partnership Life Assurance Company
The Solvency II risk margin is particularly Limited. The introduction of the
sensitive to movements in interest matching adjustment to meet Solvency
rates, which can cause volatility. II requirements has made management
The PRA has agreed to consider applications of liquidity within the Group more
for the recalculation of the transitional complex. Any potential changes needed
measure on technical provisions ("TMTP"). to our internal model or matching
The EU Insurance Distribution Directive adjustment criteria resulting from
due for implementation in 2018 allows the PRA equity release mortgage review
Member States to impose requirements will be carefully reviewed. We have
beyond those of the Directive. This received approval from the PRA of
could include prohibiting the non-advised our application for TMTP recalculation
sale of insurance-based investment which largely mitigates the impact
products seen as complex. of the sharp fall in long-term interest
rates this year. We will continue
The FCA is developing a strategy to work closely with the PRA to understand
to address the challenges for financial and seek to influence its developing
services of the ageing UK population views on solvency capital.
and is pursuing other reviews and
initiatives pertinent to the retirement The Insurance Distribution Directive
and mortgage markets. is not expected to have a significant
impact on our business other than
In addition, the ultimate terms of the potential impacts on non-advised
the UK's exit from the EU could have sales of pension drawdown products.
significant consequences for the
regulation and legislation that applies Where possible, we seek to actively
to the Group's operations. participate in all regulatory initiatives
which may affect the Group or provide
future opportunities for us. We aim
to champion outcomes that are positive
for consumers in terms of more choice
and better communication of options.
The Group is actively engaged in
the insurance industry's work with
the UK Government and regulators
on the potential form of the UK's
exit from the EU.
============================================== ============================================
Risks from our pricing assumptions Risk outlook - No change
Writing long-term retirement income To manage the risk of our longevity
and LTM business requires a range assumptions being incorrect, the
of assumptions to be made based on Group now has the benefit of the
market data and historical experience, combined experience of Just Retirement
including customers' longevity, corporate and Partnership to provide insights
bond yields, interest rates, property and enhanced understanding of the
values and expenses. These assumptions longevity risks that the Group chooses
are applied to the selection of risk to take.
and the calculation of the reserves
needed for future liabilities and Longevity and other decrement experience
solvency margins using recognised is analysed to identify any outcomes
actuarial approaches. materially different from our assumptions
and is used for the regular review
The Group's assumptions on these of the reserving assumptions for
risk factors may be materially inaccurate all products.
requiring them to be recalibrated.
This could affect the level of reserves Some longevity risk exposure is shared
needed with an impact on profitability with reinsurance partners, who perform
and the Group's solvency position. due diligence on the Group's approach
to risk selection. There is a related
counterparty risk of a reinsurer
not meeting its repayment obligations.
The counterparty risk is typically
mitigated through the reinsurer depositing
the reinsurance premiums back to
the Group or into third party trusts
and by collateral arrangements.
============================================== ============================================
Risks from the economic environment Risk outlook - No change
The premiums paid by the Group's Economic conditions are actively
customers are invested to enable monitored and alternative scenarios
future benefits to be paid. The economic modelled to better understand the
environment and financial market potential impacts of significant
conditions have a significant influence economic changes and to inform management
on the value of assets and liabilities action plans.
and on the income the Group receives.
An adverse market could increase The Group's strategy is hold high
the risk of credit downgrades and quality, low-risk assets in its investment
defaults in our corporate bond portfolio. portfolio to facilitate management
of the asset and liability matching
Financial markets were volatile following position. Portfolio credit risk is
the vote for the UK to leave the managed by specialist fund managers
EU. The referendum result has resulted executing a diversified investment
in long-term interest rates falling strategy in investment grade assets
to record lows and introduced material while adhering to counterparty limits.
uncertainty for the UK economy in
the short to medium-term. In response In a low interest rate environment,
the Bank of England has cut base improved returns are sought by diversifying
rates and extended its quantitative the types, geographies and industry
easing programme. It is too early sectors of investment assets. Such
to be clear on the long term implications diversification created an exposure
of the vote for the UK economy and to foreign exchange risk, which is
indeed the wider economic impacts controlled using derivative instruments.
on the rest of Europe and the world. Swaps and swaptions are used to reduce
However, market conditions can be exposures to interest rate volatility.
expected to be volatile for some The credit exposure to the counterparties
time to come. with whom we transact these instruments
is mitigated by collateral arrangements.
In an environment of very low risk-free
interest rates, investors may be The Group's exposure to inflation
more willing to accept higher credit risk through Defined Benefit De-risking
and liquidity risk to improve investment business is managed with inflation
returns. These conditions could make hedging mechanisms.
it difficult to source sufficient
assets to offer attractive retirement For LTM, the Group underwrites the
income terms. Low credit spreads properties against which it lends
similarly affect the income that using valuations from expert third
can be made available, although margins parties. The Group's property risk
from our LTM portfolio help offset is controlled by limits to the initial
this risk. loan to property value ratio supported
by product design features, limiting
Most defined benefit pension schemes of concentration of risks on specific
link member benefits to inflation properties or regions, and monitoring
through indexation. As the Group's of the exposure to adverse house
Defined Benefit De-risking business price movements.
volumes grow, its exposure to inflation
risk increases. Liquidity risk is managed by ensuring
that assets of a suitable maturity
A fall in residential property values and marketability are held to meet
could reduce the amounts received liabilities as they fall due. Sufficient
from LTM redemptions and may affect liquid assets are maintained so the
the relative attractiveness of the Group can readily access the cash
LTM product. The solvency capital it needs should business cash inflows
needed to support the no-negative unexpectedly reduce.
equity guarantee in the LTM product There is little short-term volatility
also increases if property values in the Group's cash flows, which
drop. Uncertainty following the EU can be reliably estimated in terms
referendum may in due course result of timing and amount. Regular cash
in property values stagnating or flow forecasts predict liquidity
even falling in some areas. Conversely levels both short-term and long-term
significant future rises in property and stress tests help us understand
values could increase early mortgage any potential pinch points. The Group's
redemptions, leading to a loss of liquidity requirements have been
anticipated value. comfortably met over the past year
and forecasting confirms that this
Market risks may affect the liquidity position can be expected to continue
position of the Group by, for example, for both investments and business
having to realise assets to meet operations.
liabilities during stressed market
conditions or to service collateral
requirements due to the changes in
market value of financial derivatives.
============================================== ============================================
Risks to the Group's brands Risk outlook - No change
The Group's vision is to be the leading The Group has a low appetite for
retirement brand, known and trusted reputational damage and actively
for enriching our customers' lives. seeks to differentiate its business
Damage to our brand or reputation from competitors by investing in
may adversely affect our underlying the Group's brand-enhancing activities.
profitability, through reducing sales Fairness to customers and high service
volumes, limitation of distribution standards are at the heart of our
channels and increasing capital requirements. brand promise.
Brand image and our reputation could Risks to the Group's reputation are
be threatened by external risks such mitigated in part by actively engaging
as regulatory intervention or enforcement with government policy makers and
action, either directly or as a result regulators to ensure the retirement
of contagion from other insurers needs of customers are understood.
in our sector. Equally large organisations We develop our strategy by giving
are increasingly becoming targets consideration to planned political
for cyber-crime, particularly those and regulatory developments and allow
organisations that hold customers' for contingencies should outcomes
personal details. The Group is no differ from our expectations.
exception and a cyber-attack could
affect customer confidence. Our information security is under
constant review as the cyber-threat
evolves. Due diligence is performed
on all partners to ensure that they
work to the same high security standards
as the Group. We remain vigilant
to the range of cyber-risks but recognise
the speed of change in cyber-threats
means that a risk exposure remains.
============================================== ============================================
Risks arising from the post-merger Risk outlook - No change
integration process
Prior to the merger, Just Retirement
On 1 April 2016 the merger of Just and Partnership Assurance raised
Retirement and Partnership Assurance capital to meet the one-off transaction
completed to form JRP. The purpose and integration costs, support new
of the merger is to deliver significant business and product development,
strategic and financial benefits and add to the regulatory capital
for the combined Group. strength of the new combined Group
under Solvency II.
Integration of the two businesses
is a complex process and may take Given the complementary business
longer, or cost more, than expected models of the two organisations,
to deliver the intended synergies business as usual activity is being
or those synergies may not be fully maintained and strategic development
realised. During the integration moved forward at the same time as
process, management could be distracted integrating the businesses. The integration
from day-to-day business resulting process reflects this approach and
in missed opportunities. While the is being carefully managed by senior
capital consequences of the merger management and the Board.
have been carefully assessed, it
is possible that the resultant position Our integration philosophy is "best
may be different when the businesses of both" and this is being applied
are combined. as key decisions are made for the
future of the business; this also
The process of combining two organisations sets the tone for the culture of
may have an undesirable effect on the organisation going forward and
the culture of the new Group impacting is a key focus for the management
its effectiveness in the short-term. team.
============================================== ============================================
Statement of Directors' responsibilities
Each of the Directors of the Company confirms that to the best of their knowledge:
-- the condensed consolidated financial statements have been prepared in accordance with IAS 34: Interim financial reporting as adopted by the European Union;
-- the interim results statement includes a fair review of the information required by Disclosure and Transparency Rule 4.2.7, namely important events that have occurred during the period and their impact on the condensed consolidated financial statements, as well as a description of the principal risks and uncertainties faced by the Company and the undertakings included in the condensed consolidated financial statements taken as a whole for the remaining six months of the financial period; and
-- the interim results statement includes a fair review of material related party transactions and any material changes in the related party transactions described in the last annual report as required by Disclosure and Transparency Rule 4.2.8.
By order of the Board:
Simon Thomas
Group Chief Financial Officer
14 September 2016
Condensed consolidated statement of comprehensive income
For the period ended 30 June 2016
Twelve Twelve
Six months Six months months months
ended ended ended ended
30 June 30 June 30 June 30 June
2016 2015 2016 2015
Note GBPm GBPm GBPm GBPm
============================================ ==== ========== ========== ========= =========
Gross premiums written 505.1 473.1 1,494.1 1,099.0
============================================ ==== ========== ========== ========= =========
Reinsurance premiums ceded (124.9) (9.5) (1,543.6) (122.9)
============================================ ==== ========== ========== ========= =========
Reinsurance recapture - 950.9 1,166.9 950.9
============================================ ==== ========== ========== ========= =========
Net premium revenue 380.2 1,414.5 1,117.4 1,927.0
============================================ ==== ========== ========== ========= =========
Net investment income 947.0 86.8 1,252.3 635.2
============================================ ==== ========== ========== ========= =========
Gain on acquisition 72.8 - 72.8 -
============================================ ==== ========== ========== ========= =========
Share of results of joint ventures and - - - -
associates
============================================ ==== ========== ========== ========= =========
Fee and commission income 3.3 2.7 6.1 5.1
============================================ ==== ========== ========== ========= =========
Total revenue 1,403.3 1,504.0 2,448.6 2,567.3
============================================ ==== ========== ========== ========= =========
Gross claims paid (405.2) (256.0) (677.3) (498.6)
============================================ ==== ========== ========== ========= =========
Reinsurers' share of claims paid 162.3 125.0 279.8 248.1
============================================ ==== ========== ========== ========= =========
Net claims paid (242.9) (131.0) (397.5) (250.5)
============================================ ==== ========== ========== ========= =========
Change in insurance liabilities:
============================================ ==== ========== ========== ========= =========
Gross amount (1,058.2) 289.5 (1,832.5) (956.7)
============================================ ==== ========== ========== ========= =========
Reinsurers' share 311.1 (617.3) 1,547.7 (188.3)
============================================ ==== ========== ========== ========= =========
Reinsurance recapture - (950.9) (1,166.9) (950.9)
============================================ ==== ========== ========== ========= =========
(747.1) (1,278.7) (1,451.7) (2,095.9)
============================================ ==== ========== ========== ========= =========
Change in investment contract liabilities (8.3) 6.2 (12.1) (3.5)
============================================ ==== ========== ========== ========= =========
Acquisition costs (9.9) (8.9) (23.3) (18.5)
============================================ ==== ========== ========== ========= =========
Other operating expenses (119.0) (67.9) (200.2) (127.6)
============================================ ==== ========== ========== ========= =========
Finance costs (49.7) (44.1) (111.3) (100.9)
============================================ ==== ========== ========== ========= =========
Total claims and expenses (1,176.9) (1,524.4) (2,196.1) (2,596.9)
============================================ ==== ========== ========== ========= =========
Profit/(loss) before tax 226.4 (20.4) 252.5 (29.6)
============================================ ==== ========== ========== ========= =========
Income tax (37.6) 3.9 (41.8) 4.8
============================================ ==== ========== ========== ========= =========
Profit/(loss) for the period 188.8 (16.5) 210.7 (24.8)
============================================ ==== ========== ========== ========= =========
Other comprehensive income:
============================================ ==== ========== ========== ========= =========
Exchange differences on translating foreign
operations 0.2 (0.2) (0.2) (0.2)
============================================ ==== ========== ========== ========= =========
Other comprehensive income for the period,
net of tax 0.2 (0.2) (0.2) (0.2)
============================================ ==== ========== ========== ========= =========
Total comprehensive income for the period 189.0 (16.7) 210.5 (25.0)
============================================ ==== ========== ========== ========= =========
Profit/(loss) attributable to:
============================================ ==== ========== ========== ========= =========
Equity holders of JRP Group plc 188.8 (16.5) 210.7 (24.8)
============================================ ==== ========== ========== ========= =========
Profit/(loss) for the period 188.8 (16.5) 210.7 (24.8)
============================================ ==== ========== ========== ========= =========
Total comprehensive income attributable
to:
============================================ ==== ========== ========== ========= =========
Equity holders of JRP Group plc 189.0 (16.7) 201.5 (25.0)
============================================ ==== ========== ========== ========= =========
Total comprehensive income for the period 189.0 (16.7) 210.5 (25.0)
============================================ ==== ========== ========== ========= =========
Basic earnings per share (pence) 4 29.04 (3.30) 33.35 (4.96)
============================================ ==== ========== ========== ========= =========
Diluted earnings per share (pence) 4 28.89 (3.30) 33.18 (4.96)
============================================ ==== ========== ========== ========= =========
The notes are an integral part of these financial statements.
