Just Group plc Just Retirement Limited Partnership Life...

Just Group plc

Just Retirement Limited

Partnership Life Assurance Company Limited

Solvency and Financial Condition Report

as at 31 December 2016

Just Group plc

Solvency and Financial Condition Report as at 31 December 2016

Contents

Summary 1

A. Business and Performance 5 A.1 Business 5 A.2 Underwriting Performance 14 A.3 Investment Performance 16 A.4 Performance of other activities 17

B. System of Governance 19 B.1 General information on the system of governance 19 B.2 Fit and proper requirements 28 B.3 Risk management system including the own risk and solvency assessment 31 B.4 Internal control system 35 B.5 Internal audit function 37 B.6 Actuarial function 38 B.7 Outsourcing 39 B.8 Any other information 39

C. Risk Profile 41 C.1 Underwriting risk 43 C.2 Market risk 44 C.3 Credit risk 46 C.4 Liquidity risk 48 C.5 Operational risk 49 C.6 Other material risks 52 C.7 Any other information 52

D. Valuation for Solvency Purposes 55 D.1 Assets 57 D.2 Technical provisions 60 D.3 Other liabilities 65 D.4 Alternative methods for valuation 67 D.5 Reconciliations to IFRS statutory accounts 69

E. Capital Management 72 E.1 Own funds 72 E.2 Solvency Capital Requirement and Minimum Capital Requirement 76 E.3 Internal model 78 E.4 Differences between the standard formula and any internal model used 78 E.5 Non-compliance with the MCR and non-compliance with the SCR 81

F. Other information F.1 Quantitative Reporting Templates (QRTs) 82 F.2 Directors’ statement 109 F.3 Approvals, determinations and modifications 110 F.3 Audit opinion 111 F.4 Glossary 116

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Summary

Introduction

This is the first Solvency and Financial Condition Report (SFCR) for Just Group plc (formerly JRP Group

plc and Just Retirement Group plc and referred to as “Just Group”) and covers the period to 31

December 2016.

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

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

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

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

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

whole. The Solvency II Delegated Act states that no comparatives are required in the first report,

and hence only the current results and financial position are given.

The Group saw significant change during 2016 as a result of the acquisition by Just Retirement

Group (JRG) of Partnership Assurance Group plc (PAG), which was effective from 1 April 2016. The

Group’s holding company changed its name from JRP Group plc to Just Group plc on 18 May 2017.

A. Business and Performance

The Just Group is now the leading specialist provider of retirement income products and services to

both individuals and corporates, and a major provider of lifetime mortgages (LTM). 2016 was a year

that demonstrated Just’s products are well placed in attractive growth markets. Momentum has

been maintained in both the defined benefit (DB) de-risking and LTM markets, and we have seen a

promising return of demand for individual Guaranteed Income for Life (GIfL) solutions.

Just focusses on growing operating profits rather than sales volume, which has resulted in our new

business operating profit increasing to £124m and adjusted operating profit to £164m in the 12

months to 31 December 2016. The operating profit measure is used to assess and manage

underwriting performance within the insurance companies, JRL and PLACL.

The decision was taken subsequent to the JRG/PAG merger to write the principal lines of business in

JRL, with 95% of sales in that company during the final quarter of 2016, and over £2 billion of new

business in 2016 as a whole. In future, PLACL will focus on Care products in both the UK and

through underwriting United States business generated by our partner Genworth.

Section A contains business performance on both a proforma and a statutory reporting basis. The

statutory basis has been prepared consistently with Just Group plc’s and JRL’s 18 month reporting

periods in their IFRS statutory accounts. PLACL’s accounts covered a 12 month period, of which the

final nine months were consolidated into the Group’s consolidated accounts following the

acquisition of Partnership on 1 April 2016 which is accounted for as an acquisition. Proforma

information, as if the Just Group was in existence on 1 January 2016 is also presented.

B. System of Governance

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

including the insurance regulated entities JRL and PLACL. The Just Group plc Board is committed to

the highest levels of corporate governance, and focuses primarily on strategic, policy and

governance issues, acting in accordance with the best interests of policyholders and shareholders

as a whole. Through delegation to the various committees and functions, the application of best

practice across the Just Group is efficient and effective.

The terms of reference of the various committees are tightly defined enabling robust governance

supportive of strong decision making. Oversight is provided by the Risk and Compliance Committee

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of the risk management and compliance activities across the Just Group including within JRL and

PLACL. Audit activities are overseen by the Audit Committee. Clear distinction is made between the

‘three lines of defence’, with the Risk function, Compliance function and the Chief Actuary’s function

representing the second line which is independent of the Finance and Actuarial reporting teams

constituting the first line, and the Audit function as the third line.

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

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

and Solvency Assessment (ORSA) document providing a comprehensive assessment of the

regulated group companies’ risk and solvency positions.

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

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

requirements.

C. Risk Profile

Risk identification is performed on a continuous basis, and is embedded in the ORSA. The primary

risks to which Just is exposed arise through its regulated insurance entities JRL and PLACL. The key

risks are:

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

flows, credit risk and residential property risk which affects the value of guarantees provided

within lifetime mortgages, and

Underwriting risk arising through the exposure to longevity, mortality and morbidity risks.

Risk is measured qualitatively and quantitatively, including through the Solvency II SCR calculations.

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

those risks are mitigated.

D. Valuation for Solvency Purposes

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

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

provisions and reinsurance recoverable are based on IFRS values, representing accounting fair value

valuations.

At 31 December 2016, Just Group’s excess of assets over liabilities amounted to £1,743m, and those

of JRL and PLACL were £1,072m and £401m respectively.

Following approvals from the PRA, JRL and PLACL have used matching adjustment and transitional

measures for technical provisions to mitigate the impact for revaluing their balance sheets onto the

Solvency II basis, including the effect of interest rate movements seen in H1 2016 and 12 months of

amortisation. The release of margins on pre-2016 business is expected to continue to exceed the

amortisation of transitional reliefs.

At Group level, Solvency II net assets were £132m higher than on the IFRS basis mainly due to the

prudent margins held for IFRS reporting, whereas on the Solvency II basis the transitional relief on

technical provisions offset the risk margin.

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

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

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E. Capital Management

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

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

Capital Requirement (SCR). The annual business planning process includes projection of the

forward-looking view of the adequacy of Own Funds to cover the SCR at entity and group levels,

along with assessment of potential management actions that could be deployed to restore capital

positions in the event of a deterioration. Regular monitoring of capital positions enables any

deterioration in coverage to be identified rapidly.

In managing capital, Just seeks to on a consistent basis:

Match the profiles of assets and liabilities, taking into account the risks inherent in each

business;

Maintain sufficient, but not excessive, financial strength in accordance with risk appetite, to

support new business growth and satisfy the requirements of the Just Group’s regulator and

other stakeholders giving Just’s customers assurance of its financial strength;

Retain financial flexibility by maintaining strong liquidity;

Allocate capital rigorously to support value adding growth and repatriate excess capital where

appropriate; and

Declare dividends with reference to factors including growth in cash flow and earnings.

JRL obtained approval for its internal model in December 2015, and work is well advanced on a

major model change application to include PLACL within the internal model. PLACL currently uses

the Solvency II standard formula to calculate its SCR.

At 31 December 2016, Just Group held £706m of excess own funds representing a capital coverage

ratio of 151% of SCR. Excess Own Funds and coverage ratios were £443m and 147% for JRL, and

£67m and 115% for PLACL respectively. In October 2016 Just issued £250m of subordinated debt

part of which was used to repay bank borrowings.

Our business has achieved strong growth in profits and the Board remains comfortable with our

capital position and sustainable business model.

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

on the Internal model.

Just Group plc SFCR 31 December 2016

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Chapter A contents

A Business and Performance ........................................................................................................................................... 5

A.1 Business ......................................................................................................................................................................... 5

A.1.1 Significant events in the period ....................................................................................................................... 6

A.1.2 Business objectives ............................................................................................................................................. 6

A.1.3 Material lines of business .................................................................................................................................. 8

A.1.4 New business sales ............................................................................................................................................. 9

A.1.5 Current business performance ....................................................................................................................... 11

A.1.6 Other information ............................................................................................................................................. 13

A.2 Underwriting Performance...................................................................................................................................... 14

A.3 Investment Performance ....................................................................................................................................... 16

A.3.1 Income and expenses by asset class ........................................................................................................... 16

A.3.2 Gains and losses recognised directly in equity .......................................................................................... 17

A.3.3 Investments in securitisation ......................................................................................................................... 17

A.4 Performance of other activities ............................................................................................................................. 17


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A Business and Performance (Unaudited)

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

A.1 Business

Just Group plc (formally JRP Group plc and Just Retirement Group plc) is a specialist UK financial services group focussing on attractive segments of the UK retirement income market. The Group is a leading and established provider of retirement income products and services to individual and corporate clients.

The Group had circa 500,000 customers and 1,045 employees at 31 December 2016.

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

The principal insurance subsidiaries of Just Group plc are Just Retirement Limited (JRL) and Partnership Life Assurance Company Limited (PLACL). JRL focuses on providing Retirement income products to individual and corporate clients and lifetime mortgages. PLACL focuses on Care and Protection products.

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

The activities of other companies in the Group are:

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

Just Retirement Solutions Limited - provision of services and distribution of products for the at-and-in retirement market

TOMAS Acquisitions Limited - intermediate holding company with two operating subsidiaries:

• The Open Market Annuity Service Limited - the provision of licensed software for the financial advisors and administration, and an annuity referral service

• TOMAS Online Development Limited - software development.

Just Retirement Money Limited and Partnership Home Loans Limited – Mortgage broking

Just Retirement Management Services Limited, Partnership Services Limited and Partnership Life US Company – Ancillary service companies

Just Retirement South Africa – insurance underwriting

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

The scope of the entities which make up the Group is otherwise consistent between the IFRS statements and Solvency II, however there are differences in the consolidation approach, as noted in Section D. All of the principal group entities are 100% held, and all are incorporated in the United Kingdom with the exception of Just

Just Group plc

Just

Retirement

Limited

Just

Retirement

Solutions /

Tomas

(HUB)

Just

Retirement

Money

Limited

Just

Retirement

Management

Services

Limited

Just

Retirement

South Africa

Partnership

Life

Assurance

Company

Limited

Partnership

Services

Limited

Partnership

Home Loans

Limited

Partnership

Life US

Company

Just Retirement

(Holdings)

Limited

Partnership

Assurance

Group plc


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Retirement South Africa (South Africa) and Partnership Life US Company (United States). A full listing of all companies is included on schedule S.32 in section F.2.

The Group organisational structure is explained in Section B. A.1.1 Significant events in the year to 31 December 2016

A key milestone in the history of Just Group plc passed on 1 April 2016 with the acquisition by Just Retirement Group plc of Partnership Assurance Group plc. This has proved to be an excellent transaction, with the combined Group the leading specialist provider of retirement income products and services to both individuals and corporates, and a major supplier of lifetime mortgages.

HUB Financial Solutions, the Group’s division that provides services to UK businesses and their customers, continued to win new mandates, including a deal with Prudential UK and Phoenix Life.

In December 2015, Just Retirement Group plc (JRG) was successful in obtaining approval from the Prudential Regulation Authority (PRA) for use of its internal model for the calculation its solvency capital requirement. At the same time, JRG’s lifetime mortgage portfolio was restructured, and product pricing and reinsurance arrangements modified in anticipation of the Solvency II regime commencing on 1 January 2016.

In October 2016, Just Group plc successfully issued £250m of subordinated debt providing additional tier 2 capital to further enhance its capital position.

A.1.2 Business objectives

Following the merger, the strategic objectives of the Group have been reviewed and reset in line with the ambitions of the new Group. As a result of the decision that JRL should underwrite Just Group’s principal products, 95% of the Group’s new business was written in JRL in the final quarter of 2016.

Both predecessor groups held a strong history in innovation and were champions of positively disrupting markets to improve customer outcomes and these values continue to underpin our future strategy.

