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Just Group capital improves but solvency declines as house prices pose risk

Published: 03:49 14 May 2020 EDT

Just Group PLC -

Just Group PLC (LON:JUST) said its absolute capital increased but its solvency declined as capital requirements increased as interest rates fall.

Excess capital at the annuity and equity-release mortgages group grew £60mln in the first four months of the year, which it said demonstrated the resilience of the balance sheet and effectiveness of its hedging activity.

READ: JPMorgan sees opportunities in insurers but cautious about life companies

However the Solvency II coverage ratio fell to 138% at the end of April from 141% at the end of last year, including the effect of a 1% fall in the ONS house price index, less than 1% impact from corporate bond downgrades and a further 1% impact from six monthly debt coupons paid in April.

“Our markets are proving resilient in the face of considerable challenges and financial intermediaries are embracing virtual channels to maintain support for their clients and complete business,” said chief executive David Richardson in the statement released ahead of the 250 group’s annual shareholder meeting.

Richardson noted the marked increase in the number of deaths in England and Wales during the pandemic, in particular for older age groups and residents of care settings, with the four weeks to 1 May seeing double the amount in the equivalent period last year, a trend that has also been reflected in Just Group’s business. 

“It is still too early to accurately estimate the financial impact of these developments and we will continue to monitor it closely,” he said.

Analyst Alan Devlin at Shore Capital said in a note that while the company has made good progress on improving capital over the past 12 months, “the impact of house prices could potentially overwhelm its capital position and the good work management has done on becoming capital generative”.

A decline in UK property values remains Just’s largest risk, the analyst added that a 10% decline in the ONS house price index would reduce capital by £256mln or 15 points to 123%, based on year end sensitivities, which without further management actions, could force the company to consider going into run-off. 

He noted that mortality developments from coronavirus could offset impact from lower house prices, as Just’s core annuity product is medically underwritten and sold to individuals over the age of 65 with likely pre-existing medical conditions. 

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