Condensed consolidated statement of changes in equity
For the twelve months ended 30 June 2016
Shares Total
Share Share Reorganisation Merger held Accumulated shareholders'
Twelve months ended 30 June capital premium reserve reserve by trusts profit equity
2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ======== ======== ============== ======== ========== =========== ==============
Balance at 1 July 2015 50.1 1.2 347.4 - (0.7) 416.0 814.0
=============================== ======== ======== ============== ======== ========== =========== ==============
Profit for the period - - - - - 210.7 210.7
=============================== ======== ======== ============== ======== ========== =========== ==============
Other comprehensive income for
the period - - - - - (0.2) (0.2)
=============================== ======== ======== ============== ======== ========== =========== ==============
Total comprehensive income for
the period - - - - - 210.5 210.5
=============================== ======== ======== ============== ======== ========== =========== ==============
Contributions and distributions
=============================== ======== ======== ============== ======== ========== =========== ==============
Shares issued (net of issue
costs) 43.2 90.5 - 532.7 - - 666.4
=============================== ======== ======== ============== ======== ========== =========== ==============
Dividends - - - - - (22.6) (22.6)
=============================== ======== ======== ============== ======== ========== =========== ==============
Share-based payments - - - - (1.2) 9.3 8.1
=============================== ======== ======== ============== ======== ========== =========== ==============
Total contributions and
distributions 43.2 90.5 - 532.7 (1.2) (13.3) 651.9
=============================== ======== ======== ============== ======== ========== =========== ==============
Balance at 30 June 2016 93.3 91.7 347.4 532.7 (1.9) 613.2 1,676.4
=============================== ======== ======== ============== ======== ========== =========== ==============
Shares Total
Share Share Reorganisation held Accumulated shareholders'
capital premium reserve by trusts profit equity
Twelve months ended 30 June 2015 GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ======== ======== ============== ========== =========== ==============
Balance at 1 July 2014 50.1 1.2 347.4 (0.1) 454.2 852.8
========================================= ======== ======== ============== ========== =========== ==============
Loss for the period - - - - (24.8) (24.8)
========================================= ======== ======== ============== ========== =========== ==============
Other comprehensive income for the period - - - - (0.2) (0.2)
========================================= ======== ======== ============== ========== =========== ==============
Total comprehensive income for the period - - - - (25.0) (25.0)
========================================= ======== ======== ============== ========== =========== ==============
Contributions and distributions
========================================= ======== ======== ============== ========== =========== ==============
Dividends - - - - (16.5) (16.5)
========================================= ======== ======== ============== ========== =========== ==============
Share-based payments - - - (0.6) 3.3 2.7
========================================= ======== ======== ============== ========== =========== ==============
Total contributions and distributions - - - (0.6) (13.2) (13.8)
========================================= ======== ======== ============== ========== =========== ==============
Balance at 30 June 2015 50.1 1.2 347.4 (0.7) 416.0 814.0
========================================= ======== ======== ============== ========== =========== ==============
Condensed consolidated statement of financial position
As at 30 June 2016
Restated(1)
30 30
June June
2016 2015
Note GBPm GBPm
===================================================== ==== ======== ===========
Assets
===================================================== ==== ======== ===========
Intangible assets 252.5 75.2
===================================================== ==== ======== ===========
Property, plant and equipment 18.2 0.7
===================================================== ==== ======== ===========
Financial investments 6 16,204.8 8,577.7
===================================================== ==== ======== ===========
Investment in joint ventures and associates 0.3 -
===================================================== ==== ======== ===========
Reinsurance assets 6,123.1 2,477.1
===================================================== ==== ======== ===========
Deferred tax assets 11.2 4.2
===================================================== ==== ======== ===========
Current tax assets 8.7 17.6
===================================================== ==== ======== ===========
Prepayments and accrued income 12.9 3.2
===================================================== ==== ======== ===========
Insurance and other receivables 28.6 34.1
===================================================== ==== ======== ===========
Cash and cash equivalents 339.9 58.8
===================================================== ==== ======== ===========
Total assets 23,000.2 11,248.6
===================================================== ==== ======== ===========
Equity
===================================================== ==== ======== ===========
Share capital 7 93.3 50.1
===================================================== ==== ======== ===========
Share premium 7 91.7 1.2
===================================================== ==== ======== ===========
Reorganisation reserve 347.4 347.4
===================================================== ==== ======== ===========
Merger reserve 532.7 -
===================================================== ==== ======== ===========
Shares held by trusts (1.9) (0.7)
===================================================== ==== ======== ===========
Accumulated profit 613.2 416.0
===================================================== ==== ======== ===========
Total equity attributable to owners of JRP Group plc 1,676.4 814.0
===================================================== ==== ======== ===========
Liabilities
===================================================== ==== ======== ===========
Insurance liabilities 14,827.7 7,440.3
===================================================== ==== ======== ===========
Investment contract liabilities 213.0 228.3
===================================================== ==== ======== ===========
Loans and borrowings 8 192.2 46.9
===================================================== ==== ======== ===========
Other financial liabilities 9 5,871.1 2,643.2 ===================================================== ==== ======== =========== Deferred tax liabilities 54.3 32.9 ===================================================== ==== ======== =========== Other provisions 4.0 1.5 ===================================================== ==== ======== =========== Current tax liabilities 31.5 0.1 ===================================================== ==== ======== =========== Accruals and deferred income 20.8 18.7 ===================================================== ==== ======== =========== Insurance and other payables 109.2 22.7 ===================================================== ==== ======== =========== Total liabilities 21,323.8 10,434.6 ===================================================== ==== ======== =========== Total equity and liabilities 23,000.2 11,248.6 ===================================================== ==== ======== ===========
The notes are an integral part of these financial statements.
(1) The fair value of debt securities includes accrued interest previously classified as prepayments and accrued income on the statement of financial position. As a result of this change in presentation, GBP83m of accrued interest has been reclassified from prepayments and accrued income at 30 June 2015.
Condensed consolidated statement of cash flows
For the twelve months ended 30 June 2016
Twelve months
Twelve months ended
ended 30 June
30 June 2016 2015
GBPm GBPm
========================================================= ============= =============
Cash flows from operating activities
========================================================= ============= =============
Profit/(loss) before tax 252.5 (29.6)
========================================================= ============= =============
Gain on acquisition (72.8) -
========================================================= ============= =============
Depreciation of equipment 1.2 0.5
========================================================= ============= =============
Amortisation of intangible assets 14.8 4.2
========================================================= ============= =============
Share-based payments 8.1 2.7
========================================================= ============= =============
Interest income (414.8) (196.4)
========================================================= ============= =============
Interest expense 111.3 100.9
========================================================= ============= =============
Increase in financial investments (2,102.7) (1,082.6)
========================================================= ============= =============
(Increase)/decrease in reinsurance assets (380.7) 1,139.2
========================================================= ============= =============
Increase in prepayments and accrued income 76.4 -
========================================================= ============= =============
Decrease/(increase) in insurance and other receivables 51.1 (29.1)
========================================================= ============= =============
Increase in insurance liabilities 1,832.7 956.7
========================================================= ============= =============
(Decrease)/increase in investment contract liabilities (15.3) 30.9
========================================================= ============= =============
Increase/(decrease) in deposits received from reinsurers 166.7 (990.4)
========================================================= ============= =============
(Decrease)/increase in accruals and deferred income (0.5) 2.3
========================================================= ============= =============
Increase/(decrease) in insurance and other payables 45.6 (12.8)
========================================================= ============= =============
Increase/(decrease) in other creditors 306.5 (38.8)
========================================================= ============= =============
Interest received 347.6 201.6
========================================================= ============= =============
Interest paid (100.0) (91.8)
========================================================= ============= =============
Taxation paid (9.6) (24.1)
========================================================= ============= =============
Net cash inflow/(outflow) from operating activities 118.1 (56.6)
========================================================= ============= =============
Cash flows from investing activities
========================================================= ============= =============
Acquisition of Partnership Assurance Group plc 268.6 -
========================================================= ============= =============
Additions to intangible assets - (1.8)
========================================================= ============= =============
Acquisition of property and equipment (10.0) (0.2)
========================================================= ============= =============
Net cash inflow/(outflow) from investing activities 258.6 (2.0)
========================================================= ============= =============
Cash flows from financing activities
========================================================= ============= =============
Increase/(decrease) in borrowings 51.2 (4.5)
========================================================= ============= =============
Interest paid (3.5) (2.3)
========================================================= ============= =============
Dividends paid (22.6) (16.5)
========================================================= ============= =============
Issue of ordinary share capital (net of costs) 96.9 -
========================================================= ============= =============
Net cash inflow/(outflow) from financing activities 122.0 (23.3)
========================================================= ============= =============
Net increase/(decrease) in cash and cash equivalents 498.7 (81.9)
========================================================= ============= =============
Cash and cash equivalents at start of period 313.7 395.6
========================================================= ============= =============
Cash and cash equivalents at end of period 812.4 313.7
========================================================= ============= =============
Cash available on demand 339.9 58.8
========================================================= ============= =============
Units in liquidity funds 472.5 254.9
========================================================= ============= =============
Cash and cash equivalents at end of period 812.4 313.7
========================================================= ============= =============
Notes to the condensed consolidated financial statements
1 Basis of preparation
As explained in note 2, on 1 April 2016, Just Retirement Group plc ("JRG") and Partnership Assurance Group plc ("PAG") completed an all--share merger to create JRP Group plc ("JRP"). This has been accounted for as a business combination in which JRG has acquired 100% of the ordinary share capital of PAG through a share-for-share exchange. JRG changed its name to JRP Group plc on 4 April 2016. As such, these condensed interim financial statements comprise the condensed consolidated financial statements of JRP Group plc (formerly Just Retirement Group plc) ("the Company") and its subsidiaries, together referred to as "the Group", as at, and for the period ended, 30 June 2016.
These condensed interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, Interim Financial Reporting, as adopted by the European Union.
These condensed interim financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. The results for the year ended 30 June 2015 have been taken from the Group's 2015 Annual Report and Accounts, which was approved by the Board of Directors on 16 September 2015 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006. The results for the six months ended 30 June 2015 presented in the condensed consolidated statement of comprehensive income have been taken from the Group's 2015 Annual Report and Accounts and from the Group's Interim Results for the six months to 31 December 2014, and have been calculated as the difference between the consolidated statements of comprehensive income for these two periods.
The Directors have undertaken a going concern assessment and, as a result of this assessment, are satisfied that the Group and the Company have adequate resources to continue to operate as a going concern for a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the condensed interim financial statements.
The accounting policies applied are the same as those applied in the Group's 2015 Annual Report and Accounts. The fair value of debt securities includes accrued interest previously classified as prepayments and accrued income on the statement of financial position. As a result of this change in presentation, GBP83m of accrued interest has been reclassified from prepayments and accrued income at 30 June 2015.
The Group has not early--adopted any standard, interpretation or amendment that has been issued but is not yet effective.
2 Acquisition of Partnership Assurance Group plc
On 1 April 2016, the Group completed the acquisition of 100% of the ordinary share capital of Partnership Assurance Group plc through an all share exchange which gave PAG shareholders 0.834 JRP Group plc for every PAG share held. In total, 368,376,421 new JRP shares were issued and commenced trading on 4 April 2016. As a result, PAG shareholders hold approximately 40% of the enlarged share capital of the Combined Group. At the closing price of 154.60 pence on the 1 April 2016, the share exchange represents consideration of GBP569.5m. As part of the acquisition certain employee share schemes granted to PAG employees have been exchanged for equivalent JRP employee share schemes. The fair value cost of replacing those schemes, included in the consideration for PAG, was GBP2.4m.
Established in 2005 following the acquisition of the business of the Pension Annuity Friendly Society, PAG is a UK life insurer whose strategy is aligned with that of the Group. PAG is focused on retirement income products, offering better rates to customers who suffer from shortened life expectancy by utilising an intellectual property led, capital-efficient business model. Following the pensions freedom changes announced in the 2014 Budget, PAG has increased its focus on the defined benefit scheme de-risking segment whilst continually developing its individually underwritten annuities. The acquisition recognises the benefits of greater scale, enhanced intellectual property, a broader product proposition and a more efficient distribution platform that will improve the potential of the Group to succeed in its chosen markets in the future.