Just will use its unrivalled intellectual property (IP) to deliver better customer outcomes in all of its markets, supported by selective diversification, to generate high-quality returns for shareholders. We will adopt a measured approach to our growth and the development of our business, focussing first on delivering the promised benefits of the merger and laying the foundations, through our strategic enablers, for our next evolution. Our execution of this strategy will evidence that we are a profitable company with a sustainable business model and will strengthen our position in the market to achieve continued profitable growth.

The Group has three areas of strategic focus:

UK retail (retirement income, lifetime mortgages, long-term care and protection) - In our UK retail business, we believe that a guaranteed income for life and access to professional advice continue to play an important part of everyone’s retirement planning, and we will be adapting and developing our individual retirement propositions and distribution capabilities to continue to support and help customers up to, at, and in-retirement.

UK Defined Benefit De-risking - In our UK DB De-risking business, we will continue to establish ourselves as the leading provider in the small to medium sector of the market, using our longevity IP and expertise to deliver better outcomes for trustees.

International (US care and South Africa retirement income) - In our international businesses we will continue to build our presence and establish the Group’s UK award-winning service in these markets.


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The Group’s strategic objectives are as follows:

Strategic objectives Why this is important How this will be achieved

1. Grow our addressable markets and broaden our distribution reach Increasing our profitable sales through focussing on growing markets and broadening our distribution reach to increase access to customers.

Using our resources to influence change and positively disrupt markets to grow our addressable share is key to the success in all our businesses. In our UK Retail business, we will support growth in the addressable GIfL and LTM markets supported by the Just Group's HUB business.

Similarly, in our UK DB De-risking business, we will continue to drive growth in the medically underwritten DB de-risking market, enabling us to provide more options for pension scheme trustees and providing greater opportunity for the Company to access and underwrite in the DB market.

We will use our growing customer insight, brand, strong relationships with our distribution partners, regulators and policy makers to grow our addressable markets. We will continue to develop our propositions to win new mandates and better serve our partners across our target markets and distribution channels. This will enable us to offer more elements of the value chain to a broad range of partners, including life insurance companies, banks, workplace and retail partners as well as financial intermediaries and EBCs. We believe our product range and services, distribution capabilities and strategic enablers set us apart in our target markets and will enable us to access and serve a greater number of customers.

2. Increase profitability through superior risk selection Using our IP to identify high-value opportunities to deliver excellent outcomes for our customers and increase our profitability.

The Company generates economic value through our diversified revenue streams, which enable us to grow our business and provide attractive returns on capital. By focussing on our strategic strengths, including our longevity IP, customer insight and distribution reach, we can identify and secure the highest value opportunities in the retirement income and retirement lending markets consistent with delivering excellent value for customers and generating high-quality returns for shareholders.

We will build on the strength of our longevity IP and its use in our selection and pricing of risks in our markets, and focus on development of our customer insight to augment that IP through greater understanding of the drivers of, and actual, customer behaviour. This will enable us to target specific customer segments with the desired risk profile. At the same time we will enhance our product offering to attract customers to the Company and to enable us to capture the desired risks across the market.

3. Ensure expenses are aligned with the capital model Efficiently managing our resources in line with our capital model to deliver sustainable growth in our business.

We recognise that a priority for our business is to ensure that our growth potential is achievable and that we demonstrate our ability to sustain growth in profits by ensuring our expenses are aligned to our capital model and in line with our ambitions.

We will deliver the merger benefits communicated to the market and identify and challenge areas of the business where expenditure does not result in acceptable benefits, and manage our resource allocation effectively and in line with our longer-term priorities. We are investing in our digital and change capabilities to increase our capacity to deliver change within the Company.


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Strategic objectives Why this is important How this will be achieved

4. Improve cost and efficiency of capital Using our financial and capital management framework to achieve capital self-sufficiency.

We are focussed on achieving capital self-sufficiency that will enable us to continue to invest in growing our profits and rewarding our shareholders through closely managing the cost of our capital and ensuring we are effective and efficient in how we deploy it into the business to get the greatest return. Delivering a profitable business will ensure we are able to continue to invest to maintain our market leadership in delivering excellent value and outstanding service to our target customers.

We will focus on continuing to work with the regulator on developing our Solvency II internal model and matching adjustment to ensure we achieve the optimum capital requirements for the Company. This approach will support the effective operation of our capital-efficient business model.

5. Reduce dependency on any single business line or market Selectively diversifying our business into new, complementary markets to meet the evolving retirement needs of our customers and increase our capital efficiency.

To enable us to provide excellent service to our customers by providing a complementary set of services and products in line with market developments. As customers choose to access more of their assets to support their retirement planning, we will have the capabilities required to recruit these customers and gain access to new sources of assets in our core markets. Selective diversification in these markets will also allow us to increase our capital efficiency, provide additional future profit streams for the Company and reduce our concentration risk on our core market. This limited and controlled diversification will contribute towards reducing the risks of achieving long-term sustainable growth in profits.

In line with our measured approach, our immediate focus is building on and utilising our current businesses and their capabilities, laying the foundation for future profitable growth and diversification through deploying our strategic enablers. As we move forward, we will be looking to adjacent markets that are consistent with our strategic direction and financial framework and where we can apply our capabilities to meet customer needs.

A.1.3 Material lines of business

The Group's product offering comprises the following, all of which are classified as 'Other life' products for Solvency II reporting purposes with the exception of the FPP product which is a unit-linked product:

JRL PLACL

Defined Benefit De-risking Solutions (“DB”) Solutions for pension scheme trustees to remove the financial risks of operating pension schemes and create certainty that members’ pensions will be paid in the future.

Care Plans (“CP”) A solution for people moving to residential care who want security of knowing a regular payment will be made to the care provider for the rest of their life.

Guaranteed Income for Life (“GIfL”) A solution for a person (or couple) who want the security of knowing they will receive a guaranteed income for life.

United States Care business A Care solution sold in the US by our partner Genworth is reinsured with PLACL

Flexible Pension Plan (“FPP”) A solution for a customer wanting to retain greater flexibility of their pension savings and enabling irregular withdrawals.

Protection A solution for people wanting to support a residential mortgage, for business or inheritance tax planning purposes or simply to have financial peace of mind.

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


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A.1.4 New business sales (pro forma basis)

Following the change of accounting reference date from 30 June to 31 December, the Group’s financial period to 31 December 2016 was an 18 month period. The Group therefore reports financial performance on a statutory basis for the 18 month period to 31 December 2016. However, management consider the 2016 calendar year to be more relevant for ongoing performance measurement and have assessed performance for the 12 month period to 31 December 2016, with Partnership results included on a pro forma basis from 1 January 2016.

The table below shows sales in the 12 months to 31 December 2016:

Just Group plc

(Pro forma*)

Just

Retirement Limited

Partnership Life Assurance

Company Limited

New business sales £m £m £m

Defined Benefit De-risking Solutions (“DB”) 943.4 945.9 (2.5)

Guaranteed Income for Life Solutions (“GIfL”) 778.1 624.2 148.4

Care Plans (“CP”) 97.2 26.5 70.7

Retirement Income sales 1,818.7 1,596.6 216.6

Drawdown 25.2 25.2 -

Total Retirement sales 1,843.9 1,621.8 216.6

Protection 4.7 - 4.7

LTM loans advanced 559.3 387.6 171.7

Total new business sales 2,407.9 2,009.4 393.0

* Includes 12 months of PLACL.

New business sales Total pro forma new business sales for Just Group of £2,407.9m for the year ended 31 December 2016 included £2,009.4m for JRL and £393.0m for PLACL. These comprised: Defined Benefit De-risking sales JRL DB sales for the year ended 31 December 2016 were £945.9m. Following the Solvency II disruption, sales momentum grew through 2016 with sales in the second half of the year of £779m, which was approaching five times the £164m sales in the first half.

Prospects for growth for this proposition remain strong. The total UK market DB liabilities are anticipated to be some £2 trillion, but JRL’s primary focus is on the ‘Buy–in’ sub-sector which de-risks pensions already in payment. This category makes up 39% of the DB market liabilities, so our addressable market of pensions in payment may be around £800bn. Our proposition works for every DB scheme in the market, including those with billions of pounds of liabilities, but we focus our participations on transactions below the £250m level. Over the last few years the market value of DB de-risking transactions has been in a corridor of £8bn-£15bn per year which, given the size of the market liabilities, illustrates there is significant headroom for growth during the next decade.

It is also worth noting the emergence of a further £100bn of life company annuity back book transfers in 2016, which has created competition for already scarce de-risking capital. Altogether we expect the DB de-risking market will continue to grow, and the demand dynamics appear sustainable.

PLACL does not make DB sales following the merger, and the £2.5m in the year represents a premium adjustment. GIfL sales Total pro forma GIfL sales for Just Group totalled £778.1m.

JRL GIfL sales for the year ended 31 December 2016 were £624.2m confirming the stabilisation of the market after the introduction of Pension Freedom and Choice. It is our expectation that our addressable share of this market will grow in 2017, with increasing proportions of people buying this product on the open market.

In the short term, growth is more likely to be driven by changing distribution patterns. This should benefit us, given our focus on the products bought by customers who shop around for guaranteed income for life products on the open market where we are now the leading provider. The open market accounted for 45% of sales in 2016. There is still plenty of room for improvement before we get back to open market sales that were around 60% of the total market prior to the Pension Reforms.


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PLACL GIfL sales for the year ended 31 December 2016 were £148.4m. PLACL stopped selling new GIfL contracts following the merger except for small volumes where there were contractual requirements in place. Care sales Total pro forma Care sales for Just Group totalled £97.2m.

JRL Care Plans sales were £26.5m for the year ended 31 December 2016. Care Sales are no longer a core business for JRL and future sales are written by PLACL.

PLACL Care Plan sales were £70.7m for the year ended 31 December 2016. This remains an attractive market with longer-term structural growth prospects. Drawdown sales Drawdown sales, which include Flexible Pension Plan (“FPP”) and Capped Drawdown (“CD”) sales, were £25.2m in 2016. This is in line with our expectations and reflects growth in sales of the FPP product which allows customers to take advantage of the new Pensions Freedoms. The CD product is no longer available to new customers. Protection sales Pro forma protection sales were £4.7m in 2016, all through PLACL. Lifetime mortgage loans Total pro forma LTM advances of £559.3m reflected overall UK LTM market growth in 2016, with favourable underlying dynamics.

JRL LTM advances were £387.6m for the year ended 31 December 2016. Full advantage was taken of favourable economic conditions early in the year for lifetime mortgages and then later intentionally managed back towards our target ratio of LTM to new Retirement Income liabilities. These assets provide a good match for the JRL’s liabilities, including DB De-risking solutions where the profile of liabilities can be of a longer duration than GIfL contracts due to benefit indexation.

PLACL LTM advances were £171.7m for the year ended 31 December 2016. PLACL stopped selling lifetime mortgages following the merger except where there remain contractual arrangements in place.


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A.1.5 Current business performance

As noted above in section A.1.4, management consider the calendar year 2016 to be more relevant for performance measurement and assesses performance for JRL, PLACL and the Group for the 12 month period to 31 December 2016. As the acquisition was effective from the beginning of April 2016, Just Group’s statutory performance includes PLACLs performance for the 9 months to 31 December 2016.

In the table below, both periods are provided to allow cross-referencing to the 18 months statutory profit before tax analysed in sections A.2 to A.4.

Adjusted operating profit view

Just Group plc

Just Retirement

Limited


Company Limited

12 months1 18 months2 12 months 18 months 12 months

£m £m £m £m

£m

New business operating profit 123.9 171.7 132.9 178.8 (9.0)

In-force operating profit 74.6 88.2 40.5 59.2 34.0

Underlying operating profit 198.5 259.9 173.4 238.0 25.0

Operating experience and assumption changes

2.6 2.5

0.9 (1.4) 4.7

Reinsurance and financing costs (40.0) (52.0) (30.5) (44.7) (9.5)

Acquisition related basis changes - - - - (45.1)

Profit on Underwriting activity - A.2 161.1 210.4 143.8 191.9 (24.9)

Investment and economic profits – A.3 96.1 93.1 34.7 37.5 63.1

Other Group companies’ operating results 2.6 5.3 - - -

Non-recurring and project expenditure (15.7) (21.1) (7.8) (14.8) (6.2)

Acquisition transaction and integration costs

(48.6) (64.1)

- - -

Amortisation costs (23.0) (24.8) - - -

Other activities – A.4 (84.7) (104.7) (7.8) (14.8) (6.2)

Profit before tax 172.5 198.8 170.7 214.6 32.0

1 Just Group figures on a calendar year basis include 12 months of JRL and 12 months of PLACL. 2 Just Group figures on a statutory basis include 18 months of JRL and 9 months of PLACL.

New business operating profit Total Just Group pro forma new business operating profit was £123.9m in the 12 months to 31 December 2016.

JRL’s new business operating profit for the 12 months to 31 December 2016 was £132.9m. Margins have improved over the period reflecting pricing changes following implementation of Solvency II, favourable mortgage yields, initial benefits from delivering the post-merger cost synergies, and our focus on profits over volumes using our IP to select higher margin new business.

PLACL’s new business operating loss for the 12 months to 31 December 2016 was £9.0m, reflecting that the company largely stopped selling GIfL business after the merger. In-force operating profit In-force operating profit for the 12 months to 31 December 2016 was £40.5m for JRL, £34.0m for PLACL, and £74.6m pro forma for the Group. This is as a result of growth in the size of the in-force business offset by the impact of lower interest rates on the returns earned on surplus assets and the effect of narrowing bond spreads which have reduced the corporate bond default margin emerging.


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Underlying operating profit Underlying operating profit for the 12 months to 31 December 2016 was £173.4m for JRL, £25.0m for PLACL, and £198.5m pro forma for the Group, reflecting the new business and in-force operating profits. Underlying operating profit is the sum of the new business operating profit and in-force operating profit. This measure excludes the impact of one-off assumption changes and investment variances. Operating experience and assumption changes Operating experience and assumption changes, which include expense and mortality experience variances, for the 12 months to 31 December 2016 amounted to £0.9m for JRL, £4.7m for PLACL, and £2.6m pro forma for the Group. Reinsurance and finance costs JRL’s reinsurance and bank finance costs for the 12 months to 31 December 2016 were £30.5m, which primarily represents interest payable on £300m of Tier 2 financing. (In October 2016, £200m of the £250m bond issued to JRH was replaced with a £250m bond issue by Just Group and backed by JRL, and £50m of the bond issued to JRH remained in place).

PLACL’s reinsurance and bank finance costs for the 12 months to 31 December 2016 were £9.5m, which primarily represents interest payable on the £100m of Tier 2 financing.

Just Group’s pro forma reinsurance and finance costs for the 12 months to 31 December 2016 were £40.0m, which includes the interest payable on the Tier 2 financing comprising the £250m Just Group bonds and the £100m of PLACL bonds. Acquisition related basis changes Basis changes arising on the one-off alignment of PLACL’s reserving methodology with that of the Just Group. Changes in economic and investment conditions Changes in economic and investment conditions over the year led to a profit of £34.7m in JRL, £63.1m in PLACL, and £96.1m pro forma for the Group, 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, together with a narrowing of credit spreads, offset by property valuation movements, and by changes in future property assumptions. Other Group companies’ operating results Just Group’s other Group companies’ operating results represents the results of the Group’s non-insurance undertakings. Non-recurring and project expenditure Non-recurring and project expenditure amounted to £7.8m for JRL, £6.2m for PLACL, and £15.7m pro forma for the Group, and represented one-off regulatory, project and development costs. Acquisition transaction and integration costs Acquisition costs reflect the one-off costs incurred during the period in relation to the acquisition of Partnership Assurance Group plc, including advisory, legal and stamp duty costs. Integration costs relate to the costs arising from the integration of the Just Retirement and Partnership businesses and operations. 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. Acquired in-force business and other intangibles of £169.6m were recognised on acquisition of Partnership Assurance Group plc. The acquired in-force business asset is being amortised in line with the run-off of the in-force business. Amortisation costs also includes the impairment of brand and Partnership related property lease intangible assets.


13

A.1.6 Other information

Employees All staff are employed by Just Retirement Management Services Limited or Partnership Services Limited and details of employee numbers are available in the financial statements of these companies. Supervisor The Group’s and Company’s Supervisor is the PRA, which is part of the Bank of England. Contact details for the PRA are as follows: Address 20 Moorgate, London, EC2R 6DA. Telephone number +44 (0) 20 7601 4444 External auditor The Company’s external auditor is KPMG LLP. Contact details are as follows: Address 15 Canada Square, London E14 5GL Telephone number +44 (0) 20 7311 1000 Qualifying holdings Just Group plc has been notified in accordance with DTR 5 of the Disclosure and Transparency Rules of the following interests of 3% or more, of its issued ordinary shares. The information below was correct at the date of notification.

Shareholder

Location Ordinary shareholdings at 31 December 2016

% of capital Ordinary shareholdings at 28 June 2017*

% of capital

Avallux S.à.r.l. Luxemburg 273,057,001 29.27 216,057,001 23.13

Cinven Limited / Cinven Funds

Guernsey 182,479,320 19.56 144,479,320 15.47

Schroder Investment Management

United Kingdom

60,332,052 6.47 58,772,414 6.29

Baillie Gifford & Co

United Kingdom

- - 53,605,686 5.74

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


14

A.2 Underwriting Performance

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

Following the change of accounting reference date from 30 June to 31 December, the Group and JRL's statutory reporting period for 2016 was the 18 month period to 31 December 2016, whilst PLACL’s was the 12 month period to 31 December 2016. As the acquisition was effective from the beginning of April 2016, Just Group’s statutory performance includes PLACL’s performance for the 9 months to 31 December 2016.

The Group has two lines of business for Solvency II reporting purposes as disclosed on the annexed S.05.01 template, the FPP unit-linked product with premiums of £29m representing 1.1% of the total business, and the remaining ‘Other’ life products. Given that the FPP product was in its infancy, it has not been split out separately in the table below.

Substantially all of the business written in the 18 months to 31 December 2016 was located in the United Kingdom, and hence the template S.05.02 for geographic split is not prepared.

Underwriting performance

Just Group plc 18 months to 31 Dec 20161

£m


18 months to 31 Dec 2016

£m



£m

Gross premiums written 2,693.5 2,584.9 184.9

Reinsurance premiums ceded (1,553.4) (1,498.6) (98.0)

Reinsurance recapture 1,166.9 1,166.9 -

Net premium revenue 2,307.0 2,253.2 86.9

Normalised investment return 1,522.4 1,260.1 332.5

Fee and commission income 5.6 3.1 -

Total revenue 3,835.0 3,516.4 419.4

Gross claims paid (1,204.5) (880.5) (431.5)

Reinsurers’ share of claims paid 512.4 309.3 270.8

Net claims paid (692.1) (571.2) (160.7)

Change in insurance liabilities:

Gross amount (2,687.1) (2,606.0) (240.4)

Reinsurers’ share 1,447.3 1,413.8 129.0

Reinsurance recapture (1,166.9) (1,166.9) -

(2,406.7) (2,359.1) (111.4)

Change in investment contract liabilities (15.5) (15.5) -

Acquisition costs (50.3) (52.4) (2.0)

Other operating expenses (204.6) (149.8) (64.9)

Finance costs (255.4) (176.5) (105.3)

Total claims and expenses (3,624.6) (3,324.5) (444.3)

Total Underwriting result 210.4 191.9 (24.9)

Investment performance – A.3 93.1 37.5 63.1

Other activities – A.4 (104.7) (14.8) (6.2)

Profit before tax 198.8 214.6 32.0

1 Just Group figures on a statutory basis include 18 months of JRL and 9 months of PLACL


15

Gross premiums written Gross premiums written are the total premiums received in relation to GIfL, DB and Care Plan contracts in the period, gross of commission paid, and amounted to £2,584.9m for JRL, £184.9m for PLACL, and £2,693.5m for the Group in the period to 31 December 2016. Net premium revenue Net premium revenue represents the sum of gross premiums written and reinsurance recapture, less reinsurance premium ceded. JRL restructured its reinsurance financing arrangements in the period, exercising its option to recapture £1,166.9m of premiums and entered into new treaties providing more extensive cover. As a result, reinsurance premiums ceded were £1,553.4m in the period to 31 December 2016. Normalised investment return The normalised investment return represents the expected return based on the opening yields on the established portfolio adjusted for investments acquired in the period and amounted to £1,260.1m for JRL, £332.5m for PLACL, and £1,522.4m for the Group for the period ended 31 December 2016. As noted above, fluctuations from expected yields due to changes in interest rates in the period and other economic factors, as captured as Investment and economic profits, are reported in the Investment performance section A.3. 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 for the period were £571.2m for JRL, £160.7m for PLACL, and £692.1m for the Group. 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 was £2,359.1m for JRL, £111.4m in PLACL, and £2,406.7m for the Group for the period to 31 December 2016. The gross change in liabilities was £2,606.0m for JRL, £240.4m for PLACL, and £2,687.1m for the Group. The change in insurance liabilities net of reinsurance reflected the recapture and implementation of new reinsurance financing arrangements as noted above. Acquisition costs Acquisition costs comprise the direct costs (such as commissions) and indirect costs of obtaining new business. Other operating expenses Other operating expenses represent the operational overheads, including personnel expenses, investment expenses and charges, depreciation, reinsurance fees, operating leases and other expenses incurred in running the Group’s operations. Finance costs Finance costs represent interest payable on the deposits received from reinsurers, interest payable on subordinated debt, interest on reinsurance financing and bank finance costs, as noted in Section A.1.5.


16

A.3 Investment Performance

A.3.1 Income and expenses by asset class

Investment performance

Just Group plc 18 months to 31 Dec 20161

£m



£m



£m

Interest income

Bond interest 453.7 323.1 168.6

Cash interest 3.9 2.0 0.3

Mortgage interest 327.3 225.9 50.6

Collateral interest 0.2 0.1 -

Rental income 0.3 0.8 -

Intra-group income - 18.5 -

785.4 570.4 219.5

Fair value movements

Bonds 527.6 300.4 306.6

Mortgages 544.7 532.4 207.9

Reassurance (153.9) (25.1) (272.4)

Derivatives (66.6) (61.2) (65.5)

Other (20.4) (19.3) (0.5)

831.4 727.2 176.1

Total net investment return 1,616.8 1,297.6 395.6

Less: Normalised return included in underwriting result

(1,523.7)

(1,260.1)

(332.5)

Investment variance 93.1 37.5 63.1

1 Just Group figures on a statutory basis include 18 months of JRL and 9 months of PLACL

Interest income Interest income relates mainly to corporate bonds and rolled-up mortgage interest in the period during which there was strong growth in the asset portfolio from underlying business growth. Fair value movements The current period saw a substantial fall of 143bps in gilt rates, largely following the Brexit vote, which generated £300.4m of gains on bonds in JRL, £306.6m in PLACL, and £527.6m for the Group. There was also a £532.4m positive movement in fair value of mortgages in JRL, £207.9m in PLACL, and £544.7m for the Group, mainly caused by the further falls in interest rates which led to increases in the value of the lifetime mortgages. The reassurance fair value movement represents the amount of the increase in the reinsurance financing liabilities, which is driven by changes in the valuation interest rate. The fall in interest rates has resulted in the unfavourable valuation adjustment in the liabilities, partly offset by a change in the value of the reinsurance recoverable.


17

The fair value movement in derivatives includes £71.4m of realised losses on positions that have been closed out in the period. Following the implementation of Solvency II, the interest rate risk changed from being an upward rate risk to a downward rate risk as this increases balance sheet values, and correspondingly, the Solvency Capital Requirement. The unrealised gain of £4.8m represents offsetting movements across the various derivative types, reflecting the following experience:

Favourable on interest rates swaps as interest rates have declined, particularly following the Brexit vote.

Favourable on inflation swaps as longer-term inflationary pressures have built following the weakening of Sterling.

Unfavourable on FX swaps as the Group’s hedged currency denominated assets have increased in value in Sterling terms.