The fair value of PAG identifiable assets and liabilities acquired have been provisionally determined for the purpose of this note. The consideration of GBP571.9m represents the fair value of PAG net assets acquired of GBP644.7m and a gain on acquisition of GBP72.8m, as follows:
Provisional
fair value
GBPm
===================================================== ===========
Assets
===================================================== ===========
Acquired value of in-force business and intangible
assets 192.0
===================================================== ===========
Property, plant and equipment 8.7
===================================================== ===========
Financial investments 5,298.9
===================================================== ===========
Investment in joint ventures and associates 0.2
===================================================== ===========
Reinsurance assets 3,265.3
===================================================== ===========
Deferred tax assets 8.3
===================================================== ===========
Current tax assets 5.6
===================================================== ===========
Prepayments and accrued income 3.1
===================================================== ===========
Insurance and other receivables 45.6
===================================================== ===========
Cash and cash equivalents 268.6
===================================================== ===========
Total assets 9,096.3
===================================================== ===========
Liabilities
===================================================== ===========
Insurance liabilities 5,554.7
===================================================== ===========
Loans and borrowings 94.1
===================================================== ===========
Financial liabilities 2,725.4
===================================================== ===========
Deferred tax liabilities 36.5
===================================================== ===========
Insurance and other payables 40.9
===================================================== ===========
Total liabilities 8,451.6
===================================================== ===========
Net assets 644.7
===================================================== ===========
Goodwill arising on acquisition (72.8)
===================================================== ===========
Total net assets acquired 571.9
===================================================== ===========
Fair value of shares exchanged 569.5
===================================================== ===========
Fair value cost of exchanging employee share schemes 2.4
===================================================== ===========
Total consideration 571.9
===================================================== ===========
The issue of new shares in the Company in exchange for shares of PAG will attract merger relief under section 612 of the Companies Act 2006. Of the GBP569.5m, GBP36.8m has been credited to share capital (representing 10 pence per ordinary share) and the remaining GBP532.7m has been credited to the merger reserve within equity.
Fair value and accounting policy adjustments
Insurance liabilities and reinsurance assets
On completion of the acquisition, the economic assumptions applied to the actuarial models used to determine the value of insurance liabilities and reinsurance assets have been reviewed across the Group. Following this review consistent economic and other assumptions have been applied to all Group entities, resulting in a decrease of GBP27.9m to PAG's insurance liabilities and a decrease of GBP28.0m to PAG's reinsurance assets recognised on acquisition. Similarly, consistent economic assumptions have been applied to the models used to determine the fair value of loan assets secured by mortgages, resulting in an increase of GBP35.8m to the value of PAG's mortgage loan assets.
Financial liabilities
PAG's subordinated debt liability has been recognised at fair value on acquisition. The fair value represents a GBP5.8m reduction to the amortised cost of the debt liability. The methodology applied to the valuation of reinsurance deposit back liabilities has also been reviewed and a Group accounting basis has been adopted, resulting in a GBP62.9m increase in the value of PAG's financial liabilities.
Gain on acquisition
The acquisition resulted in a gain of GBP72.8m, representing the excess of fair value of acquired assets over purchase consideration. The transaction resulted in a gain as a result of the acquisition consideration consisting of shares in the Group exchanged for shares in PAG at a ratio set at the announcement of the transaction on 11 August 2015. At the acquisition date the market value of consideration had been adversely affected by investor uncertainty, reducing the value of consideration below the fair value of the net assets of PAG.
Acquired value of in-force business and intangible assets
An asset of GBP165.0m was recognised on acquisition representing the present value of future profits from the acquired in-force business as of 1 April 2016. This will be amortised in accordance with the Group's accounting policies.
Intangible assets of GBP27.0m represent PAG's distribution and customer relationships, brands, technology and software including IP, and other intangibles. These balances will be amortised over their remaining useful economic lives, in accordance with the Group's accounting policies.
Profit and loss
If the acquisition had been effective on 1 July 2015, on a pro-forma basis the Group's revenue is estimated at GBP2,869.4m and profit before tax attributable to shareholders is estimated at GBP213.4m. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 July 2015. The pro-forma results are provided for information purposes only and do not necessarily reflect the actual results that would have occurred had the acquisition taken place on 1 July 2015. Since 1 April 2016 GBP196.3m has been recognised within the Group's revenue and GBP66.0m has been recognised within the Group's profit before tax attributable to shareholders arising from the acquired entities.
Acquisition costs of GBP24.2m incurred to support the transaction have been recognised within other operating expenses in the statement of comprehensive income.
3 Segmental reporting
Segmental analysis of operating profit and profit before tax
The Group's insurance segment writes insurance products for the retirement market - which include Guaranteed Income for Life Solutions and Defined Benefit De-risking Solutions, Care Plans, and Drawdown contracts - and invests the premiums received from these contracts in corporate bonds, Lifetime Mortgage advances, and other financial investments.
The Group's other segments include regulated advice and intermediary services, and professional services to corporates.
The Group's corporate activities are primarily involved in managing the Group's liquidity, capital and investment activities.
The Group operates in one material geographical segment which is the UK.
Segmental reporting and reconciliation to financial information
Other Corporate
Insurance segments activities Total
Six months ended 30 June 2016 GBPm GBPm GBPm GBPm
============================================================== ========= ========= =========== ======
New business operating profit 32.8 - - 32.8
============================================================== ========= ========= =========== ======
In-force operating profit 31.2 - 0.2 31.4
============================================================== ========= ========= =========== ======
Underlying operating profit 64.0 - 0.2 64.2
============================================================== ========= ========= =========== ======
Operating experience and assumption changes 0.1 - - 0.1
============================================================== ========= ========= =========== ======
Other Group companies' operating result - (3.3) (1.7) (5.0)
============================================================== ========= ========= =========== ======
Reinsurance and financing costs (17.0) - 8.3 (8.7)
============================================================== ========= ========= =========== ======
Operating profit/(loss) before tax 47.1 (3.3) 6.8 50.6
============================================================== ========= ========= =========== ======
Non-recurring and project expenditure (4.3) - (1.2) (5.5)
============================================================== ========= ========= =========== ======
Investment and economic profits/(losses) 147.1 - (2.5) 144.6
============================================================== ========= ========= =========== ======
Profit/(loss) before acquisition transaction and amortisation
costs, before tax 189.9 (3.3) 3.1 189.7
============================================================== ========= ========= =========== ======
Acquisition integration costs - - (15.9) (15.9)
============================================================== ========= ========= =========== ======
Acquisition transaction costs - - (7.9) (7.9)
============================================================== ========= ========= =========== ======
Amortisation costs - - (12.3) (12.3)
============================================================== ========= ========= =========== ======
Gain on acquisition of Partnership Assurance Group plc - - 72.8 72.8
============================================================== ========= ========= =========== ======
Profit/(loss) before tax 189.9 (3.3) 39.8 226.4
============================================================== ========= ========= =========== ======
Other Corporate
Insurance segments activities Total
Six months ended 30 June 2015 GBPm GBPm GBPm GBPm
=================================================== ========= ========= =========== ======
New business operating profit 18.6 - - 18.6
=================================================== ========= ========= =========== ======
In-force operating profit 24.8 - 0.4 25.2
=================================================== ========= ========= =========== ======
Underlying operating profit 43.4 - 0.4 43.8
=================================================== ========= ========= =========== ======
Operating experience and assumption changes (0.3) - - (0.3)
=================================================== ========= ========= =========== ======
Other Group companies' operating result - (1.9) (2.9) (4.8)
=================================================== ========= ========= =========== ======
Reinsurance and financing costs (14.6) - 8.6 (6.0)
=================================================== ========= ========= =========== ======
Operating profit/(loss) before tax 28.5 (1.9) 6.1 32.7
=================================================== ========= ========= =========== ======
Non-recurring and project expenditure (8.5) - (1.0) (9.5)
=================================================== ========= ========= =========== ======
Investment and economic (losses)/profits (42.6) - 0.8 (41.8)
=================================================== ========= ========= =========== ======
(Loss)/profit before amortisation costs and before
tax (22.6) (1.9) 5.9 (18.6)
=================================================== ========= ========= =========== ======
Amortisation costs - - (1.8) (1.8)
=================================================== ========= ========= =========== ======
(Loss)/profit before tax (22.6) (1.9) 4.1 (20.4)
=================================================== ========= ========= =========== ======
Other Corporate
Insurance segments activities Total
Twelve months ended 30 June 2016 GBPm GBPm GBPm GBPm
============================================================== ========= ========= =========== ======
New business operating profit 78.8 - - 78.8
============================================================== ========= ========= =========== ======
In-force operating profit 50.0 - 0.6 50.6
============================================================== ========= ========= =========== ======
Underlying operating profit 128.8 - 0.6 129.4
============================================================== ========= ========= =========== ======
Operating experience and assumption changes (3.4) - - (3.4)
============================================================== ========= ========= =========== ======
Other Group companies' operating result - (6.3) (4.6) (10.9)
============================================================== ========= ========= =========== ======
Reinsurance and financing costs (31.3) - 16.6 (14.7)
============================================================== ========= ========= =========== ======
Operating profit/(loss) before tax 94.1 (6.3) 12.6 100.4
============================================================== ========= ========= =========== ======
Non-recurring and project expenditure (11.3) - (2.2) (13.5)
============================================================== ========= ========= =========== ======
Investment and economic profits/(losses) 149.9 - (2.9) 147.0
============================================================== ========= ========= =========== ======
Profit/(loss) before acquisition transaction and amortisation
costs, before tax 232.7 (6.3) 7.5 233.9
============================================================== ========= ========= =========== ======
Acquisition integration costs - - (15.9) (15.9)
============================================================== ========= ========= =========== ======
Acquisition transaction costs (24.2) (24.2)
============================================================== ========= ========= =========== ======
Amortisation costs - - (14.1) (14.1)
============================================================== ========= ========= =========== ======
Gain on acquisition - - 72.8 72.8
============================================================== ========= ========= =========== ======
Profit/(loss) before tax 232.7 (6.3) 26.1 252.5
============================================================== ========= ========= =========== ======
Other Corporate
Insurance segments activities Total
Twelve months ended 30 June 2015 GBPm GBPm GBPm GBPm
======================================================= ========= ========= =========== ======
New business operating profit 36.8 - - 36.8
======================================================= ========= ========= =========== ======
In-force operating profit 48.8 - 0.8 49.6
======================================================= ========= ========= =========== ======
Underlying operating profit 85.6 - 0.8 86.4
======================================================= ========= ========= =========== ======
Operating experience and assumption changes 2.4 - - 2.4
======================================================= ========= ========= =========== ======
Other Group companies' operating result - (3.3) (5.4) (8.7)
======================================================= ========= ========= =========== ======
Reinsurance and financing costs (28.7) - 16.2 (12.5)
======================================================= ========= ========= =========== ======
Operating profit/(loss) before tax 59.3 (3.3) 11.6 67.6
======================================================= ========= ========= =========== ======
Non-recurring and project expenditure (16.8) - (2.6) (19.4)
======================================================= ========= ========= =========== ======
Investment and economic (losses)/profits (74.2) - 0.1 (74.1)
======================================================= ========= ========= =========== ======
(Loss)/profit before amortisation costs and before tax (31.7) (3.3) 9.1 (25.9)
======================================================= ========= ========= =========== ======
Amortisation costs - - (3.7) (3.7)
======================================================= ========= ========= =========== ======
(Loss)/profit before tax (31.7) (3.3) 5.4 (29.6)
======================================================= ========= ========= =========== ======
Product information analysis
Additional analysis relating to the Group's products is presented below. The Group's products are from one material geographical segment which is the UK. The Group's gross premiums written, as shown in the Condensed consolidated statement of comprehensive income, is analysed by product below.
Six months Twelve Twelve
Six months ended months months
ended 30 June ended ended
30 June 2015 30 June 30 June
2016 GBPm 2016 2015
GBPm GBPm GBPm
============================================== ========== ========== ======== ========
Defined Benefit De-risking Solutions ("DB") 164.4 254.2 865.6 608.9
============================================== ========== ========== ======== ========
Guaranteed Income for Life contracts ("GIfL") 298.6 211.6 569.8 478.0
============================================== ========== ========== ======== ========
Care Plans ("CP") 41.3 7.3 57.9 12.1
============================================== ========== ========== ======== ========
Protection 0.8 - 0.8 -
============================================== ========== ========== ======== ========
Gross premiums written 505.1 473.1 1,494.1 1,099.0
============================================== ========== ========== ======== ========
Drawdown and LTM products are accounted for as investment contracts and financial investments respectively in the statement of financial position. An analysis of the amounts advanced during the year for these products is shown below.
Six months Twelve Twelve
ended Six months months months
30 June ended ended ended
2016 30 June 30 June 30 June
GBPm 2015 2016 2015
GBPm GBPm GBPm
================================================== ========== ========== ======== ========
Drawdown 5.4 13.4 12.6 48.7
================================================== ========== ========== ======== ========
LTM loans advanced 255.3 149.1 492.3 308.1
================================================== ========== ========== ======== ========
New business sales not included in gross premiums
written 260.7 162.5 504.9 356.8
================================================== ========== ========== ======== ========
Reconciliation of gross premiums written to new business sales
Six months Twelve Twelve
ended Six months months months
30 June ended ended ended
2016 30 June 30 June 30 June
GBPm 2015 2016 2015
GBPm GBPm GBPm
================================================= ========== ========== ======== ========
Gross premiums written 505.1 473.1 1,494.1 1,099.0
================================================= ========== ========== ======== ========
Change in premiums receivable not included
in new business sales* 22.4 - 22.4 -
================================================= ========== ========== ======== ========
Drawdown and LTM new business sales not included
in gross premiums written 260.7 162.5 504.9 356.8
================================================= ========== ========== ======== ========
New business sales 788.2 635.6 2,021.4 1,455.8
================================================= ========== ========== ======== ========
*Premiums on insurance contracts are recognised when the contract becomes effective in accordance with the terms the contract. For certain contracts written by Partnership Life Assurance Company Limited ("PLACL"), this is when the contract is issued and, if the timing of payment differs, a receivable is recognised. PLACL contracts where payment has not been received in the reporting period are excluded from new business sales.