Investment expenses

Investment expenses in the period were £8.0m in JRL, £5.5m in PLACL, and £9.8m for the Group.

A.3.2 Gains and losses recognised directly in equity There were no gains or losses recognised directly in equity in the period.

A.3.3 Investments in securitisation

There are no investments in securitisations.

A.4 Performance of other activities

Just Group plc

Just Retirement

Limited


Company Limited

18 months 18 months 12 months

£m £m

£m

Other Group companies’ operating results 5.3 - -

Non-recurring and project expenditure (21.1) (14.8) (6.2)

Acquisition integration costs (40.7) - -

Acquisition transaction costs (23.4) - -

Amortisation and impairment of intangible assets

(24.8) - -

Other activities (104.7) (14.8) (6.2)

Other Group companies’ operating results includes income on internal debt issued by JRL less holding company expenses and losses in the professional services companies.

Non-recurring and project expenditure includes one-off regulatory project and development costs.

Acquisition transaction costs of £23.4m 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.

Acquisition integration costs of £40.7m relate to the cost arising from the post-merger integration of the Just Retirement and Partnership businesses and operations. The restructuring changes made to date have already delivered approximately £30m of synergies on an annualised basis.

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.

Just Group SFCR Report 31 December 2016

18

Chapter B contents

B. System of Governance ................................................................................................................................................. 19 B.1 General information on the system of governance ........................................................................................... 19

B.1.1 Governance in the Just Group ......................................................................................................................... 19 B.1.2 Governance structure in Just Retirement Limited and Partnership Life Assurance Company Limited ............................................................................................................................................................................. 22 B.1.3 Allocation of responsibilities to functions..................................................................................................... 23 B.1.4 Changes in the system of governance .......................................................................................................... 24 B.1.5 Assessment of adequacy .................................................................................................................................. 24 B.1.6 Remuneration policy .......................................................................................................................................... 25 B.1.7 Material transactions ........................................................................................................................................ 28 B.1.8 Intra-group outsourcing arrangements........................................................................................................ 28

B.2 Fit and proper requirements .................................................................................................................................... 28 B.2.1 Requirement applicable to Directors ............................................................................................................. 29 B.2.2 Assessing fitness and propriety....................................................................................................................... 31

B.3 Risk management system including the own risk and solvency assessment ............................................. 31 B.3.1 Risk governance and management framework .......................................................................................... 31 B.3.2 Integration of risk management into the decision making processes .................................................. 33 B.3.3 Determination of own solvency needs .......................................................................................................... 33 B.3.4 Internal model Governance ............................................................................................................................. 33 B.3.5 ORSA management ............................................................................................................................................ 33 B.3.6 ORSA process ....................................................................................................................................................... 34

B.4 Internal control system ............................................................................................................................................ 35 B.4.1 Internal control system description ............................................................................................................... 35 B.4.2 Roles and responsibilities of the Compliance function .............................................................................. 36

B.5 Internal audit function .............................................................................................................................................. 37 B.5.1 Internal audit function description ................................................................................................................ 37 B.5.2 Independence and objectivity of internal audit .......................................................................................... 38

B.6 Actuarial function ....................................................................................................................................................... 38 B.7 Outsourcing .................................................................................................................................................................. 39

B.7.1 Group Outsourcing Policy .................................................................................................................................. 39 B.7.1 Principal outsourced activities ......................................................................................................................... 39

B.8 Any other information ............................................................................................................................................... 39


19

B. System of Governance (Unaudited)

This section sets out information regarding the System of Governance in place in the Just Group plc, which applies to the UK regulated entities in the Group, including the JRL and PLACL subsidiaries.

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

B.1 General information on the system of governance

B.1.1 Governance in the Just Group

The governance structures established for Just Group plc is described below. At least half its board is comprised of independent Non-Executive Directors (NEDs). There are 11 current board members, including the Chair (independent on appointment), seven independent NEDs and three executives.

The governance structures established for JRL and PLACL are aligned with the structure for Just Group plc. The JRL and PLACL boards each have 16 current board members, including the Chair (independent on appointment), seven independent NEDs who are members of the Just Group plc Board, one independent NED who is not a member of the Just Group plc Board and seven executives.

The following chart illustrates the governance structure established by the Group Board:

The dotted line in the diagram above denotes that the committees of the Just Group have responsibilities delegated to them by the Just Group plc Board for oversight of specific activities of the Group and its subsidiary undertakings, including JRL and PLACL. JRL and PLACL each have their own dedicated investment committees. The JRL and PLACL Boards report to the Just Group plc Board.

A Group policy and process is in place to address possible conflicts of interest of Directors. Any relevant conflicts and potential conflicts with the interests of the Company that arise must be disclosed at the next Board meeting for consideration and, if appropriate, authorisation by relevant Board members in accordance with the Company’s Articles.

The Group Board is committed to the highest standards of corporate governance in the Group and demonstrates this commitment by the way in which it conducts business and carries out its responsibilities in response to the challenges and opportunities of a changing market. Board decisions aim to link the Group’s strategy, its governance and risk appetite to the pursuit of sustainable successful growth over the longer term for the benefit of all stakeholders.

The Group Board has delegated specific responsibilities to the Audit, Remuneration, Nominations and Risk and Compliance Committees to assist it with the direction and control of the Group, including the subsidiary companies. These Committees, together with the Investment Committees of the JRL and PLACL Boards and the Group Executive Office, are the principal operating committees of the Group.

Just Group plc

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

JRL Investment

Committee

Audit

Committee

Risk and

Compliance

Committee

Remuneration

Committee

Nomination

Committee

Market

Disclosure

Committee

Integration

Committee

PLACL

Investment

Committee

JRL Board PLACL Board


20

The Chief Executive Officer (CEO) operates a Group Executive Office to support him in the performance of his duties, including the Group’s financial performance and capital position, the capital strategy and approach to Solvency II, the Group’s risk management and Own Risk & Solvency Assessment (ORSA), regulatory issues, assets and liability management oversight and the Group’s strategy and development.

The Group Executive Office comprises the Executive Directors Rodney Cook, David Richardson and Simon Thomas, and Jane Kennedy (Chief Operating Officer) and Alex Duncan (Chief Risk Officer) from the Group’s senior management. The Group Executive Office meets weekly to discuss and approve operational matters and is supported by the following management committees: UK Corporate Senior Management Team (SMT), UK Retail SMT, UK Retirement Lending SMT, Owned Distribution SMT, International SMT, Asset and Liability Committee, Insurance Committee, Regulatory Oversight Committee, Product and Proposition Committee, Operational Risk Committee and Retail Funds Committee.

In addition to its principal operating committees, the Just Board has established a Market Disclosure Committee and an Allotment Committee, which meet whenever necessary. The Market Disclosure Committee oversees the disclosure of information by Just Group plc to meet its obligations under the Market Abuse Regulation and the UK Listing Authority Disclosure and Transparency Rules (DTR), and to ensure that decisions in relation to those obligations can be made quickly. The Committee’s role is to determine whether information is inside information, when such information needs to be disclosed and whether any announcements are required. Other responsibilities include reviewing and approving announcements concerning developments in Just’s business and monitoring compliance with the Group’s DTR disclosure controls and procedures. Its members comprise Tom Cross Brown (Chairman), Chris Gibson-Smith, Keith Nicholson, Rodney Cook, David Richardson and Simon Thomas.

The Allotment Committee has responsibility for overseeing the allotment and listing of new ordinary shares in the Just Group plc in accordance with the Company’s executive incentive plans and employee share plans. Its members comprise any two Directors, one of whom must be a non-executive Director.

Every Board Committee has written terms of reference setting out its duties, reporting responsibilities and authorities which are reviewed annually. Committee terms of reference are subject to periodic updating to reflect any changes in legislation, regulation or best practice.

The five main Board Committees comprise Non-Executive Directors of the Company who were appointed by the Board following review and recommendation by the Nominations Committee. The Chairman of each Committee reports on the proceedings of the previous Committee meeting at the next scheduled Board meeting. The Group Company Secretary is the Secretary of every Committee. Group Audit Committee The Audit Committee’s role is to assist the Boards with the discharge of their responsibilities in relation to financial reporting, internal and external audits, and controls, including reviewing the Group’s and principal subsidiaries’ annual financial statements, reviewing and monitoring the scope of the annual audit and the extent of the non-audit work undertaken by external auditors, advising on the appointment of external auditors and reviewing the effectiveness of the internal audit activities, internal controls and risk management systems in place within the Group. The Audit Committee will normally meet not less than four times a year and is chaired by Paul Bishop. Its other members are Steve Melcher, Keith Nicholson and Clare Spottiswoode. Group Remuneration Committee The Remuneration Committee recommends what policy the Group should adopt on executive remuneration and, within the terms of the Directors’ Remuneration Policy approved by the shareholders at the AGM in May 2017, determines the remuneration benefits, pension rights and compensation payments for all Solvency II staff, the Chairman, the Executive Directors of the Company, the Chief Actuary, the Company Secretary, the members of the Executive Committee and any other employees of the Group for when the Committee determines it will have oversight as agreed by the Board from time to time. The Remuneration Committee will also generate an annual remuneration report to be approved by the members of the Group at the AGM. The Remuneration Committee will normally meet not less than twice a year and is chaired by Ian Cormack. Its other members are Chris Gibson-Smith, Michael Deakin, and Steve Melcher. Group Nominations Committee The Nominations Committee assists the Boards in determining their composition and make-up. It is also responsible for periodically reviewing the Boards’ structure and identifying potential candidates to be appointed as Directors, as the need may arise. The Committee also determines succession plans for the Chairman and the


21

CEO. It will normally meet not less than twice a year and is chaired by Chris Gibson-Smith. Its other members are Paul Bishop, Ian Cormack, Tom Cross Brown, Keith Nicholson and Michael Deakin. Group Risk and Compliance Committee The Risk and Compliance Committee is principally responsible for assisting the Boards and other members of the Group in the discharge of their risk and regulatory oversight responsibilities. The Committee reviews and challenges the overall effectiveness of the Group’s regulatory systems and controls, risk management and future developments. It also provides advice on regulatory and risk strategies including oversight of current risk exposures. The Committee will normally meet not less than four times a year and is chaired by Keith Nicholson. Its other members are Ian Cormack, Tom Cross Brown, Chris Gibson-Smith, Steve Melcher and Clare Spottiswoode. Investment Committee The Investment Committees of the Boards of Just Retirement Limited and Partnership Life Assurance Company Limited assist their respective Boards in achieving its investment objectives, in line with the Group’s risk appetite. The Investment Committees are responsible for reviewing and overseeing the implementation of the life companies’ investment policies, including the performance of the investment portfolio, recommending the appointment and assessing the performance of the external investment managers, and the effectiveness of reporting procedures. The Investment Committees will normally meet not less than four times a year and are chaired by Michael Deakin. Their other members are Paul Bishop and Tom Cross Brown. Just Group plc Board The Group Board is responsible for the proper management of the Just’s strategy and direction, including its risk appetite. It also oversees the activities and direction of Just Retirement Limited, Partnership Life Assurance Company Limited and Just Retirement Money Limited, and the Group’s other operating subsidiaries. There are eleven Board members: the Chairman (independent on appointment), three Executive and seven Non-Executive Directors who are considered to be independent. Keith Nicholson is the Senior Independent Non-Executive Director.

The Board believes that documented roles and responsibilities for Directors, with a clear division of key responsibilities between the Chairman and the CEO, are essential elements in the Group’s governance framework and facilitate the effective operation of the Board. As noted above, Independent NEDs make up at least half of the Directors on the Just Group Board excluding the chairman. There is a separate NED chairman for each of the key Committees.

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

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

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

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

issues • Identifying development needs for the Board and Directors • Leading the process for evaluating the performance of the Board, its Committees and individual Directors • Ensuring effective communication with major shareholders The CEO is responsible for leadership of the Group’s business and managing it within the authorities delegated by the Board. His key responsibilities include: • Proposing and developing the Group’s strategy and significant commercial initiatives • Leading the executive team in the day-to-day running of the Group • Ensuring the Group’s operations are in accordance with the business plan approved by the Board, the Board’s

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


22

• Providing recommendations to the Remuneration Committee on remuneration strategy for Executive Directors and other senior management

• Leading the communication programme with shareholders and ensuring the appropriate and timely disclosure of information to the stock market

The NED’s constructively challenge and help develop the Group’s strategy. In addition to this, Paul Bishop, Ian Cormack and Keith Nicholson respectively chair the Board’s Audit, Remuneration, and Risk and Compliance Committees, while Michael Deakin chairs the Investment Committees of Just Retirement Limited and Partnership Life Assurance Company Limited. As the Senior Independent Director, Keith Nicholson provides a sounding board for the Chairman, deputises for the Chairman in his absence and serves as an intermediary for the other Directors when necessary.

Decisions on operational matters are delegated to the Executive Directors under documented policies and procedures. In advance of scheduled Board meetings, each Director receives documentation providing updates on the Group’s strategy, finances, operations and development, and which have reference to a formal schedule of matters reserved for Board approval which includes: • The Group’s business strategy and risk appetite • Business strategy plans and objectives, budgets and forecasts • Extension of the Group’s activities into new business or geographic areas • Changes in capital structure and any form of fundraising • Major changes to the Group’s corporate structure, including reorganisations, acquisitions, disposals and

major capital projects • The Group’s systems of internal control and risk management • Changes to the membership of the Board • Interim and annual financial statements • Dividend policy The schedule of matters reserved for Board approval is reviewed annually.

Non-Executive Directors’ appointments are subject to review every three years. Their letters of appointment set out the expected time commitment, recognising the need for availability in exceptional circumstances, and the Board is informed of any subsequent changes in their other significant commitments. None of the Executive Directors holds a Non-Executive Directorship in a FTSE 100 company. All Directors’ appointments are subject to annual re-election by shareholders.

B.1.2 Governance structure in Just Retirement Limited and Partnership Life Assurance Company Limited The governance structures established for Just Retirement Limited and Partnership Life Assurance Company Limited are aligned with the structure for Just Group plc. Each legal entity within the Group has its own Board responsible for taking key decisions regarding the conduct of its business and its responses to the challenges and opportunities presented by changing markets, as well as alignment of the entity’s strategy with that of the Group as a whole.

At least half of the Board of any regulated subsidiary of Just Group plc must be comprised of Independent NEDs. The Just Group plc Chairman is also the JRL and PLACL Chairman. The Board of Just Group plc decided that Just Retirement Solutions (JRS), Just Retirement Money Limited (JRML) and Partnership Homes Loans Limited (PHLL) should have a separate Chairman to mitigate against potential conflicts of interest with JRL and PLACL. Just Retirement South Africa (JRSA) also has a separate Chairman to reflect the market in which it operates.

The Boards of JRL and PLACL include an independent NED who is not a member of the Just Group plc Board or any other subsidiary boards.

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


23

Each Board is responsible for:

Continually gaining insight into the company and its environment

Clarifying priorities for management and the company and defining how the Board expects these priorities to be achieved

Holding management to account and seeking assurance that these priorities and expectations are being delivered

Each Board is supported in its decision making by legal entity specific reports provided by the Audit, Remuneration, Nominations and Risk and Compliance Committees of the Group. The Investment Committees are directly committees of the Just Retirement Limited and Partnership Life Assurance Company Limited Boards.

As a regulated entity in another territory, JRSA has in place its own Committee Structure. This includes a Remuneration Committee, a Treating Customers Fairly Committee and an Actuarial, Audit and Risk Committee.

B.1.3 Allocation of responsibilities to functions

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

Executive Committees

DCEO Deputy Chief Executive Officer GDS Group Director Strategy MDUKC Managing Director UK Corporate Business

GFCO Group Chief Financial Officer GCDIO Group Chief Digital Information Officer MKUKR Managing Director UK Retail Business

GCOO Group Chief Operating Officer GMDD Group Marketing and Distribution Director MDUKLTM Managing Director UK LTM

GCRO Group Chief Risk Officer GBDD Group Business Development Officer GMDD Group Marketing & Distribution Director

Management committees

CSMT UK Corporate SMT (Deputy CEO) INT SMT International SMT (EDBD) PPC Product and Proposition Committee (GMDD)

RSMT UK Retail SMT (UKMDR) ALCO Asset and Liability Committee (DCEO) OpRisk Operational Risk Committee (GCRO)

RLSMT UK Retirement Lending SMT (UKMDRL) InsCom Insurance Committee (Deputy CEO) RFC Retail Funds Committee (UKMDR)

ODSMT Owned Distribution (JRS) SMT (GMDD) ROC Regulatory Oversight Committee (GRAD)

Executive Committees Committees are in place to support Executives in meeting their accountabilities because they will require advice, assistance and challenge in meeting these accountabilities from people across the business. A committee is a permanent, regular and formal meeting that brings together different disciplines or business area experts, to help to shape decisions within executive accountabilities. Each committee has clearly defined authority to support decisions related to a designated area and all minutes are recorded formally.

Group Executive Office Members: CEO, DCEO, GCFO, GCOO, GCRO In attendance: GDS Agenda specific: GCDIO, GMDD, GCRD, GBBD Matters: Group financial performance, group capital position / strategy & SII, Group risk (ORSA), regulatory issues, asset & liability oversight, Group strategy and Group Development.

Group Executive Office Members: CEO, DCEO, GCFO, GCOO, GCRO In attendance: GDS Agenda specific: GCDIO, GMDD, GCRD, GBBD Matters: Group financial performance, group capital position / strategy & SII, Group risk (ORSA), regulatory issues, asset & liability oversight, Group strategy and Group Development.

Integration Committee Members: DCEO, GCFO, GCOO, GCRO, GCDIO Matters: Ensures that the integration programme delivers against the stated objectives to time and budget, manages priorities between BAU change and integration change (reversing over time)


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In addition to the Group Executive Office, there are two executive committees as follows: UK Business Executive Board This committee comprises the Managing Directors of the UK Corporate, UK Retail and UK Retirement Lending businesses, the Group Marketing & Distribution Director, the Group Chief Digital Information Officer, the Group Chief Risk Officer and Group Chief Operating Officer. It undertakes a detailed review of business interaction, risk and operational matters. Integration Committee This Committee comprises the Deputy CEO, the Group Integration Director, the Group Chief Finance Officer, the Group Chief Operating Officer, the Group Chief Risk Officer and the Group Chief Digital Information Officer. It ensures that the integration programme delivers against its stated objectives to time and budget, and manages priorities between BAU change and integration change. Management Committees Just Group has eleven permanent management committees which support the Group Executive Office: • UK Corporate SMT • UK Retail SMT • UK Retirement Lending SMT • Owned Distribution SMT • International SMT • Asset and Liability Committee • Insurance Committee • Regulatory Oversight Committee • Product and Proposition Committee • Operational Risk Committee • Retail Funds Committee

B.1.4 Changes in the system of governance

On 1 April 2016, the acquisition by Just Retirement Group of Partnership Assurance Group became effective creating the JRP Group, now renamed as Just Group. This resulted in a new system of governance, described above. The Boards of the two life assurance companies, JRL and PLACL now have the same members and include an independent NED, Nick Poyntz-Wright, who is not a member of the Board of Just Group plc, or any other group company.

On 27 April 2016, the Financial Conduct Authority authorised Just Retirement Money Limited, which was subsequently launched as the Group retirement lending company. It has its own board and management team and is a wholly owned subsidiary of Just Group plc.

As part of the preparations for Solvency II implementation, two new companies were formed as securitisation special purpose entities, Just Re 1 Limited and Just Re 2 Limited, both as wholly owned subsidiaries of JRL. They provide securitisation vehicles for equity release mortgages and callable bonds within the JRL investment portfolio and the senior note tranches issued by the two companies are eligible to be held within JRL’s matching adjustment portfolio.

B.1.5 Assessment of adequacy

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


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B.1.6 Remuneration policy

Remuneration Policy The remuneration policy is applied consistently across the Group, including JRL and PLACL, and was reviewed following completion of the merger with Partnership Assurance Group. This review resulted in a number of changes to the policy which were approved at the AGM in May 2017. These are relatively minor in nature and reflect developments in market and best practice and include: • Replacement of Adjusted Operating Profit with adjusted Earnings Per Share as a performance target for

future awards made under the Long Term Incentive Plan (LTIP); • The introduction of a post-vesting holding period for future awards made under the LTIP; and • An increase in the share ownership guidelines to 200% of salary for all Executive Directors. The framework set out in the policy supports the strategy and the combination of metrics in the short and long-term incentive plans are aligned to the Group’s profitability and the strategic plan. This provides a platform against which the Executive Directors and management can be incentivised to achieve the all-round Group strategy, aligning these interests with those of shareholders. To mitigate any risk, the metrics are reviewed each year and the targets are set in line with the strategic plan. Directors’ Remuneration Policy The Directors’ remuneration policy sets out the Group’s remuneration policy for its Executive and Non-Executive Directors and was approved by shareholders at the May 2017 AGM. The policy has been developed taking into account the requirements of Article 275 of the Solvency II Delegated Regulation, the principles of the UK Corporate Governance Code, guidelines from major investors and guidance from the PRA and FCA on best practice.

The Remuneration Committee has agreed a remuneration policy for senior management, including Executive Directors, whereby:

• Both salaries and total pay potential will be set at competitive levels compared to insurance peers and other companies of equivalent size and complexity;

• Performance-related pay, based on stretching targets, will form a significant part of remuneration packages; and

• There will be an appropriate balance between short and longer-term performance targets linked to delivery of the Group’s business plan.

Key considerations, therefore, are to: • Align Directors’ remuneration with the interests of shareholders, customers and other external stakeholders; • Operate remuneration practices in order to attract, motivate, reward and retain appropriately qualified and

experienced individuals of the highest calibre; • Link pay to long-term performance; • Ensure disclosures provide transparency and accountability; • Encourage a high performing culture; and • Ensure remuneration and incentives support good risk management practice. In line with The Investment Association (IA) guidelines on Responsible Investment Disclosure, the Remuneration Committee will ensure that the incentive structure for Executive Directors and senior management will not raise environmental, social or governance (ESG) risks by inadvertently motivating irresponsible behaviour.

More generally, with regard to the overall remuneration structure, there is no restriction on the Remuneration Committee that prevents it from taking into account corporate governance on ESG matters.

In addition, the Remuneration Committee regularly reviews the remuneration packages for the Group’s Executive Directors and senior management, via liaison with the Group Risk and Compliance Committee and the Group’s Risk function, to ensure that they do not encourage inappropriate risk taking. Considerations when setting remuneration From time to time, a review of remuneration is undertaken to ensure reward levels are competitive with the external market, taking account of the duties and responsibilities of the roles.

In line with the Group’s broader remuneration framework that is intended to ensure consistency and common practice across the Group, and in determining the overall levels of remuneration of the Executive Directors, the Remuneration Committee also pays due regard to pay and conditions elsewhere in the organisation.


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The Remuneration Committee seeks to ensure that the underlying principles, which form the basis for decisions on Executive Directors’ pay, are consistent with those on which pay decisions for the rest of the workforce are taken. For example, the Remuneration Committee takes into account the general salary increase for the broader employee population when conducting the salary review for the Executive Directors.

However, there are some structural differences in the Executive Directors’ Remuneration Policy (as set out overleaf) compared to that for the broader employee base, which the Remuneration Committee believes are necessary to reflect the differing levels of seniority and responsibility. A greater weight is placed on performance based pay through the quantum and participation levels in incentive schemes. This ensures the remuneration of the Executive Directors is aligned with the performance of the Group and therefore the interests of shareholders. Shareholder views The Group values and is committed to dialogue with its shareholders. The Remuneration Committee will consider investor feedback and the voting results received in relation to relevant AGM resolutions each year. In addition, the Remuneration Committee will engage proactively with shareholders, and will ensure that shareholders are consulted in advance where any material changes to the Directors’ Remuneration Policy are proposed. Key changes to the Policy For LTIP awards to be made in 2017 onwards two performance metrics will normally be used: relative TSR and growth in adjusted EPS. In addition a post-vesting holding period will apply. Executive Directors are required to retain the LTIP shares that vest (net of tax) for a period of two years. The two-year holding requirement will continue if they leave employment during the holding period. The shares held will count towards the Executive Director’s normal holding requirement. Finally, the share ownership guidelines will increase to 200% of salary for all Executive Directors.