Pro-forma information analysis
The following table reconciles the pro-forma new business sales and pro-forma operating profit before tax information presented within the Business review, to the new business sales and operating profit before tax information presented within this segmental reporting note. Pro-forma information is unreviewed and unaudited
Reconciliation of pro-forma new business sales to new business sales
Six months Six months
ended ended
30 June 30 June
2016 2015
GBPm GBPm
============================================= ========== ==========
Pro-forma new business sales (unreviewed and
unaudited) 948.7 922.6
=============================================== ========== ==========
New business sales relating to Partnership
Assurance Group plc pre-acquisition (160.5) (287.0)
=============================================== ========== ==========
New business sales 788.2 635.6
=============================================== ========== ==========
Reconciliation of pro-forma operating profit before tax to operating profit before tax
Six months Six months
ended ended
30 June 30 June
2016 2015
GBPm GBPm
=================================================== ========== ==========
Pro-forma operating profit before tax (unreviewed
and unaudited) 48.4 43.4
===================================================== ========== ==========
Operating profit relating to Partnership Assurance
Group plc pre-acquisition and other adjustments 2.2 (10.7)
===================================================== ========== ==========
Operating profit before tax 50.6 32.7
===================================================== ========== ==========
4 Earnings per share
The calculation of basic and diluted earnings per share is based on dividing the profit or loss attributable to equity holders of the Company by the weighted average number of ordinary shares outstanding and by the diluted weighted average number of ordinary shares potentially outstanding at the end of the period, calculated as follows.
Six months ended Six months ended
30 June 2016 30 June 2015
------------------------------ ------------------------------
Weighted Weighted
average Earnings average Earnings
number per number per
Earnings of shares share Earnings of shares share
GBPm million pence GBPm million pence
============================================== ======== ========== ======== ======== ========== ========
Basic 188.8 650.2 29.04 (16.5) 499.6 (3.30)
============================================== ======== ========== ======== ======== ========== ========
Effect of dilutive potential ordinary shares:
============================================== ======== ========== ======== ======== ========== ========
Share options - 3.4 - - - -
============================================== ======== ========== ======== ======== ========== ========
Diluted 188.8 653.6 28.89 (16.5) 499.6 (3.30)
============================================== ======== ========== ======== ======== ========== ========
Twelve months ended Twelve months ended
30 June 2016 30 June 2015
------------------------------ ------------------------------
Weighted Weighted
average Earnings average Earnings
number per number per
Earnings of shares share Earnings of shares share
GBPm million pence GBPm million pence
============================================== ======== ========== ======== ======== ========== ========
Basic 210.7 631.8 33.35 (24.8) 499.7 (4.96)
============================================== ======== ========== ======== ======== ========== ========
Effect of dilutive potential ordinary shares:
============================================== ======== ========== ======== ======== ========== ========
Share options - 3.3 - - - -
============================================== ======== ========== ======== ======== ========== ========
Diluted 210.7 635.1 33.18 (24.8) 499.7 (4.96)
============================================== ======== ========== ======== ======== ========== ========
5 Dividends
Dividends paid were as follows.
Six months Twelve Twelve
ended Six months months months
30 June ended ended ended
2016 30 June 30 June 30 June
GBPm 2015 2016 2015
GBPm GBPm GBPm
============================================================= ========== ========== ======== ========
Final dividend:
* in respect of the year ended 30 June 2015 - 2.2 pence
per share, paid on 7 December 2015
- - 12.4
* in respect of the year ended 30 June 2014 - 2.2 pence -
per share, paid on 8 December 2014 - - - 11.0
============================================================= ========== ========== ======== ========
Interim dividend:
* first interim dividend in respect of the 18 month
period ended 31 December 2016 - 1.1 pence per share,
paid on 20 May 2016
10.2 - 10.2
* in respect of the year ended 30 June 2015 - 1.1 pence -
per share, paid on 14 May 2015 - 5.5 - 5.5
============================================================= ========== ========== ======== ========
Total dividends paid 10.2 5.5 22.6 16.5
============================================================= ========== ========== ======== ========
The Directors proposed a second interim dividend of 1.1 pence per share in respect of the current period.
6 Financial investments
This note explains the methodology for valuing the Group's financial assets and liabilities measured at fair value, including financial investments, and provides disclosures in accordance with IFRS 13, Fair value measurement, including an analysis of such assets and liabilities categorised in a fair value hierarchy based on market observability of valuation inputs.
All of the Group's financial investments are measured at fair value through the profit or loss, and are either designated as such on initial recognition or, in the case of derivative financial assets, classified as held for trading.
The fair value of debt securities includes accrued interest previously classified as prepayments and accrued income on the statement of financial position. As a result of this change in presentation, GBP83m of accrued interest has been reclassified from prepayments and accrued income at 30 June 2015.
30 June 30 June
2016 2015
GBPm GBPm
=================================================== ======== =======
Fair value
=================================================== ======== =======
Units in liquidity funds 473.1 280.2
=================================================== ======== =======
Debt securities and other fixed income securities 8,858.4 4,756.8
=================================================== ======== =======
Deposits with credit institutions 77.2 18.0
=================================================== ======== =======
Derivative financial assets 90.1 50.9
=================================================== ======== =======
Loans secured by residential mortgages 6,379.0 3,471.8
=================================================== ======== =======
Loans secured by commercial mortgages 134.3 -
=================================================== ======== =======
Other loans 183.0 -
=================================================== ======== =======
Recoveries from reinsurers on investment contracts 9.7 -
=================================================== ======== =======
Total fair value 16,204.8 8,577.7
=================================================== ======== =======
Cost
=================================================== ======== =======
Units in liquidity funds 473.1 279.9
=================================================== ======== =======
Debt securities and other fixed income securities 8,133.5 4,536.2
=================================================== ======== =======
Deposits with credit institutions 77.2 18.0
=================================================== ======== =======
Derivative financial assets 8.2 8.2
=================================================== ======== =======
Loans secured by residential mortgages 3,678.4 2,073.3
=================================================== ======== =======
Loans secured by commercial mortgages 127.1 -
=================================================== ======== =======
Other loans 158.5 -
=================================================== ======== =======
Recoveries from reinsurers on investment contracts 4.1 -
=================================================== ======== =======
Total cost 12,660.1 6,915.6
=================================================== ======== =======
The majority of investments included in debt securities and other fixed income securities are listed investments.
Units in liquidity funds comprise wholly of units in funds which invest in cash and cash equivalents.
Deposits with credit institutions with a carrying value of GBP160.9m (2015: GBP17.2m) have been pledged as collateral in respect of the Group's derivative financial instruments. Amounts pledged as collateral are deposited with the derivative counterparty.
(a) Determination of fair value and fair value hierarchy
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy described as follows, based on the lowest level input that is significant to the fair value measurement as a whole.
Level 1
Inputs to Level 1 fair values are unadjusted quoted prices in active markets for identical assets and liabilities that the entity can access at the measurement date.
Level 2
Inputs to Level 2 fair values are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the instrument. Level 2 inputs include the following:
-- Quoted prices for similar assets and liabilities in active markets;
-- Quoted prices for identical assets or similar assets in markets that are not active, the prices are not current, or price quotations vary substantially either over time or among market makers, or in which very little information is released publicly;
-- Inputs other than quoted prices that are observable for the asset or liability; and -- Market-corroborated inputs.
Where the Group uses broker/asset manager quotes and no information as to observability of inputs is provided by the broker/asset manager, the investments are classified as follows:
-- Where the broker/asset manager price is validated by using internal models with market-observable inputs and the values are similar, the investment is classified as Level 2; and
-- In circumstances where internal models are not used to validate broker/asset manager prices, or the observability of inputs used by brokers/asset managers is unavailable, the investment is classified as Level 3.
The majority of the Group's debt securities held at fair value and financial derivatives are valued using independent pricing services or third party broker quotes, and therefore classified as Level 2.
Level 3
Inputs to Level 3 fair values are unobservable inputs for the asset or liability. Unobservable inputs may have been used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability. Unobservable inputs reflect the same assumptions as those that the market participant would use in pricing the asset or liability.
The Group's assets and liabilities held at fair value which are valued using valuation techniques for which significant observable market data is not available and classified as Level 3 include loans secured by mortgages, asset-backed securities, and investment contract liabilities.
The valuation of loans secured by mortgages is determined using an internal model which projects future cash flows expected to arise from each loan. Future cash flows allow for assumptions relating to future expenses, future mortality experience, costs arising from no-negative equity guarantees and voluntary redemptions. The fair value is calculated by discounting the future cash flows at a swap rate plus a liquidity premium.
During the prior year the internal model used to value the loans secured by mortgages was recalibrated in respect of the liquidity premium added to the swap rate. Previously the liquidity premium was considered to be unobservable and was therefore set at zero. This gave rise to a day-one gain which was deferred and recognised over the expected life of the loan.
The recalibration process reassessed the level of the liquidity premium and this is now considered to be an observable input to the internal model. As a result of the recalibration, a day-one gain no longer arises, and profit is recognised over the term of the contract. There is no longer any aggregate difference yet to be recognised in profit or loss between the fair value of the mortgages at initial recognition and the amount that would have been determined at that date using the valuation technique.
The Level 3 bonds are either infrastructure private placement bonds or asset-backed securities. Such securities are valued using discounted cash flow analyses using prudent assumptions based on the repayment of the underlying loan.
Investment contract liabilities are calculated on a policy-by-policy basis using a prospective valuation of future retirement income benefits and expense cash flows, but with an adjustment to amortise any day-one gain over the life of the contract.
There are no non-recurring fair value measurements as at 30 June 2016 (2015: nil).
(b) Analysis of assets and liabilities held at fair value according to fair value hierarchy
Level Level Level
1 2 3 Total
30 June 2016 GBPm GBPm GBPm GBPm
=================================================== ======= ======= ======= ========
Assets held at fair value
=================================================== ======= ======= ======= ========
Units in liquidity funds 473.1 - - 473.1
=================================================== ======= ======= ======= ========
Debt securities and other fixed income securities 4,059.7 4,730.4 68.3 8,858.4
=================================================== ======= ======= ======= ========
Deposits with credit institutions 76.0 1.2 - 77.2
=================================================== ======= ======= ======= ========
Derivative financial assets - 90.1 - 90.1
=================================================== ======= ======= ======= ========
Loans secured by residential mortgages - - 6,379.0 6,379.0
=================================================== ======= ======= ======= ========
Loans secured by commercial mortgages - - 134.3 134.3
=================================================== ======= ======= ======= ========
Other loans - 1.4 181.6 183.0
=================================================== ======= ======= ======= ========
Recoveries from reinsurers on investment contracts - - 9.7 9.7
=================================================== ======= ======= ======= ========
Total assets held at fair value 4,608.8 4,823.1 6,772.9 16,204.8
=================================================== ======= ======= ======= ========
Liabilities held at fair value
=================================================== ======= ======= ======= ========
Investment contract liabilities - - 213.0 213.0
=================================================== ======= ======= ======= ========
Derivative financial liabilities - 268.6 - 268.6
=================================================== ======= ======= ======= ========
Obligations for repayment of cash collateral
received - 30.2 - 30.2
=================================================== ======= ======= ======= ========
Deposits received from reinsurers - - 2,721.9 2,721.9
=================================================== ======= ======= ======= ========
Total liabilities held at fair value - 298.8 2,934.9 3,233.7
=================================================== ======= ======= ======= ========
Level Level Level
1 2 3 Total
30 June 2015 GBPm GBPm GBPm GBPm
================================================== ======= ======= ======= =======
Assets held at fair value
================================================== ======= ======= ======= =======
Units in liquidity funds 280.2 - - 280.2
================================================== ======= ======= ======= =======
Debt securities and other fixed income securities 717.0 4,021.0 18.8 4,756.8
================================================== ======= ======= ======= =======
Deposits with credit institutions 17.2 0.8 - 18.0
================================================== ======= ======= ======= =======
Derivative financial assets - 50.9 - 50.9
================================================== ======= ======= ======= =======
Loans secured by residential mortgages - - 3,471.8 3,471.8
================================================== ======= ======= ======= =======
Total assets held at fair value 1,014.4 4,072.7 3,490.6 8,577.7
================================================== ======= ======= ======= =======
Liabilities held at fair value
================================================== ======= ======= ======= =======
Investment contract liabilities - - 228.3 228.3
================================================== ======= ======= ======= =======
Derivative financial liabilities - 74.3 - 74.3
================================================== ======= ======= ======= =======
Obligations for repayment of cash collateral
received 18.6 - - 18.6
================================================== ======= ======= ======= =======
Total liabilities held at fair value 18.6 74.3 228.3 321.2
================================================== ======= ======= ======= =======
(c) Transfers between levels
The Group's policy is to assess pricing source changes and determine transfers between levels as of the end of each half-yearly reporting period.
During the period there were no transfers between Level 1 and Level 2.