Remuneration components

Element Purpose and link to strategy

Operation (including framework used to assess performance)

Opportunity

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

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

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

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

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

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

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

There is no formal maximum; however, increases will normally be in line with the general increase for the broader employee population. More significant increases may be awarded from time to time to recognise, for example, development in role and change in position or responsibility.

Current salary levels are disclosed in the Annual Report on Remuneration section

Benefits and pension

Provides competitive, appropriate and cost-effective benefits and pension.

Each Executive Director currently receives an annual benefits allowance in lieu of pension, car, private medical insurance and other benefits.

Each Executive Director also receives life assurance and permanent health insurance.

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

The Group operates a money purchase pension scheme into which Directors may elect to pay part of their benefits allowance as a company contribution, having regard to government limits on both annual amounts and lifetime allowances.

The benefits allowance is subject to an annual cap of 15% of base salary plus £20,000, although this may be subject to minor amendment to reflect changes in market rates.

The cost of the other benefits provision varies from year to year and there is no prescribed maximum limit. However, the Remuneration Committee monitors annually the overall cost of the benefits provided to ensure that it remains appropriate.


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Short Term incentive plan (STIP)

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

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

Paid annually, any bonus under the STIP is discretionary and subject to achievement of a combination of stretching corporate financial and personal non-financial performance measures. Corporate measures normally determine at least two-thirds of the STIP opportunity.

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

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

The Remuneration Committee has the authority to apply a malus adjustment to all, or a portion of, an outstanding award in specific circumstances. The Remuneration Committee also has the authority to recover (clawback) all, or a portion of, amounts already paid in specific circumstances and within a defined timeframe. These provisions apply to both the cash and deferred elements of the STIP.

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

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

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

Long Term incentive plan (LTIP)

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

Facilitates share ownership to provide further alignment with shareholders.

Granting of annual awards aids retention.

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

Awards are normally subject to an absolute financial growth measure and Total Shareholder Return (TSR) relative to the constituents of a relevant comparator index or peer group.

25% vests at threshold under the financial growth measure. 25% vests at median for the relative TSR condition. There is straight-line vesting for performance between threshold and maximum.

Different performance measures and/or weightings may be applied for future awards as appropriate. However, the Remuneration Committee will consult in advance with major shareholders prior to any significant changes being made.

The Remuneration Committee has the authority to apply a malus adjustment to all, or a portion, of an outstanding award in specific circumstances. The Remuneration Committee also has the authority to recover (clawback) all, or a portion of, amounts already paid in specific circumstances and within a defined timeframe.

A post-vesting holding period will apply to Executive Directors for awards made in 2017 and beyond. Executive Directors are required to retain the LTIP shares that vest (net of tax and NICs) for a period of two years. The two-year holding requirement will continue if they leave employment during the holding period. The shares held will count towards the Executive Director’s normal holding requirement.

The maximum opportunity is 250% of base salary. However the normal policy is that awards made to the CEO and other Executive Directors are 200% and 150% of base salary respectively.

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


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All-employee share plans

Encourages employee share ownership and therefore increases alignment with shareholders

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

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

Shareholding guideline

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

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

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

Not applicable.

1 Awards may be structured as nil-cost options which will be exercisable until the tenth anniversary of the grant date.

Further detail is provided on the remuneration of directors on pages 66 to 85 of the Just Group plc Annual report and accounts, in note 8 of JRL’s Annual report and accounts and in note 8 of PLACL’s Annual report and accounts.

B.1.7 Material transactions

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

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

Just Group plc

18 months ended

31 December 2016 £m


18 months ended


Partnership Life Assurance Company

Limited 12 months ended


Aggregate emoluments including benefits 9.8 7.4 3.7 Loans owed by Directors 0.3 - - Loans advanced to associate and fees on loans

0.2 - -

The loan advances to Directors accrue interest fixed at 4% per annum 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.

B.1.8 Intra-group outsourcing arrangements Material intra-group outsourcing arrangements for the period ended 31 December 2016 primarily comprise support services provided by the service companies, Just Retirement Services and Partnership Services Limited, both based in the UK.

B.2 Fit and proper requirements

All persons who do, or will, exert significant influence over the Group will be identified by the Board, with the assistance of the Remuneration Committee.

All applicants for a Controlled Function, including the Senior Insurance Management Functions under the PRA’s Senior Insurance Managers Regime, must be appropriately vetted in accordance with HR recruitment procedures and the appropriate Regulator informed, in accordance with the Group Compliance Policy.

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


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All individuals who perform Controlled Functions are required to complete the Group’s Fit and Proper Annual Return on an annual basis. This is a self-certification form covering the individual’s business relationships, financial situation, conflicts of interest and general standing. A credit search is also performed.

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

The fitness assessment undertaken as part of the annual performance management review may identify new training needs. This assessment is undertaken on an individual basis by the Chairman of the Board in respect of NEDs and the CEO, and by the CEO in respect of Executive Directors and other direct reports. Other staff are assessed by their line manager or Director, overseen by the HR function.

B.2.1 Requirement applicable to Directors

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

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

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

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

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

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

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

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

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

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

Executive responsibility • Ability to represent the company with a sound understanding of the views of shareholders • An understanding of the needs and requirements of a listed company • Ability to promote the highest standards of corporate governance and compliance • Ability to set the style and tone of board discussions to promote effective decision making • Ability to ensure effective implementation of Board decisions


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• Sound judgement and an inquiring mind • Ability to question intelligently, debate constructively, challenge rigorously and decide dispassionately • Subject to shareholder’s approval, ability to plan and initiate change and succession plans • Well informed about the business, the environment in which it operates and the issues it faces • Strong interpersonal skills Executive director Qualifications: - Must have degree or professional equivalent. Skills and Knowledge • Integrity, probity and high ethical standards • Ability to question intelligently, debate constructively, challenge rigorously and decide dispassionately • High level of managerial skills • High level of business acumen and particularly being able to balance risk against capital and solvency

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

environment within which the Group operates • Detailed technical and commercial understanding of the corporate and capital infrastructure • Excellent problem analysis and resolution skills • Broad understanding of the high level business processes • Understanding of people resource requirements • Excellent communication and interpersonal skills Experience • Must have 5 years’ experience at Board level • Minimum of 10 years in financial services • Must have FCA /PRA approval as a Significant Influence Function Competency - To be competent to Level 4 of Group’s competencies (i.e. Executive level) Chief Executive Officer See Executive director above Chief Financial officer As for Executive director plus must be qualified Accountant/Actuary Chief actuary As for Executive director plus must be qualified Actuary Compliance function (NB, the holder of this function is also the Chief audit executive) As for Executive director Chief audit executive (NB, the holder of this function also holds the Compliance function) As for Executive director plus must be qualified Accountant/Actuary Chief Risk Officer (NB this role is an executive management role but not a board director role) Qualifications • Must have degree or professional equivalent; • Qualified Actuary (or other recognised risk management qualification). Skills and Knowledge • Ability to question intelligently, debate constructively, challenge rigorously and decide dispassionately; • High level of business acumen and particularly being able to balance risk against capital and solvency

requirements when developing the business; • High level of business planning, budgeting and financial control skills.


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Leadership and influencing skills • Excellent problem analysis and resolution skills • Ability to cope with conflict, stress and crisis situations • Excellent verbal, written communication and interpersonal skills • High degree of understanding of the products and services provided by the Group, the markets and the

regulatory/legal framework that the Group operates within • Technical and commercial understanding of actuarial and risk management processes and techniques • Understanding of high level business processes • Understanding of people resource requirements Experience • Ideally 5 years’ experience at close to Executive/Board level with extensive experience of life company

operations, through working in a UK life company and/or a life consultancy environment • Minimum of 10 years in financial services post qualifying • Able to achieve FCA/PRA approval as a Significant Influence Function or Approved Person Competency To be competent to Level 4 of the Group’s competencies (i.e. Executive level).

B.2.2 Assessing fitness and propriety

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

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

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

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

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

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

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

B.3.1 Risk governance and management framework

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

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

Risk Strategy

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


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

Underpinning this strategy are the following:

Risk management objectives (see below); and

Guiding risk management principles.

Risk Management Objectives

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

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

Risk Management Processes

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

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

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

The key risk processes include:

Strategic Risk Management

Financial & Insurance Risk Management

Operational Risk Management

Stress Testing & Scenario Analysis

Business Change

Corporate Activity

Emerging Risk

Risk Crisis Management

Risk Management Effectiveness

Intra-group transactions and concentration risk


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Risk Reporting & ORSA

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

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

The purpose of the ORSA is to:

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

integrate the Group’s approach to managing risk & capital

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

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

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

B.3.2 Integration of risk management into the decision making processes Solvency II capital, as a risk based capital measure, is central to the Group’s risk and capital evaluation and is a key input to business and strategic decision. For JRL, this means the use of its Internal Model, representing 95% of the Group’s sales. As well as being a Solvency II requirement, this makes sense from a business perspective - using a model which reflects the actual risk profile of the business drives more informed decisions. A regular Business Use Assessment process takes place which facilitates embedding and evidencing of the use of risk management and economic capital in decision making.

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

B.3.4 Internal model Governance The Internal model used by JRL and the ex-Just Retirement holding companies is governed by the Model Development Forum (MDF). The MDF is chaired by the Group Risk officer and attended by members of the first and second lines, notably the Director of Actuarial and the Chief Actuary. The forum oversees all changes to the Internal Model, whether minor or major. Results calculated using the internal model are independently validated by the second line, which provides an annual report to the Audit Committee.

There were no significant changes made to Internal model governance in the period.

Data used in the internal model is governed by data quality standards, the application of which is overseen by the Data Standards Committee. This committee, chaired by the Group Chief Financial Officer, meets regularly to review the quality of data used in the calculation of the SCR and technical provisions. This comprises monthly reporting of frequencies of data exceptions, quarterly attestations of adequacy of data quality by data owners, and formal reporting on data quality on an annual basis.

B.3.5 ORSA management

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

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

Full Group ORSA - Timing: To be approved during Q2 of each calendar year.

Update Group ORSAs (x3) - Timing: To be approved during Q1, Q3 and Q4 of each calendar year.

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


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Full Group ORSA The purpose of the Full Group wide ORSA is to provide a comprehensive assessment of JRL’s, PLACL’s and the Just Group’s consolidated risk and solvency positions. This includes changes to risk and solvency since the previous full ORSA, the current risk and solvency position and a forward looking assessment of risk and solvency. The preparation of a single Group ORSA was approved by the PRA.

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

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

Group ORSA GCRO Summary The most significant risks that should be considered in setting strategy/business planning are set out in the GCRO Summary. This provides a risk focussed backdrop to the Strategy/Business Planning Processes. Update Group ORSA (x3) The Update Group ORSA provides a summary of the material risks to which the Group is exposed and focusses on the delivery of agreed responses to risks and management actions. Review & Approval The Group ORSA is prepared by the Risk Function and is subject to review and approval. All outputs are peer reviewed within the Risk Function before presentation to the Group Chief Risk Officer. The Full Group ORSA is also reviewed by the Group’s Prudential Compliance function.

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

B.3.6 ORSA process

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

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


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B.4 Internal control system

B.4.1 Internal control system description

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

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

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

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

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

Defined procedures for the approval of major transactions and capital allocation It is the view of the Board that the Group’s internal controls are appropriate to the Group’s needs at this time, including those of its subsidiary companies. Internal controls are kept under review by the Board and its Committees and the Board is committed to maintaining standards of internal controls that are in line with industry practice, the Group’s needs and regulatory regimes, in particular the requirements of the PRA and FCA. Culture The Group aims to have an organisational culture in which its values, and the importance of internal control to manage risks, are understood. Employees are able to speak up if risk exposures or control weaknesses are identified and are encouraged to do so.