(d) Level 3 assets and liabilities measured at fair value
Reconciliation of the opening and closing recorded amount of Level 3 assets and liabilities held at fair value
Debt Recoveries
securities Loans Loans from
and other secured secured reinsurers Deposits
fixed by by on Investment received
income residential commercial Other investment contract from
Twelve months ended 30 June securities mortgages mortgages loans contracts liabilities reinsurers
2016 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ============ ============ ============ ====== =========== ============ ===========
At start of period 18.5 3,471.8 - - - (228.3) -
============================ ============ ============ ============ ====== =========== ============ ===========
On acquisition of
Partnership
Assurance Group plc 0.1 1,629.2 117.2 - - - (2,647.8)
============================ ============ ============ ============ ====== =========== ============ ===========
Purchases/Advances/Deposits 50.0 497.4 13.9 157.1 4.8 (12.6) (35.9)
============================ ============ ============ ============ ====== =========== ============ ===========
Transfers from level 2 - - - - - - -
============================ ============ ============ ============ ====== =========== ============ ===========
Sales/Redemptions/Payments (6.0) (145.9) (0.4) - (0.3) 40.0 57.6
============================ ============ ============ ============ ====== =========== ============ ===========
Gains and losses recognised
in profit or loss in net
investment income 6.0 763.3 2.5 24.5 5.2 - (71.7)
============================ ============ ============ ============ ====== =========== ============ ===========
Amortisation/Interest
accrued (0.3) 163.2 1.1 - - - (24.1)
============================ ============ ============ ============ ====== =========== ============ ===========
Change in fair value of
liabilities
recognised in profit or
loss - - - - - (12.1) -
============================ ============ ============ ============ ====== =========== ============ ===========
At end of period 68.3 6,379.0 134.3 181.6 9.7 (213.0) (2,721.9)
============================ ============ ============ ============ ====== =========== ============ ===========
Debt Recoveries
securities Loans Loans from
and other secured secured reinsurers Deposits
fixed by by on Investment received
income residential commercial Other investment contract from
Twelve months ended 30 June securities mortgages mortgages loans contracts liabilities reinsurers
2015 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ============ ============ ============ ====== =========== ============ ===========
At start of period 15.5 2,749.4 - - - (197.4) -
============================ ============ ============ ============ ====== =========== ============ ===========
Purchases/Advances/Deposits - 308.1 - - - (49.1) -
============================ ============ ============ ============ ====== =========== ============ ===========
Transfers from level 2 3.5 - - - - - -
============================ ============ ============ ============ ====== =========== ============ ===========
Sales/Redemptions/Payments - (109.6) - - - 21.7 -
============================ ============ ============ ============ ====== =========== ============ ===========
Gains and losses recognised
in profit or loss in net
investment income 0.2 523.9 - - - - -
============================ ============ ============ ============ ====== =========== ============ ===========
Amortisation/Interest accrued (0.4) - - - - - - ============================ ============ ============ ============ ====== =========== ============ =========== Change in fair value of liabilities recognised in profit or loss - - - - - (3.5) - ============================ ============ ============ ============ ====== =========== ============ =========== At end of period 18.8 3,471.8 - - - (228.3) - ============================ ============ ============ ============ ====== =========== ============ ===========
Debt securities and other fixed income securities
Debt securities classified as Level 3 are either infrastructure private placement bonds or asset-backed securities.
Principal assumptions underlying the calculation of the debt securities and other fixed income securities classified as Level 3
Redemption and defaults
The redemption and default assumptions used in the valuation of infrastructure private placement bonds are similar to the rest of the Group's bond portfolio. They have additional covenants which provide greater security but these are not quantified in the valuation.
For asset-backed securities, the assumptions are that the underlying loans supporting the securities are redeemed in the future in a similar profile to the existing redemptions on an average rate of 3% per annum, and that default levels on the underlying basis remain at the current level of the Group's bond portfolio.
Sensitivity analysis
The sensitivity of profit before tax to changes in default assumptions and redemption profiles in respect of Level 3 debt securities is not material.
Loans secured by residential mortgages
Principal assumptions underlying the calculation of loans secured by residential mortgages
All gains and losses arising from loans secured by mortgages are largely dependent on the term of the mortgage, which in turn is determined by the longevity of the customer. Principal assumptions underlying the calculation of loans secured by mortgages include the following:
Maintenance expenses
Assumptions for future policy expense levels are based on the Group's recent expense analyses. The assumed future expense levels incorporate an annual inflation rate allowance of 3.6% for loans written by Just Retirement (2015: 3.8%) and 4.6% for loans written by Partnership.
Mortality
Mortality assumptions have been derived by reference to appropriate standard mortality tables. These tables have been adjusted to reflect the expected future mortality experience of mortgage contract holders, taking into account the medical and lifestyle evidence collected during the sales process and the Group's assessment of how this experience will develop in the future. This assessment takes into consideration relevant industry and population studies, published research materials, input from the Group's lead reinsurer and management's own experience.
Property prices
The value of a property at the date of valuation is calculated by taking the latest valuation for that property and indexing this value using the Nationwide or Halifax quarterly index for the property's region.
Voluntary redemptions
Assumptions for future voluntary redemption levels are based on the Group's recent analyses and external benchmarking, and the assumed redemption rate for policies in their first year is 0.7% for loans written by Just Retirement (2015: 0.6%) and 1.5% for loans written by Partnership.
Sensitivity analysis
Changes to unobservable inputs used in the valuation technique could give rise to significant changes in the fair value of the assets. The Group has estimated the impact on profit for the period in changes to these inputs as follows.
Loans secured by residential
mortgages valuation assumptions
----------------------------------------------
Maintenance Property Voluntary
expenses Mortality prices redemptions
Net increase/(decrease) in profit before tax (GBPm) +10% -5% -10% +10%
==================================================== =========== ========= ======== ============
30 June 2016 (5.6) 38.5 (87.0) (35.0)
==================================================== =========== ========= ======== ============
30 June 2015 (4.1) 15.3 (26.1) (14.3)
==================================================== =========== ========= ======== ============
The sensitivity factors are determined via actuarial models. The analysis has been prepared for a change in each variable with other assumptions remaining constant. In reality such an occurrence is unlikely due to correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear and larger or smaller impacts cannot be interpolated or extrapolated from these results.
The sensitivity factors take into consideration that the Group's assets and liabilities are actively managed and may vary at the time that any actual market movement occurs.
Other limitations in the above sensitivity analysis include the use of hypothetical market movements to demonstrate potential risk that only represents the Group's view of reasonably possible near-term market changes that cannot be predicted with any certainty, and the assumption that there is a parallel shift in interest rates at all durations.
Loans secured by commercial mortgages
Principal assumption(s) underlying the calculation of loans secured by commercial mortgages
The discount rate is the most significant assumption applied in calculating the fair value of the loans secured by commercial mortgages. The discount rate used is a risk free interest rate plus a spread % of between 1.3% and 2.8% depending on the individual loan.
Sensitivity analysis
Changes to unobservable inputs used in the valuation technique could give rise to significant changes in the fair value of the assets. The Group has estimated the impact on profit for the period in changes to these inputs as follows.
Loans secured by commercial
mortgages valuation assumptions
-----------------------------------
Interest
rates
Net increase/(decrease) in profit before tax (GBPm) +100bps
==================================================== ================================
30 June 2016 (8.5)
======================================================= ================================
Other loans
Other loans classified as Level 3 are infrastructure loans.
Principal assumptions underlying the calculation of other loans classified as Level 3
Redemption and defaults
The redemption and default assumptions used in the valuation of infrastructure loans are similar to the Group's bond portfolio. They have additional covenants which provide greater security but these are not quantified in the valuation.
Sensitivity analysis
The sensitivity of profit before tax to changes in default assumptions and redemption profiles in respect of Level 3 infrastructure loans is not material.
Recoveries from reinsurers on investment contracts
Recoveries from reinsurers on investment contracts represent fully reinsured funds invested under the Flexible Pension Plan. The linked liabilities are included in Level 3 investment contract liabilities.
Principal assumptions and sensitivity of profit before tax
Recoveries from reinsurers on investment contracts are valued based on the price of the reinsured underlying funds determined by the asset managers. The assets are classified as Level 3 because the prices are not validated by internal models or the observable inputs used by the asset managers are not available. Therefore, there are no principal assumptions used in the valuation of these Level 3 assets.
Investment contract liabilities
Principal assumption underlying the calculation of investment contract liabilities
Maintenance expenses
Assumptions for future policy expense levels are based on the Group's recent expense analyses. The assumed future expense levels incorporate an annual inflation rate allowance of 4.0% (2015: 4.1%).
Sensitivity analysis
The sensitivity of profit before tax to changes in maintenance expense assumptions in respect of investment contract liabilities is not material.
Deposits received from reinsurers
Principal assumption(s) underlying the calculation of deposits received from reinsurers
Discount rate
The valuation model discounts the expected future cash flows using a contractual discount rate derived from the assets hypothecated to back the liabilities at a product level. The discount rates used as at 30 June 2016 for Individual retirement and Individual care annuities were 3.51% and 1.26% respectively.
Credit spreads
The valuation of deposits received from reinsurers includes a credit spread applied by individual reinsurer. A credit spread of 135bps was applied in respect of the most significant reinsurance contract.
Sensitivity analysis
Changes to unobservable inputs used in the valuation technique could give rise to significant changes in the fair value of the assets. The Group has estimated the impact on profit for the period in changes to these inputs as follows.
Deposits received from reinsurers
-------------------------------------
Credit Interest
spreads rates
Net increase/(decrease) in fair value (GBPm) +100bps +100bps
============================================= ================= ================
30 June 2016 (127.7) (217.7)
=============================================== ================= ================
7 Share capital
The allotted and issued ordinary share capital of JRP Group plc at 30 June 2016 is detailed below.
Number of Merger
GBP0.10 Share Share reserve Total
ordinary capital premium GBPm GBPm
shares GBPm GBPm
============================================= =========== ======== ======== ======== =======
At 1 July 2015 500,864,706 50.1 1.2 - 51.3
============================================= =========== ======== ======== ======== =======
Shares issued under capital placing and open
offer 63,525,672 6.4 90.5 - 96.9
============================================= =========== ======== ======== ======== =======
Shares issued in exchange for shares in PAG 368,376,421 36.8 - 532.7 569.5
============================================= =========== ======== ======== ======== =======
In respect of employee share schemes 7,024 - - - -
============================================= =========== ======== ======== ======== =======
At 30 June 2016 932,773,823 93.3 91.7 532.7 717.7
============================================= =========== ======== ======== ======== =======
Consideration for the acquisition of 100% of the equity shares of Partnership Assurance Group plc consisted of a fresh issue of shares in the Company. Accordingly merger relief under section 612 of the Companies Act 2006 applies, and share premium has not been recognised in respect of this issue of shares. A merger reserve has been recognised representing the difference between the nominal value of the shares issued and the net assets of Partnership Assurance Group plc acquired.
Number of
GBP0.10 Share Share Total
ordinary capital premium GBPm
shares GBPm GBPm
===================================== =========== ======== ======== =======
At 1 July 2014 500,831,070 50.1 1.2 51.3
===================================== =========== ======== ======== =======
In respect of employee share schemes 33,636 - - -
===================================== =========== ======== ======== =======
At 30 June 2015 500,864,706 50.1 1.2 51.3
===================================== =========== ======== ======== =======
8 Loans and borrowings
30 June 30 June
2016 2015
GBPm GBPm
=========================== ======= =======
Bank borrowings 98.1 46.9
=========================== ======= =======
Subordinated debt 94.1 -
=========================== ======= =======
Total loans and borrowings 192.2 46.9
=========================== ======= =======
On 25 September 2012, Just Retirement (Holdings) Limited entered into a GBP35m five-year term loan agreement provided by Royal Bank of Scotland plc.
On 9 May 2013, Deutsche Bank AG and Nomura International plc acceded to the loan agreement under the terms of an accordion feature, with each providing loans of GBP10m to Just Retirement (Holdings) Limited.
On 7 August 2015, Just Retirement (Holdings) Limited entered into an amendment to the original loan agreement and on 10 August 2015 drew down a further GBP30m from each of Royal Bank of Scotland plc and Barclays Bank plc.
GBP3.6m of the loan was repaid on 11 October 2013, GBP4.5m was repaid on 11 October 2014, and GBP8.8m was repaid on 11 October 2015.
The fair value of the bank borrowings is the same as the carrying value.
In March 2015, the Partnership group issued a GBP100m Solvency II Tier 2 qualifying instrument at par with a maturity date of March 2025 and a coupon of 9.5%. Net of issuance fees the amount received was GBP99.9m. The fair value of the debt at the date of acquisition of PAG was GBP94.1m.
9 Other financial liabilities
The Group has other financial liabilities which are measured at either amortised cost, fair value through profit or loss, or in accordance with relevant underlying contracts ("insurance rules"), summarised as follows.
30 June 30 June
2016 2015
Note GBPm GBPm
====================================================== ===== ======= =======
Fair value through profit or loss
====================================================== ===== ======= =======
Derivative financial liabilities (a) 268.6 74.3
====================================================== ===== ======= =======
Obligations for repayment of cash collateral received (a) 30.2 18.6
====================================================== ===== ======= =======
Deposits received from reinsurers (b) 2,721.9 -
====================================================== ===== ======= =======
Liabilities measured using insurance rules
====================================================== ===== ======= =======
Deposits received from reinsurers (b) 2,566.2 2,473.6
====================================================== ===== ======= =======
Reinsurance finance (c) 74.2 76.7
====================================================== ===== ======= =======
Reinsurance funds withheld (d) 210.0 -
====================================================== ===== ======= =======
Total other liabilities 5,871.1 2,643.2
============================================================= ======= =======
The liabilities above, which are measured at fair value through profit or loss, are designated as such on initial recognition.
(a) Derivative financial liabilities and obligations for repayment of cash collateral received
The derivative financial liabilities are classified at fair value through profit or loss. All financial liabilities at fair value through profit or loss are designated as such on initial recognition or, in the case of derivative financial liabilities, are classified as held for trading.
(b) Deposits received from reinsurers
Deposits received from reinsurers are measured in accordance with the reinsurance contract and taking into account an appropriate discount rate for the timing of expected cash flows of the liabilities.
(c) Reinsurance finance
The reinsurance finance has been established in recognition of the loan obligation to the reinsurers under the Group's reinsurance financing arrangements, the repayment of which are contingent upon the emergence of surplus under the Pillar 1 valuation rules.
(d) Reinsurance funds withheld
Reinsurance funds withheld are measured and valued in accordance with the reinsurance contract, which takes into account an appropriate discount rate for the timing of expected cash flows.
10 Derivative financial instruments
The Group uses various derivative financial instruments to manage its exposure to interest rates, counterparty credit risk, inflation and foreign exchange risk, including interest rate swaps, interest rate swaptions, inflation swaps, credit default swaps, and foreign currency asset swaps.
Asset Liability
fair fair Notional
value value amount
Derivatives GBPm GBPm GBPm
======================== ====== ========= ========
Foreign currency swaps 0.3 114.7 1,031.4
======================== ====== ========= ========
Interest rate swaps 87.0 66.0 995.3
======================== ====== ========= ========
Interest rate swaptions - - 1,140.0
======================== ====== ========= ========
Inflation swaps - 87.9 805.2
======================== ====== ========= ========
Credit default swaps 2.8 - 21.2
======================== ====== ========= ========
Interest rate futures - - -
======================== ====== ========= ========
Total at 30 June 2016 90.1 268.6 3,993.1
======================== ====== ========= ========
Asset Liability
fair fair Notional
value value amount
Derivatives GBPm GBPm GBPm
============================= ====== ========= ========
Foreign currency asset swaps 29.7 4.0 368.4
============================= ====== ========= ========
Interest rate swaps 15.1 70.3 314.0
============================= ====== ========= ========
Interest rate swaptions 6.1 - 1,140.0
============================= ====== ========= ========
Inflation swap - - 6.5
============================= ====== ========= ========
Total at 30 June 2015 50.9 74.3 1,828.9
============================= ====== ========= ========
The Group's derivative financial instruments are not designated as hedging instruments and changes in their fair value are included in profit or loss. Derivatives are used to manage the Group's European embedded value and regulatory capital, which is affected by a surplus of long-dated fixed interest securities when liabilities are measured on a realistic basis.
All over-the-counter derivative transactions are conducted under standardised International Swaps and Derivatives Association Inc. ("ISDA") master agreements, and the Group has collateral agreements between the individual Group entities and relevant counterparties in place under each of these market master agreements.
As at 30 June 2016, the Company had pledged collateral of GBP197.4m (2015: GBP55.6m) of which GBP36.5m were gilts (2015: GBP38.4m) and had received cash collateral of GBP30.2m (2015: GBP18.6m).
Amounts recognised in profit or loss in respect of derivative financial instruments are as follows.
Twelve months Twelve months
ended ended
30 June 30 June
2016 2015
GBPm GBPm
============================================== ============= =============
Movement in fair value of swaps (92.9) 15.7
============================================== ============= =============
Realised losses on interest rate swaps closed (40.4) (145.0)
============================================== ============= =============
Total amounts recognised in profit or loss (133.3) (129.3)
============================================== ============= =============
11 Related parties
The 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 personnel comprise the Directors of the Company.
There were no material transactions between the Group and its key management personnel other than those disclosed below.
Key management compensation is as follows.
Six months Twelve Twelve
ended Six months months months
30 June ended ended ended
2016 30 June 30 June 30 June
GBPm 2015 2016 2015
GBPm GBPm GBPm
============================================== ========== ========== ======== ========
Short-term employee benefits 1.5 4.3 3.6 7.0
============================================== ========== ========== ======== ========
Share-based payments 0.2 0.7 0.9 1.2
============================================== ========== ========== ======== ========
Total key management compensation 1.7 5.0 4.5 8.2
============================================== ========== ========== ======== ========
Loans owed by Directors 0.3 - 0.3 -
============================================== ========== ========== ======== ========
Loans advanced to associate and fees on loans 0.2 - 0.2 -
============================================== ========== ========== ======== ========
The loan advances to Directors accrue interest fixed at 4% p.a and are repayable in whole or in part at any time.
Loans are regularly advanced to the Group's associate, Eldercare to provide short-term prefunding for policy holder annuity purchases.
12 Post balance sheet events
There have been no material events between 30 June 2016 and the date of this report that are required to be brought to the attention of shareholders.
European embedded value ("EEV")
Supplementary financial statements
JRP Group plc has prepared supplementary financial statements for the Group on an EEV basis. These statements have been prepared in accordance with the CFO Forum's Principles and Guidance on EEV reporting dated April 2016. These principles permit, but do not require, the use of projection methods and assumptions applied for market consistent solvency regimes. JRP has chosen not to align its methodology and assumptions between Solvency II and EEV and has instead chosen to report EEV under an IFRS based methodology.
Life insurance products are, by their nature, long-term and the profit on this business is generated over a significant number of years. Accounting under IFRS alone does not, in the Group's opinion, fully reflect the value of future cash flows. The Group considers that embedded value reporting provides investors with a measure of the future profit streams of the Group's in-force long-term business and is a valuable supplement to statutory accounts.
Group statement of changes in embedded value
For the twelve months ended 30 June 2016
The statement of change in embedded value represents the change for the twelve months ended 30 June 2016 for the JRP Group, together with the comparative figures for the period ended 30 June 2015. The solvency regime changed to a Solvency II basis from 1 January 2016. As results up to 31 December 2015 have been prepared under the previous Solvency I regime, the analysis of movement for the twelve months ended 30 June 2016 has been split into two six-month periods to reflect the different reporting bases in place for the two periods. Material economic assumptions have been aligned to be consistent across both group companies at 31 December 2015, and are included within the methodology change as at December 2015.
Twelve months ended 30
June 2016
====================================== ========
Twelve
months
ended
Non-covered 30 June
Covered business business Total 2015
GBPm GBPm GBPm GBPm
=========================================== ================ =========== ======= ========
Opening Group EEV 782.8 236.5 1,019.3 959.1
=========================================== ================ =========== ======= ========
Operating EEV earnings 87.8 2.7 90.5 53.6
=========================================== ================ =========== ======= ========
Non-operating EEV earnings (33.9) (18.1) (52.0) 25.5
=========================================== ================ =========== ======= ========
Total EEV earnings 53.9 (15.4) 38.5 79.1
=========================================== ================ =========== ======= ========
Other movements in IFRS net equity - 1.4 1.4 0.9
=========================================== ================ =========== ======= ========
Dividend and capital flows 30.0 54.6 84.6 (11.0)
=========================================== ================ =========== ======= ========
December Closing Group EEV 866.7 277.1 1,143.8 1,028.1
=========================================== ================ =========== ======= ========
Methodology change as at December 2015 47.6 - 47.6 -
=========================================== ================ =========== ======= ========
Restated December EEV 914.3 277.1 1,191.4 1,028.1
=========================================== ================ =========== ======= ========
Acquisition of Partnership Assurance Group 621.2 63.8 685.0 -
=========================================== ================ =========== ======= ========
Operating EEV earnings 45.0 (7.5) 37.5 36.5
=========================================== ================ =========== ======= ========
Non-operating EEV earnings 224.1 (17.9) 206.2 (41.6)
=========================================== ================ =========== ======= ======== Total EEV earnings 890.3 38.4 928.7 (5.1) =========================================== ================ =========== ======= ======== Other movements in IFRS net equity - 6.2 6.2 1.8 =========================================== ================ =========== ======= ======== Dividend and capital flows 10.0 (20.2) (10.2) (5.5) =========================================== ================ =========== ======= ======== Closing Group EEV 1,814.6 301.5 2,116.1 1,019.3 =========================================== ================ =========== ======= ========
Covered business
Covered business embedded value has increased by GBP1,031.8m over the twelve months ended 30 June 2016. The primary drivers for this increase include the acquisition of PAG (GBP621.2m) and economic variances in the period (GBP190.3m). The remainder of the increase in EEV arises as a result of basis harmonisation following the acquisition of PAG (GBP47.6m) and new business written in the period (GBP116.6m).
Non-covered business
The non-covered business across the Group has increased by GBP65.0m over the period. New shares issued by JRG increased non-covered business by GBP97.0m, offset by a capital injection into JRL and PLACL, and dividend payments. Non-covered business increased by GBP63.8m as a result of the acquisition of PAG.
Reconciliation of shareholders' equity on IFRS basis to shareholders' equity on EEV basis
30 June 31 December 30 June
2016 2015 2015
GBPm GBPm GBPm
========================================= ======= =========== =========
Shareholders' equity on an IFRS basis 1,676.4 921.5 814.0
========================================== ======= =========== =========
Goodwill (32.8) (32.8) (32.8)
========================================== ======= =========== =========
Intangibles (215.2) (35.5) (37.3)
========================================== ======= =========== =========
Adjustments to IFRS 74.3 (263.8) (142.5)
========================================== ======= =========== =========
EEV Net worth 1,502.7 589.4 601.4
========================================== ======= =========== =========
Value of in-force business
========================================= ======= =========== =========
Present value of future profits 706.0 624.4 525.8
========================================== ======= =========== =========
Cost of residual non-hedgeable risks (55.1) (13.4) (11.9)
========================================== ======= =========== =========
Frictional cost of capital (37.5) (31.2) (28.6)
========================================== ======= =========== =========
Deferred Tax Asset - 31.1 8.7(1)
========================================== ======= =========== =========
Time Value of Options and Guarantees - (56.5) (76.1)(2)
========================================== ======= =========== =========
EEV (Net of taxation) 2,116.1 1,143.8 1,019.3
========================================== ======= =========== =========
(1) The EEV as at 30(th) June 2015 and 31 December 2015 was calculated on the previous methodology based on Solvency I, which included a deferred tax asset within the VIF reflecting the difference between the actual tax basis and the tax within the Shareholders' net assets on a Solvency I regulatory reporting basis. This deferred tax asset in the VIF no longer exists as the EEV shareholders' net assets are now on an IFRS basis.
(2) The Time Value of Options and Guarantees included within the VIF at 30 June 2015 and 31 December 2015 included an implicit amount reflecting a quantification of the reduction in the yield of lifetime mortgages and the impact this has on the liquidity premium. As this is implicit, rather than calculated explicitly, it has been removed from the breakdown of VIF as at June 2016.
Covered business analysis of movement in embedded value of JRP
The analysis of movement represents the change in the EEV for the twelve months ended 30 June 2016 for the JRP Group. Material economic assumptions have been aligned to be consistent across the group at 31 December 2015 and are included within the Methodology Change as at 31 December 2015. To better demonstrate the movement in embedded value, the composition of the embedded value profit for the current year is shown separately between the movement in shareholders' net worth and the value of in-force business.
Twelve months ended 30 June
2016
========================================== ========
Twelve
months
ended
Shareholders' Value of 30 June
Net worth in-force business Total 2015
GBPm GBPm GBPm GBPm
======================================== ============= ================== ======= ========
Opening EEV 364.9 417.9 782.8 699.1
======================================== ============= ================== ======= ========
New business value (34.8) 105.8 71.0 48.6
======================================== ============= ================== ======= ========
Expected existing business contribution
(reference rate and in excess
of reference rate 1.7 15.6 17.3 13.8
======================================== ============= ================== ======= ========
Transfers from VIF and required capital
to free surplus 25.4 (25.4) - -
======================================== ============= ================== ======= ========
Experience variances (52.6) 49.1 (3.5) (10.1)
======================================== ============= ================== ======= ========
Assumption changes (26.8) 37.8 11.0 6.9
======================================== ============= ================== ======= ========
Other operating variances (8.0) - (8.0) (6.9)
======================================== ============= ================== ======= ========
Operating EEV earnings (95.1) 182.9 87.8 52.3
======================================== ============= ================== ======= ========
Economic variances 12.5 (46.4) (33.9) 27.2
======================================== ============= ================== ======= ========
Other non-operating variances - - - -
======================================== ============= ================== ======= ========
Total EEV earnings (82.6) 136.5 53.9 79.5
======================================== ============= ================== ======= ========
Dividend and capital flows 30.0 - 30.0 10.0
======================================== ============= ================== ======= ========
December closing EEV 312.3 554.4 866.7 788.6
======================================== ============= ================== ======= ========
Methodology change as at December 2015 252.2 (204.6) 47.6 -
======================================== ============= ================== ======= ========
Restated December EEV 564.5 349.8 914.3 788.6
======================================== ============= ================== ======= ========
Acquisition of Partnership Assurance
Group 456.3 164.9 621.2 -
======================================== ============= ================== ======= ========
New business value 26.6 19.0 45.6 49.5
======================================== ============= ================== ======= ========
Expected existing business contribution
(reference rate and in excess
of reference rate) 4.7 8.3 13.0 16.3
======================================== ============= ================== ======= ========
Transfers from VIF and required capital
to free surplus 9.3 (9.3) - -
======================================== ============= ================== ======= ========
Experience variances (4.3) (0.6) (4.9) (13.0)
======================================== ============= ================== ======= ======== Assumption changes (0.6) (0.3) (0.9) (7.4) ======================================== ============= ================== ======= ======== Other operating variances (7.8) - (7.8) (7.6) ======================================== ============= ================== ======= ======== Operating EEV earnings 484.2 182.0 666.2 37.8 ======================================== ============= ================== ======= ======== Economic variances 143.5 80.7 224.2 (43.6) ======================================== ============= ================== ======= ======== Other non-operating variances (1.0) 0.9 (0.1) - ======================================== ============= ================== ======= ======== Total EEV earnings 626.7 263.6 890.3 (5.8) ======================================== ============= ================== ======= ======== Dividend and capital flows 10.0 - 10.0 - ======================================== ============= ================== ======= ======== Closing EEV 1,201.2 613.4 1,814.6 782.8 ======================================== ============= ================== ======= ========
The movements in EEV to 31 December 2015 are described in detail in the 31 December 2015 Interim Results already published and are not described in further detail here. The impact of methodology changes at 31 December 2015 reflects the changes from the harmonisation of reporting assumptions and the change to reporting EEV methodology as a result of the move to Solvency II for regulatory reporting. These have increased EEV by GBP47.6m. The large offsetting movement from VIF into net worth is a result of the move to base EEV on the IFRS balance sheet following the introduction of Solvency II (which replaced the Solvency I regulatory regime which was the basis for EEV in the past). New business increased EEV by GBP45.6m since December 2015. The other material positive item included in operating EEV earnings is the expected contribution from existing business which has been offset by the impact of the negative experience mainly arising on lifetime mortgage redemptions and other operating variances which mainly consist of interest payable on the subordinated debt. The key driver for the large increase in embedded value from the non-operating earnings is the impact of the large fall in risk-free interest rates over the period. The positive contribution from higher lifetime mortgage sales was offset by changes in corporate bond spreads.