The leadership style and management structures prevalent in the Group support the desired organisational culture, backed by appropriate HR policies and reward structures.

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

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

Internal Control Framework The Internal Control Framework comprises controls that are embedded into the Group’s infrastructure and processes. The aim is to use controls that are prudent, appropriate and proportionate to the risks involved. Controls are used to keep risk exposures within agreed risk appetites and are not intended to eliminate risks. The Internal Control Framework has a close relationship with the Risk Operating Model. The Internal Control Framework takes account of risk concentrations and of intra-group transactions and interdependencies. Training and guidance on effective internal controls are available to management. Risk and Control Self-assessment Confirmation of the continued effectiveness of design and operation of internal controls is provided through attestations made by management during its completion and approval of the risk and control self-assessment process on a six monthly basis. The risk and control self-assessment process aims to identify any control weaknesses and failures, together with remedial action planned and taken.

This self-certification process formalises management’s responsibility for the effective design and operation of internal controls and other mitigations put in place with the primary aim of reducing exposure to risk. Management confirms the operation of its controls each month through the risk management system.

As part of the self-assessment process, management consider whether controls are necessary, can be improved and are cost-effective. The results of the risk and control self-assessment process are subject to independent oversight and challenge from the Group Risk function and periodic review by the Group Internal Audit function. Reports summarising the control assessments and highlighting any deficiencies are available to the responsible Executives. Material controls failures and near-misses are analysed so the experience can be used to improve the Internal Control Framework going forward.


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Monitoring, Reporting and Executive Attestation Process Each Executive provides an attestation to the Group CEO twice yearly in respect the Internal Control Framework in his or her area of responsibility.

The attestation confirms the extent to which effective controls have operated to keep material risks within risk appetite. The attestation also confirms whether there has been material compliance with legal and regulatory requirements, codes of conduct, business standards and Group policies, as well as positive behaviours towards standards, risk management and internal control Group Board Oversight The Group Board, its Committees and its subsidiary Boards keep the internal control environment under ongoing review through the reports received from Executives, the control functions and other sources.

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

B.4.2 Roles and responsibilities of the Compliance function

The Compliance function is led by the Group Regulatory and Audit Director. The function: is incorporated into the Group's organisational structure in a way that ensures that it is free from influences

that may compromise its ability to undertake its duties in an objective, fair and independent manner

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

includes a range of employees with relevant experience across the range of activities for which it has oversight who collectively are able to:

o interpret and communicate on regulatory matters o monitor and report on compliance with regulation and the Group’s policies, and o influence the business at all levels

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

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

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

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

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


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B.5 Internal audit function

B.5.1 Internal audit function description

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

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

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

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

GIA will provide on a risk based approach an independent appraisal over the activities of the Group, as defined in the Group Audit Universe. A Risk Based Audit Plan covering twelve months will be produced at the start of each financial year for agreement with the AC. The plan will be reviewed at least quarterly to ensure it remains appropriate; any material changes to the plan will be agreed with the AC. GIA will also produce a three year plan that will ensure each element of the agreed Audit Universe has received an appropriate level of Audit assurance work.

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

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

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

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

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

The Group Regulatory and Audit Director is the Chief Audit Executive (CAE) and is an Approved Person; he has no first line responsibilities but is the accountable Executive for the Compliance function. The CAE reports directly to the Group Chief Executive Officer (CEO) for day to day operational matters, with regular dialogue and reporting to the Chairman of the Audit Committee for Internal Audit matters. Via the Chairman of the Audit Committee, the Board’s Audit Committee will participate in matters relating to the performance evaluation, appointment or removal of the Chief Audit Executive as well as input to the Chief Audit Executive’s annual remuneration terms as set by the Remuneration Committee.

The CAE’s responsibilities include: • Providing Director Level leadership • Developing and setting overall Strategy


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• Setting of the overall direction and links to effective Governance • Providing guidance and challenge to GIA management • Providing the day to day link to the Board The Head of Group Internal Audit reports to the CAE and has a right of access and escalation to the CEO and the Chairman of the Audit Committee. The approach ensures there is a significant competent control and oversight presence for Group Internal Audit at Board and Executive level and ensures functional independence for GIA.

B.5.2 Independence and objectivity of internal audit

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

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

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

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

Within a consultancy engagement the staff member may, as a segregated activity, proactively provide a range of potential solutions for discussion with the business. The type and level of advice provided will vary depending on the nature of the engagement. To avoid the potential for self-review conflicts of interest, any GIA staff member involved in a consulting activity that involves the design and implementation of internal controls will not be part of any assurance team that subsequently audits these business processes.

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

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

B.6 Actuarial function

The responsibility for the Actuarial Function for both JRL and PLACL was allocated to Andrew Chamberlain, Chief Actuary (SIMF 20) from 31 October 2016. Prior to this date, the actuarial function was allocated to Paul Whitlock of Willis Towers Watson for JRL and Andrew Chamberlain for PLACL. Both the Chief Actuary and his Deputy Chief Actuary have currently valid Chief Actuary (Life) Practicing Certificates issued by the Institute and Faculty of Actuary’s (IFoA) certifying that they have appropriate skills and experience to perform the role. The Chief Actuary role is a regulated Senior Insurance Management Function (SIMF20).

Just Group’s Chief Actuary’s department is led by the Chief Actuary who reports functionally to the Group CEO. The Chief Actuary is authorised by the Just Group Board to have full and unrestricted access to such information, records and staff appropriate to delivering its responsibilities. The Chief Actuary will also have full and unrestricted access to the Just Group plc Board, Audit Committee, Investment Committees and Risk & Compliance Committee.

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

• Technical provisions and capital monitoring • Contributing to the effective implementation of the risk-management system


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B.7 Outsourcing

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

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

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

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

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

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

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

Outsourcing arrangements determined to be Material require prior approval of the Group Board and notification to the appropriate Regulator(s). The Executive for the business area considering entering into a third party arrangement or agreement is responsible for deciding whether it may be defined as outsourcing. Group Compliance will determine whether the outsourcing arrangement is Material, including whether it is critical or important to the Group’s operations. The Outsourcing Accountable Executive has the final decision on the nature of the arrangements.

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

B.7.1 Principal outsourced activities As a result of the merger of Just Retirement and Partnership Assurance there has been an increase in the number and range of material outsourced arrangements reflecting the companies’ different operational strategies.

The principal activities that are outsourced are:

Investment Management – outsourced by JRL to service providers in the UK and the Netherlands, and by PLACL to service providers in the UK

Defined benefit (buy out / buy in) policy administration - outsourced by JRL to a service provider in the UK

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

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

B.8 Any other information

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

Just Group plc SFCR Report 31 December 2016

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Chapter C contents

C. Risk Profile ............................................................................................................................................. 41 C.1 Underwriting risk .......................................................................................................................... 43

C.1.1 Nature of material underwriting risks ....................................................................................... 43

C.1.2 Compliance with the 'Prudent Person Principle' for underwriting risk ........................ 43

C.1.3 Underwriting risk concentration .................................................................................................. 43

C.1.4 Underwriting risk mitigation ......................................................................................................... 44

C.1.5 Sensitivity to underwriting risks ................................................................................................... 44

C.2 Market risk ..................................................................................................................................... 44 C.2.1 Nature of material market risks................................................................................................... 44

C.2.2 Compliance with the 'Prudent Person Principle' for market risk .................................... 45

C.2.3 Market risk concentration .............................................................................................................. 45

C.2.4 Market risk mitigation ...................................................................................................................... 46

C.2.5 Sensitivities to market risk ............................................................................................................. 46

C.3 Credit risk ....................................................................................................................................... 46 C.3.1 Nature of material credit risks ...................................................................................................... 46

C.3.2 Compliance with the 'Prudent Person Principle' for credit risk ....................................... 46

C.3.3 Credit risk concentration ................................................................................................................ 47

C.3.4 Credit risk mitigation ........................................................................................................................ 47

C.3.5 Sensitivity to credit risks ................................................................................................................. 47

C.4 Liquidity risk .................................................................................................................................. 47 C.4.1 Nature of material liquidity risks ................................................................................................. 47

C.4.2 Compliance with the “Prudent Person Principle” for liquidity risk ................................. 48

C.4.3 Liquidity risk concentration ........................................................................................................... 48

C.4.4 Liquidity risk mitigation ................................................................................................................... 48

C.4.5 Sensitivity to liquidity risks ............................................................................................................. 49

C.5 Operational risk ............................................................................................................................ 49 C.5.1 Nature of material operational risks .......................................................................................... 49

C.5.2 Compliance with the “Prudent Person Principle” for Operational risk ......................... 50

C.5.3 Operational risk concentration .................................................................................................... 50

C.5.4 Operational risk mitigation ............................................................................................................ 51

C.5.5 Sensitivity to operational risks ..................................................................................................... 51

C.6 Other material risks ..................................................................................................................... 52 C.7 Any other information ................................................................................................................ 52

C.7.1 Sensitivities ........................................................................................................................................... 52

C.7.2 Stress and Scenario analysis ......................................................................................................... 53


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55%

3%

37%

5%

63%

0%

35%

2%

61%

1%

35%

3%

Market Risk

Counterparty Risk

Life underwriting risk

Operational Risk

C. Risk Profile (Unaudited) This chapter provides information on the material risks for the Group, JRL and PLACL, including how those risks are assessed and managed. This chapter looks at the risk profile across the major risk categories as defined by EIOPA:

Underwriting risk

Market risk

Credit Risk

Liquidity risk

Operational risk

The charts below show the composition of the risk categories for Just Group, JRL and PLACL before diversification. JRL’s counterparty default risk is modelled as part of market risk within its internal model. Liquidity is closely managed, but does not result in an explicit allowance within SCR.

Just Group Just Retirement Partnership Limited Life Assurance Company Limited Partial Internal Model Internal Model Standard Formula

Risk identification Risk identification takes place regularly throughout the year carried out as part of normal business processes which includes period review of specific risk topics. Normal business processes include: strategic planning; business planning; ongoing ORSA activities; comparing actual performance against expectations; and, carrying out sensitivity analysis. Other reviews could include reviews of risk appetites to ensure ongoing appropriateness, reviews of specific topics such as risk concentrations or liquidity management, and stressed scenario analysis.

Risk measurement and monitoring Since 1 January 2016, the Group and its regulated subsidiaries have been required to measure and monitor their capital resources on a new regulatory basis and to comply with the requirements established by the Solvency II Framework Directive, as adopted by the Prudential Regulation Authority (PRA) in the UK. The Group and its regulated subsidiaries are required to maintain eligible


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capital, or ‘Own Funds’ in excess of the value of their Solvency Capital Requirements (SCR). The SCR represents the risk capital required to be set aside to absorb 1 in 200 year stress tests of each risk type that the Just Group is exposed to including longevity risk, property risk, credit risk, and interest rate risk.

These risks are all aggregated with appropriate allowance for diversification benefits. The Solvency II regime came into effect on 1 January 2016. The Group has approval to apply the matching adjustment and transitional measures in its calculation of technical provisions and uses a combination of an Internal Model and the Standard Formula to calculate its Group SCR. In December 2015, Just Retirement Group plc and Just Retirement Limited received approval to calculate their Solvency II capital requirements using a full internal model which continued to be used for those parts of the Group at December 2016. The capital requirement for the ex-Partnership business is assessed using the standard formula.

Monitoring the effectiveness of risk mitigation techniques

Risk mitigation techniques are monitored and approved by the appropriate governance committees responsible for oversight of particular risks.

The Group Risk function undertakes an annual assessment, which is presented to the Risk and Compliance Committee, of the effectiveness of the Group’s and business units’ overall risk management and their control environments in mitigating operational risk. The effectiveness of market, credit, underwriting, and liquidity risk management is monitored regularly through reports to the Audit Committee, the Risk and Compliance Committee, the Asset and Liability Committee (ALCO), and the Insurance Committee.

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

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

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

Analysing actual experience against expectations and forecasts which provides a feedback loop to the actuarial and risk control cycles

Reporting on risk mitigation techniques currently in place

Changes to risk profile On 1 April 2016 the merger of Just Retirement and Partnership Assurance became effective, forming JRP Group plc, since renamed Just Group. Although the businesses are similar in nature, there is one key difference currently with regard to risk measurement. The ex-Partnership business’s SCR is measured using the standard formula whereas Just Retirement Limited’s SCR is measured using the Group’s approved internal model.