Notes to the European Embedded Value results
Supplementary financial statements
1) Basis of presentation
The Group's primary financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The Group has prepared these supplementary financial statements in accordance with the European Embedded Value Principles and associated guidance issued in April 2016 by the European Insurance CFO Forum ("CFO Forum").
The Directors' view is that embedded value reporting provides shareholders with additional information on the financial position and current performance of the Group to that otherwise provided in the primary financial statements. Under the EEV method, the total profit recognised over the lifetime of a policy is the same as that recognised under alternative reporting bases, but the timing of recognition is different.
The Group uses EEV methodology to value all lines of insurance business within Just Retirement Limited ("JRL") and Partnership Life Assurance Company Limited ("PLACL"), the covered business of the Group.
The acquisition of Partnership Assurance Group plc ("PAG") by Just Retirement Group plc ("JRG") took place on 1 April 2016, at which point Just Retirement Group plc was renamed JRP Group plc ("JRP"). These supplementary statements of JRP report on JRP's EEV for the twelve month period to 30 June 2016. The transaction has been accounted for as a business combination in which JRG acquired PAG on 1 April 2016. As such, the result for JRP has included PAG's embedded value as an acquisition at 1 April 2016 and includes the impact of changes in PAG's EEV for the three months from 1 April 2016 to 30 June 2016.
No other Group companies contain material amounts of covered business and the value of these companies has been included in the Group EEV at IFRS net asset value less the value of goodwill and intangibles (to the extent that their recovery is supported by future profits).
The Directors of the Group are responsible for the preparation of these supplementary financial statements.
2) Methodology
The following methodology applies to the covered business of the Group.
The Group has amended its EEV methodology in light of the introduction of Solvency II as the regulatory reporting basis as of 1 January 2016.
As part of the acquisition of PAG the methodologies for calculating the EEV and material economic assumptions were harmonised. The notes that follow generally apply to the calculation of the embedded values for both JRG and PAG. Any differences are commented on as appropriate.
A. Embedded value overview
In reporting under the EEV Principles, the Group has chosen to adopt a "bottom-up" approach to the allowance for risk. The approach makes an explicit allowance for part of the spread (that part being referred to as "liquidity premium") expected to be earned on corporate bonds and lifetime mortgages. This has been achieved by increasing the discount rate used for valuing retirement income liabilities by that liquidity premium.
The embedded value is the sum of the net worth of the Group companies, plus the value of in-force covered business, this being the present value of profits that will emerge over time. The embedded value is calculated net of the impacts of reinsurance and allows for taxation based on current legislation and enacted future changes.
The net worth is the market value of the shareholders' net assets. The shareholders' net assets in respect of the life companies are taken from the IFRS consolidated statement of financial position. The net worth represents the market value of the assets of the life company in excess of the insurance and non-insurance liabilities of the life company as assessed on an IFRS basis.
Required capital is assessed as the market value of assets attributed to the covered business in excess of assets required to back liabilities, and for which distribution to shareholders is restricted. The level of required capital is set with regards to the regulatory capital requirements (i.e. Solvency II) such that the free surplus is equal to Solvency II Excess Own Funds.
This methodology reflects the level of capital considered by the Directors to be required to support the business, and includes any additional shareholder funds not available for distribution.
For other Group companies, the net worth is the IFRS net asset value less the value of goodwill and intangibles to the extent that their recovery is supported by future profits.
The value of in-force business is the present value of projected after-tax profits emerging in future from the current in-force business less the cost arising from holding the required capital to support the in-force business and an allowance for non-hedgeable risks. The future cash flows are projected using best estimate assumptions for each component of the cash flow.
The value of new business is the present value of projected after-tax profits emerging in future from new business sold in the period less the cost arising from holding additional capital to support this business and an allowance for non-hedgeable risks. The figures shown also include the expected return between the point of sale and the reporting date.
B. Covered business
The business to which the EEV Principles have been applied is defined as the covered business. The covered business includes all business written by JRL and PLACL. In particular, business falling under the definition of long-term insurance business for UK regulatory purposes and principally comprising:
o Pension Guaranteed Income for Life Solutions ("GIfL");
o Defined Benefit De-risking contracts ("DB");
o Drawdown pension business contracts;
o Care Plans; and
o Protection
Some purchased life annuity business has been written, but this has not been written in significant volumes. Although it has been allowed for in the calculations, it has not been explicitly modelled. The impact of this approximate treatment is not material.
C. New business
All annuity business is written on a single premium basis. Premium increments received following policy issue are excluded from the value of new business. Single and regular premium protection business is included in new business. No allowance is made in the embedded value for the value of new business written after the reporting date.
Point-of sale economic assumptions and opening period non-economic assumptions are used to value the new business. Any variances or changes in assumptions after the point-of-sale are recorded within the analysis of EEV earnings as operating experience variances or operating assumption changes.
Any changes to non-economic assumptions and methodology in respect of new business are introduced at the reporting date. The impact of these changes on the value of new business at the end of the year is therefore included within the analysis of the embedded value profit in the operating assumption changes.
D. Components of value
The values of in-force business and new business each comprise four components:
(i) Certainty equivalent value; less (ii) Time value of financial options and guarantees; less (iii) Allowance for non-hedgeable risk; less (iv) Cost of capital.
(i) Certainty equivalent value
The certainty equivalent value is the value of the future cash flows, excluding the time value of financial options and guarantees. It is calculated assuming assets earn the reference rate and the cash flows are discounted at the reference rate. The reference rate is defined in Section 2E "Valuation of cashflows" below.
The future cash flows are those arising from the assets backing the liabilities as assessed on an IFRS basis and from the liabilities themselves. The calculation of the IFRS liabilities at future dates in the projection assumes the continuation of the bases used to calculate the liabilities at the valuation date.
The IFRS value of the provision for guarantees described in (ii) below is allowed for in the net worth.
(ii) Time value of financial options and guarantees ("TVOG")
The certainty equivalent value calculation above is based on a single (base) economic scenario; however, a single scenario cannot appropriately allow for the effect of certain features of options and guarantees. If an option or guarantee affects shareholder cash flows in the base scenario, the impact is included in the certainty equivalent value and is referred to as the intrinsic value of the option or guarantee; however, as future investment returns are uncertain, the actual impact on shareholder profits may be higher or lower. The covered business does not contain any significant policyholder options or guarantees and therefore there is no explicit TVOG.
The assets backing the covered business include mortgages secured against individual domestic properties (lifetime mortgages). These mortgages contain a "no negative equity" guarantee. Under this guarantee, the amount recoverable by the Group on termination of the mortgage is generally capped at the net sale proceeds of the property. This guarantee does not apply where the mortgage redemption is not accompanied by a sale of the underlying property. This could occur when, for example, the property is remortgaged with another provider. The time value of this guarantee is allowed for in the asset valuation using closed form calculations, based on a variant of the Black-Scholes option pricing formula. The formula incorporates a number of assumptions, including those for risk-free interest rates, future property growth and future property price volatility. The value of this guarantee is allowed for through a reduction in the liquidity premium included in the VIF for covered business, and is not explicitly valued. In prior periods, the impact on the VIF from the reduction in liquidity premium was included in the disclosures for JRG, but these are no longer included in the disclosure as they are not an explicit element of the VIF.
(iii) Allowance for non-hedgeable risks
The key non-hedgeable (or diversifiable) risks faced by the Group are mortality (including longevity), early redemptions on lifetime mortgages and operational risks. In principle no explicit adjustment is required for non-hedgeable risks because the capital markets do not require an additional return for risks which can be diversified away. However, this is only true if the assumptions made as regards future experience are set so as to give the mean of the expected outcome (including allowing for the tails of the distribution) and that all cash flows have been allowed for.
The Group has set the assumptions in respect of mortality and lifetime mortgage early redemptions with the intention that they give the mean of the expected outcome, including allowing for the tails of the distribution. As such, no further adjustment has been made in respect of these risks.
However, the certainty equivalent value and the time value of financial options and guarantees make no allowance for the cost of possible operational and other asymmetric risk and the Group has made an explicit allowance for these risks.
In the valuation approach used, the market (or non-diversifiable) risks faced by the Company are allowed for directly in the valuation of the cash flows.
(iv) Cost of capital
In addition to holding assets to back the covered business, the Company must also hold additional shareholder capital to support the business. The amount of required capital has been assessed, as described in Section 2A above, with reference to the Solvency II regulatory requirements.
The additional costs to a shareholder of holding the assets backing the required capital within an insurance company rather than directly in the market are called frictional costs. These are deducted from the certainty equivalent value. The additional costs allowed for are the taxation costs on the investment return and any additional investment expenses on the assets backing the required capital.
Frictional costs are calculated by projecting the level of required capital. The projection of the required capital is based on an approximate method that assumes the required capital is a constant proportion of the IFRS liabilities. Tax on investment returns and investment expenses are payable on the assets backing required capital, up to the point that the required capital is released to shareholders.
E. Valuation of cash flows
Reference rates are calculated using corporate bond and lifetime mortgage liquidity premiums added to the swap curve. The liquidity premium on corporate bond assets is calculated by deducting an allowance for credit default risk, individually assessed for each bond based on credit rating, and comparing the resulting risk adjusted internal rate of return on the portfolio to the swap curve.
The lifetime mortgage assets are valued using a mark to model approach that allows for the cost of the no negative equity guarantee, where relevant, with the liquidity premium calculated on a consistent basis.
For protection business, cash flows are assumed to be liquid and as such are discounted with no allowance for a liquidity premium
(i) In-force business
For the in-force business the liquidity premium adjustment has been derived using the method described above.
(ii) New business
For new business written during the financial year the liquidity premium varies by the month of policy inception. The liquidity premium adjustment applied to each month's new retirement income business is consistent with the method used to value the in-force business described above. For corporate bonds assumed to back the new business, the liquidity premium is calculated by deducting an allowance for credit default risk from the estimated spread for new bond purchases in the period. For lifetime mortgages the liquidity premium is calculated by equating the present value of all the matching cash flows for new lifetime mortgages discounted at the swap rate plus the liquidity premium to the point-of-sale IFRS asset value of the new matching mortgages.
F. Reinsurance
The Group has reinsurance arrangements in respect of the GIfL business, whereby part of the mortality risk is transferred to the reinsurers. The Group received an initial financing payment which is repayable out of future surplus emerging. Some associated initial and renewal fees are also payable to the reinsurers.
The face value of the amount owed to the reinsurers at the relevant reporting date together with all management fees expected to be paid in the future has been explicitly allowed for in the value of the in-force business at the reporting date.
The risk transfer is not reflected in the EEV because, on the assumptions used, the Group expects to recapture the business once remaining financing has been repaid.
The Group also has in place quota share with deposit back and mortality swap reinsurance arrangements for the GIfL business, the DB and Care Plan business where part of the mortality risk on each contract is transferred to the reinsurers.
G. Taxation
The projected cash flows take into account all tax which the Company expects to pay. The calculations are undertaken assuming rates based on current tax legislation and enacted future changes.
3) Assumptions
A. Economic assumptions
Reference rates
The term structure of the reference rates has been derived from mid-market swap rates. The resulting rates reflect the shape of the swap rate curve. For new business the rates have been derived from the swap rates applicable on the date each payment was received for retirement income policies or the date each mortgage advance was completed as appropriate.
Sample mid-market swap rates at 30 June 2016, 31 December 2015 and 30 June 2015 are shown in the following table.
Term (years)
Swap rates (at sample terms, %) 1 5 10 20 30
================================ === === === === ===
30 June 2016 0.6 0.6 1.0 1.3 1.2
================================ === === === === ===
31 December 2015 0.8 1.6 2.0 2.2 2.2
================================ === === === === ===
30 June 2015 0.8 1.7 2.2 2.4 2.4
================================ === === === === ===
The liquidity premiums used to value the annuity in-force business are as follows:
Liquidity premium, bps JRG PAG ======================= === === 30 June 2016 215 277 ========================== === === 31 December 2015 192 n/a ========================== === === 30 June 2015 178 n/a ========================== === ===
The liquidity premium adjustment for each month's new business has varied over the financial year but the effect is equivalent to an average adjustment as follows:
Liquidity premium, bps JRG PAG ======================= ===== === 30 June 2016 298 300 ========================== ===== === 31 December 2015 228 n/a ========================== ===== === 30 June 2015 61(1) n/a ========================== ===== ===
(1) The liquidity premium methodology in JRL changed from 30 June 2015, the value quoted above is therefore calculated under the previous methodology.
Residential property assumptions
When calculating the value of the no-negative equity guarantee on the lifetime mortgages, certain economic assumptions are required within the variant of the Black-Scholes formula.
These assumptions have been harmonised across the Group as part of the acquisition of PAG.
The market against which these assumptions have been assessed, and the cost of the no negative equity guarantee has been calibrated, is neither deep nor liquid. The Group has therefore set these assumptions taking into account historic published UK residential property price movements.
The risk-free rate used in the variant of the Black Scholes formula is the mid-market swap rate.
In the absence of a reliable long-term forward curve for UK residential property price inflation, the Group has assumed that residential property will grow in line with a bespoke house price inflation assumption. This has been derived by reference to the long-term expectation of the UK retail price inflation (consistent with the Bank of England inflation target plus an allowance for the expectation of house price growth above RPI less a margin for a combination of risks including property dilapidation and basis risk). The resulting rate is applied as a single rate of future house price growth. The methodology at 30 June 2015 was broadly the same but was derived from the UK retail price inflation rates with an explicit house price inflation spread, but was applied as a term structure assumption rather than a flat rate.
The long-term assumption of 4.25%p.a used to project future house prices includes an adjustment to reflect the potential significant downside risk in the short term from external factors. These risks do not impact the long term view but do impact what might happen over the next 12 months. Therefore it is assumed that house prices will, on average across the portfolio, fall by 10% between 30 June 2016 and 30 June 2017 and grow thereafter at a rate of 5.0%p.a. This is broadly equivalent to the flat 4.25% p.a long term assumption.
In deriving an assessment of long-term UK residential property price volatility, the Group has used house price data published by the Nationwide Building Society. The Group has adjusted the derived value to allow for the additional volatility expected to be observed in the Company's portfolio compared with the market as a whole, the idiosyncratic risk.
The volatility assumption used at 30 June 2016 was 12% p.a. on lifetime mortgages (30 Jun 2015: 9.7% p.a.).
Expense inflation
For the Group's retirement income products, the assumed future rate of increases in per policy maintenance expenses ranges from 3.5% p.a. to 4.4% p.a. (30 Jun 2015: 3.6% p.a. to 4.5% p.a.). For the Group's lifetime mortgages, the assumed future rate of increases in maintenance expenses ranges from 3.6% p.a. to 4.4% p.a. (30 Jun 2015: 3.8% p.a. to 4.5% p.a.).
The difference between the retirement income and lifetime mortgage products reflects the difference in average duration of the cash flows and the shape of the RPI curve at the valuation date.
Taxation
The current and future tax rates used are the corporation tax rates as published by HM Treasury and take into account tax rates enacted by legislation. For the purposes of modelling tax on future profits, a calendar year assumption is set using a pro rata method based on the number of months at each effective rate. The blended corporation tax rates used were as follows:
Effective tax rate
Calendar year 30 June 2016
============== ==================
2016 20.00%
================= ==================
2017 19.25%
================= ==================
2018 19.00%
================= ==================
2019 19.00%
================= ==================
2020 18.25%
================= ==================
2021 18.00%
================= ==================
The rate of corporation tax assumed by JRG at 30 June 2015 was 20% throughout being the effective tax rate at the valuation date. The above approach was adopted by the Group when harmonising of assumptions as at 31 December 2015.
B. Operating assumptions
Operating assumptions have been reviewed as part of the reporting process.
Mortality
The mortality assumptions have been set by the Group taking into account the Group's own mortality experience together with relevant studies undertaken by the Continuous Mortality Investigation Bureau of the Institute and Faculty of Actuaries ("CMI"), population studies undertaken by offices of the UK government, published research materials, input from the Group's lead reinsurer and management's own industry experience.
Mortgage repayments
Assumptions are made about the number of future mortgage repayments resulting from individuals moving into long-term care or through voluntary repayments. When deriving appropriate assumptions the Group has taken into account its own experience together with other relevant available information. The JRG assumptions for mortality have been updated from those used at 30 June 2015 to reflect the emerging experience on this business.
The decrement for moving into long-term care is expressed as a proportion of the underlying mortality assumption for the relevant lives. This assumption is unchanged from that used at 30 June 2015.
The decrement for voluntary repayments is expressed as annual percentages of the portfolio in force and exhibits a term structure based on duration in force. The JRG assumptions for rates of voluntary redemption have been updated from those used at 30 June 2015 to reflect the emerging experience on this business.
Expenses
The expense levels are based on internal expense analysis investigations and are appropriately allocated to the new business and policy maintenance functions. Acquisition expenses have been fully allocated to the values of new business for each product.
The Group has set long-term maintenance expense allowances for each product at a level which it considers to be realistic.
In calculating the embedded value, an adjustment has been made equal to the net present value of any expected future maintenance expense overruns.
Investment expenses have been set by reference to the expenses payable under the investment management arrangements.
Some of the expenses incurred in the financial period to 30 June 2016 have been considered exceptional and one-off in nature. These non--recurring expenses have been identified separately and have not been included in the calculation of the value of in-force business or in the value of new business although they have been charged to the non-operating earnings in the year incurred. Total non-recurring expenses for the twelve months ended 30 June 2016 were GBP11.3m for the Group's covered business (twelve month period ended 30 Jun 2015: GBP16.8m, six month period ended 31 Dec 2015: GBP7.0m).
The look-through principle has not been applied to the losses in the distribution company arising from the sale of products arising from the covered business, and so these losses have not been included as a deduction against the value of new business. The distribution company is considered to be a standalone business and its activities do not relate solely to the sale of covered business. The recognised loss in the distribution company has been accounted for on an IFRS basis, separately to the results of the covered business.
The remaining expenses are included within operating results of the distribution and other Group companies and have been accounted for on an IFRS basis.
Non-hedgeable risk
At 30 June 2016 the JRG provision for non-hedgeable risk has been established as 0.29% of the best estimate reserves in respect of retirement income business for JRG and 0.55% for PAG (30 June 2015: 0.18% for JRG). The increase in this assumption is due to the introduction of the Solvency II regulatory regime, bringing changes to the assessment of operational and expense risks. This assumption applies to new business from 1 January 2016. New business in the 6 months to 31 December 2015 uses the 30 June 2015 assumption of 0.18% of best estimate reserves at point of sale.
Required capital
At 30 June 2016 the amount of required capital has been assessed, as described in Section 2A above, with reference to the Solvency II regulatory requirements.
This assumption is changed from that used as at 30 June 2015, which was based on 175% of JRL's long-term insurance capital requirement ("LTICR") together with 175% of the resilience capital requirement ("RCR"), as set out in the PRA Solvency I regulations.
4) Sensitivities
The Group embedded value at 30 June 2016 and the value of new business for the year to 30 June 2016 have been recalculated to show the sensitivity of the results to changes in certain of the assumptions discussed above.
No future management actions are modelled following the change to the assumptions. The results are shown net of tax.
For each of the sensitivities, all of the other assumptions remain unchanged, unless otherwise stated. The IFRS reserving basis is changed to reflect the revised assumptions in each sensitivity.
The sensitivity of the embedded value and the value of new business to changes in economic and non-economic assumptions is as follows:
Sensitivity of values to changes in assumptions
Liquidity premium, bp Value of new Value of new
Embedded business for business for
value at six months ended six months ended
30 June 2016 30 June 2016 31 December 2015
GBPm GBPm GBPm
======================================================= ============= ================= =================
Central value 1,814.6 45.6 71.0
======================================================= ============= ================= =================
Impact of: -
======================================================= ============= ================= =================
360.1 n/a n/a
* 1% reduction in yield curves
======================================================= ============= ================= =================
(296.2) n/a n/a
* 1% increase in yield curves
======================================================= ============= ================= =================
* 20% reduction in property values (78.4) (0.5) (0.8)
======================================================= ============= ================= =================
* 125% of implied property volatilities (146.7) (1.1) (1.3)
======================================================= ============= ================= =================
* 5% reduction in retirement income customer base
mortality (139.0) (4.3) (5.2)
======================================================= ============= ================= =================
* 10% increase in lifetime mortgage voluntary
redemptions (36.2) (0.4) n/a
======================================================= ============= ================= =================
* 10% increase in maintenance expenses (26.3) (0.6) n/a
======================================================= ============= ================= =================
* 0.25% increase in mortality improvements for
retirement income business (83.1) (4.3) n/a
======================================================= ============= ================= =================
Notes to the sensitivities:
-- Interest rate environment +/-100 bps: this sensitivity is modelled as a 100bp change to the yield on each asset. The sensitivity allows for the resulting change in asset value and the change in liability value that follows from the change in risk adjusted internal rate of return on the portfolio. In the -100bp sensitivity the reference rate has a floor of 0%.
-- 20% fall in property values: this sensitivity allows for the change in asset value arising from an immediate fall of 20% in property prices. From 30 June 2017 onwards, the sensitivity assumes an additional 10% reduction to property prices over and above the 10% fall assumed in the base position. The sensitivity also allows for the corresponding change in liabilities as a result of the yield change.
-- 25% increase in property volatility: this sensitivity allows for the change in equity release asset value as a result of the change in the cost of the no negative equity guarantee", and for the change in commercial mortgage asset value. The sensitivity also allows for the corresponding change in liabilities as a result of the yield change.
-- 5% decrease in base mortality: this sensitivity is modelled for the annuity business only. This is modelled as a change in the best estimate mortality level and the IFRS prudent margins remain unchanged.
-- 10% proportionate change in lapses: this sensitivity is modelled as a change in assumptions for both covered business lapse rates and equity release mortgage voluntary repayment rates. The sensitivity is applied as a proportionate increase in the rate of withdrawal (e.g. a withdrawal rate of 5.5% becomes 4.5% under the sensitivity). The IFRS reserves are also changed in this scenario as a result of changing yields on the equity release mortgages.
-- 10% increase in maintenance expenses: this sensitivity is modelled as a 10% change in the expense reserve. There is no change to expense inflation and no change to valuation interest rates.
-- Mortality improvements +0.25%: this sensitivity is modelled as an additional 0.25% improvement in each future year within the best estimate basis for annuity business only. Prudent margins are unchanged.
Interest rate sensitivities are not modelled for new business as the Group actively reviews its pricing, and in the event of a sudden movement in asset values the pricing of new business would be changed.
For the six months to 31 December 2015, sensitivities on new business for voluntary redemptions and maintenance expenses were calculated as reductions to the base assumption, and have not been restated as increases to the base assumption. The mortality improvement sensitivity was not performed on the new business in the six months to 31 December 2015.
Pro forma Group statement of changes in embedded value
For the six months ended 30 June 2016
The following pro-forma financial information is provided for illustrative purposes and is presented on the basis that the merger between Just Retirement and Partnership had taken place as at 1 January 2016. Pro-forma information is unaudited and unreviewed.
Six months ended 30 June
2016
===============================
Covered Non-covered
business business Total
GBPm GBPm GBPm
=================================== ========= =========== =======
Opening Group EEV (Pro-forma)(1) 1,523.1 340.6 1,863.7
=================================== ========= =========== =======
Operating EEV earnings 43.1 (7.5) 35.6
=================================== ========= =========== =======
Non-operating EEV earnings 238.4 (18.1) 220.3
=================================== ========= =========== =======
Total EEV earnings 281.5 (25.6) 255.9
=================================== ========= =========== =======
Other movements in IFRS net equity - 6.7 6.7
=================================== ========= =========== =======
Dividend and capital flows 10.0 (20.2) (10.2)
=================================== ========= =========== =======
Closing Group EEV 1,814.6 301.5 2,116.1
=================================== ========= =========== =======
(1) The Opening Group EEV has been stated on harmonised assumptions, and after methodology changes made following the introduction of the Solvency II regulatory regime at 1 January 2016.
Six months ended 30 June
2016
=================================
Value of
Shareholders' in-force
net worth business Total
GBPm GBPm GBPm
============================================ ============= ========= =======
Restated opening EEV (Pro-forma) 1,020.5 502.6 1,523.1
============================================ ============= ========= =======
New business value 25.2 20.5 45.7
============================================ ============= ========= =======
Expected existing business contribution
(reference rate and in excess of reference
rate) 4.7 11.1 15.8
============================================ ============= ========= =======
Transfers from VIF and required capital
to free surplus 13.2 (13.2) -
============================================ ============= ========= =======
Experience variances (3.5) (1.1) (4.6)
============================================ ============= ========= =======
Assumption changes (0.6) (0.3) (0.9)
============================================ ============= ========= =======
Other operating variances (13.3) 0.4 (12.9)
============================================ ============= ========= =======
Operating EEV earnings 25.7 17.4 43.1
============================================ ============= ========= =======
Economic variances 146.4 91.6 238.0
============================================ ============= ========= =======
Other non-operating variances (1.4) 1.8 0.4 ============================================ ============= ========= ======= Total EEV earnings 170.7 110.8 281.5 ============================================ ============= ========= ======= Dividend and capital flows 10.0 - 10.0 ============================================ ============= ========= ======= Closing EEV 1,201.2 613.4 1,814.6 ============================================ ============= ========= =======
Operating EEV earnings include GBP45.7m from new business written in the period. The other material positive item included in operating EEV earnings is the expected contribution from existing business which has been offset by the impact of the negative experience on lifetime mortgage redemptions and interest paid on subordinated debt.
The key driver for the large increase in embedded value from the non-operating earnings is the impact of the large fall in risk-free interest rates over the period. The non-operating earnings also include transaction and integration costs with regards to the merger (GBP23.9m pre-tax).
Share based payments were the main driver for the increase in EEV included in the "Other movements in IFRS net equity" line. The JRP Group paid dividends in the period of GBP10.2m which led to a corresponding reduction in EEV.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAFNLFDFKEAF
(END) Dow Jones Newswires
September 15, 2016 02:01 ET (06:01 GMT)
1 Year JRP Group Chart |
1 Month JRP Group Chart |
It looks like you are not logged in. Click the button below to log in and keep track of your recent history.
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