There were no other material changes to the Group’s risk profile.

Sensitivity analyses

The Group carries out sensitivity testing and stress and scenario analysis in order to understand the sensitivity of the Group’s capital adequacy ratio and risk profile to changes in the underlying risk and correlations between risks. Refer to section C.7.1 for further details.

Prudent Person Principle JRL and PLACL invest in assets and instruments in accordance with the Prudent Person Principle. They manage their investments through the use of policies, risk appetites, mandates, asset liability management, regular reporting, and governance. These ensure that the risks can be properly identified, measured, monitored, managed, controlled, and reported; that funds are invested such that the security, quality, liquidity and profitability of the portfolios as a whole are maintained; and that investments are appropriate to the nature and duration of insurance and reinsurance liabilities.


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Risk concentrations The most significant risk concentrations are in respect of holdings in UK government, European Investment Bank and UK bank fixed interest securities in JRL, and a reinsurance recoverable balance in PLACL. The investment portfolios are well diversified, including a good geographic spread in the LTM portfolios.

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

C.1 Underwriting risk C.1.1 Nature of material underwriting risks The writing of long-term insurance contracts requires a range of assumptions to be made and risk arises from these assumptions being materially inaccurate. The Group’s main insurance risk arises from adverse experience compared with the assumptions used in pricing products and valuing insurance liabilities, and in addition its reinsurance treaties may be terminated, not renewed, or renewed on terms less favourable than those under existing treaties.

Insurance risk arises through exposure to longevity, mortality and morbidity and exposure to factors such as withdrawal levels and management and administration expenses.

Individually underwritten GIfL are priced using assumptions about future longevity that are based on historic experience information, lifestyle and medical factors relevant to individual customers, and judgements about the future development of longevity improvements. In the event of an increase in longevity, the actuarial reserve required to make future payments to customers may increase.

Loans secured by mortgages are used to match some of the liabilities arising from the sale of GIfL and DB business. In the event that early repayments in a given period are higher than anticipated, less interest will have accrued on the mortgages and the amount repayable will be less than assumed at the time of sale. In the event of an increase in longevity, although more interest will have accrued and the amount repayable will be greater than assumed at the time of the sale, the associated cash flows will be received later than had originally been anticipated. In addition, a general increase in longevity would have the effect of increasing the total amount repayable, which would increase the LTV ratio and could increase the risk of failing to be repaid in full as a consequence of the no-negative equity guarantee (NNEG). The NNEG ensures that the mortgage holder does not have a liability to repay more than the value of their house when a property is sold on the event of death or move into long-term care. There is also morbidity risk exposure as the contract ends when the customer moves into long-term care.

C.1.2 Compliance with the 'Prudent Person Principle' for underwriting risk Underwriting risks in the context of the Prudent Person Principle arise on lifetime mortgages (LTMs). The acquisition of LTMs takes place within an approved strategy and business plan. The day to day pricing of LTMs is carried out in accordance with a group pricing framework. The asset liability matching is carried out regularly with updates to forecast. There is regular reporting of LTMs, covering all these activities in addition to reporting the impact on the capital and liquidity position of the Group.

C.1.3 Underwriting risk concentration Concentration of insurance risk comes from improving longevity. Improved longevity arises from enhanced medical treatment and improved life circumstances. Concentration risk is managed by writing business across a wide range of different medical and lifestyle conditions to avoid excessive exposure.


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C.1.4 Underwriting risk mitigation Underpinning the management of underwriting risk are:

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

adherence to approved underwriting requirements;

controls around the development of suitable products and their pricing;

review and approval of assumptions used by the Board;

regular monitoring and analysis of actual experience;

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

monitoring of expense levels.

C.1.5 Sensitivity to underwriting risks See section C.7.1.

C.2 Market risk C.2.1 Nature of material market risks Market risk is the risk of loss or of adverse change in the financial situation resulting, directly or indirectly, from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments, together with the impact of changes in interest rates.

Significant market risk is implicit in the insurance business and arises from exposure to interest rate risk, property risk, inflation risk and currency risk. The Group is not exposed to any equity risk or material currency risk.

Market risk represents both upside and downside impacts but the Group’s policy to manage market risk is to limit downside risk. Falls in the financial markets can reduce the value of pension funds available to purchase Retirement Income products and changes in interest rates can affect the relative attractiveness of Retirement Income products. Changes in the value of the Group’s investment portfolio will also affect the Group’s financial position.

In mitigation, Retirement Income product monies are invested to match the asset and liability cash flows as closely as practicable. In practice it is not possible to eliminate market risk fully as there are inherent uncertainties surrounding many of the assumptions underlying the projected asset and liability cash flows.

For each of the material components of market risk, described in more detail below, the market risk policy sets out the risk appetite and management processes governing how each risk should be measured, managed, monitored and reported.

(i) Interest rate risk

JRL and PLACL, and by consequence the Group as a whole, are exposed to interest rate risk through its impact on the value of, or income from, specific assets, liabilities or both. These companies seek to limit their exposure through appropriate asset and liability matching and hedging strategies.

Exposure to changes in interest rates is concentrated in the investment portfolio, loans secured by mortgages and insurance obligations. Changes in investment and loan values attributable to interest rate changes are mitigated by corresponding and partially offsetting changes in the value of insurance liabilities.

(ii) Property risk

Exposure to property risk within group companies arises from indirect exposure to the UK residential property market through the provision of lifetime mortgages. A substantial decline or sustained underperformance in UK residential property prices, against which the Group’s lifetime mortgages are secured, could result in proceeds on sale being exceeded by the mortgage debt at the date of redemption. Demand may also reduce for lifetime mortgage products through reducing consumers’ propensity to borrow and by reducing the amount they are able to borrow due to reductions in property values and the impact on loan to value limits.


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(iii) Inflation risk

Inflation risk is the risk of fluctuations in the value of, or income from, specific assets or liabilities or both in combination, arising from relative or absolute changes in inflation or in the volatility of inflation.

Exposure to inflation occurs in relation to JRL’s and PLACL’s management expenses and their matching of index-linked Retirement Income products.

(iv) Currency risk

Currency risk arises from fluctuations in the value of, or income from, assets denominated in foreign currencies, from relative or absolute changes in foreign exchange rates or in the volatility of exchange rates.

Exposure to currency risk could arise from the JRL’s and PLACL’s investment in non-sterling denominated assets. From time to time, these companies acquire fixed income securities denominated in US dollars or other foreign currencies for their financial asset portfolios. All material liabilities are in sterling. As neither company wishes to introduce foreign exchange risk into its investment portfolio, derivative or quasi-derivative contracts are entered into to eliminate the foreign exchange exposure as far as possible.

C.2.2 Compliance with the 'Prudent Person Principle' for market risk Market risks arise from the following areas:

Changes in the value of assets and liabilities due to a change in the levels of interest rates.

Changes in the value of assets and liabilities due to a change in the levels of inflation.

Changes in the value of assets due to a change in the levels of property values.

Changes in the value of assets due to a change in the levels of foreign currency exchange rates.

Just Group companies’ exposure to changes in interest rate is primarily concentrated in the bonds, lifetime mortgages, liquidity funds and derivatives. To reduce the interest rate risks, assets are invested such that they closely match the liabilities. For non-matching assets, the duration of the assets are kept low. Gilts, Gilt futures and interest rate swaps are used to mitigate rates risk.

To manage inflation risks, assets are invested to closely match the index-linked nature of the liabilities. A combination of corporate linkers and derivatives such as inflation swaps are transacted to provide inflation coverage.

JRL and PLACL do not have any direct exposure to residential property. However, their lifetime mortgages incorporate a NNEG. To manage this risk, Just Group companies have a maximum LTV requirement when the loan is originated.

Just Group’s foreign currency exchange rate risk arises from JRL and PLACL’s investment in non-Sterling denominated corporate bonds. Derivatives are transacted to hedge the currency and basis

risks.

C.2.3 Market risk concentration JRL and PLACL invest in a wide variety of assets, however the main asset classes are bonds, lifetime mortgages, and gilts. Given the restrictions on assets that can qualify for matching adjustment that would support GIfL and DB business, concentrations of investments are inevitable.

To mitigate this concentration risk, JRL and PLACL invest in a diverse portfolio of bonds across different companies, sectors, and currencies. The companies also invest in a wide geographical spread of lifetime mortgages across a range of ages and property sizes. In addition to this, risk limits are imposed on the maximum concentration across a range of investment criteria.

Risk concentrations are regularly monitored and reported.


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C.2.4 Market risk mitigation Retirement Income product monies are invested to match the asset and liability cash flows as closely as practicable. In practice it is not possible to eliminate market risk fully as there are inherent uncertainties surrounding many of the assumptions underlying the projected asset and liability cash flows.

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

Interest Rate Risk: This exposure is monitored through regular reviews of the asset and liability position, capital modelling, sensitivity testing and scenario analyses. Interest rate risk is also managed using derivative instruments e.g. swaps and swaptions.

Property Risk: The risk is mitigated by ensuring that the advance represents a low proportion of the property’s value at outset and independent third party valuations are undertaken on each property before initial mortgages are advanced. Lifetime mortgage contracts are now monitored through dilapidation reviews. House prices are monitored and the impact of exposure to adverse house prices (both regionally and nationally) is regularly reviewed.

Inflation Risk: Its impact is managed through the application of disciplined cost control over its management expenses and through matching its index-linked assets and index-linked liabilities for the inflation risk associated with its index-linked Retirement Income products.

Currency Risk: Derivative or quasi-derivative contracts are entered into to eliminate the foreign exchange exposure as far as possible.

C.2.5 Sensitivities to market risk See section C.7.1.

C.3 Credit risk C.3.1 Nature of material credit risks Credit risk arises if another party fails to perform its financial obligations to the Group, including failing to perform them in a timely manner.

Credit risk exposures arise from:

Holding fixed income investments where the main risks are default and market risk. The risk of default (where the counterparty fails to pay back the capital and/or interest on a corporate bond) is mitigated by investing only in higher quality or investment grade assets. Market risk is the risk of bond prices falling as a result of concerns over the counterparty, or over the market or economy in which the issuing company operates. This leads to wider spreads (the difference between redemption yields and a risk-free return).

Counterparties in derivative contracts – the Group uses financial instruments to mitigate interest rate and currency risk exposures. It therefore has credit exposure to various counterparties through which it transacts these instruments.

Reinsurance – reinsurance is used to manage longevity risk but, as a consequence, credit risk exposure arises should a reinsurer fail to meet its claim repayment obligations.

Cash balances – credit risk on cash assets is managed by imposing restrictions over the credit ratings of third parties with whom cash is deposited.

Credit risk – credit risks for loans secured by mortgages has been considered within “property risk” above.

C.3.2 Compliance with the 'Prudent Person Principle' for credit risk Credit risks in respect of invested assets arise from the change in the value of assets due to a change in the level of credit spreads over the risk free term structure. This includes credit rating


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downgrades and credit default risks. This does not include the illiquidity premium which can be applied to the discount rate used to value the liabilities and hence be offset.

A well-diversified portfolio of assets is invested to avoid over concentration of credit risks. There is a counterparty limits framework in place to control this.

Just Group only invests in Investment Grade bonds for assets backing liabilities.

The JRL’s and PLACL’s asset managers carry out fundamental analysis on a credit name before investing. Over time, the asset manager carries out regular monitoring exercises to ensure that the credit name does not deteriorate in credit quality. Any credit rating downgrades are also actively monitored.

In the event of a creditworthiness deterioration, the asset manager can recommend to sell the corporate bond. There is also in-house credit analytical expertise whose role it is to consider the asset manager and rating agency views and methodologies.

C.3.3 Credit risk concentration A well-diversified portfolio of assets is invested to avoid over concentration of credit risks. There is a counterparty limits framework in place to control this. Concentration of credit risk exposures is managed by placing limits on exposures to individual counterparties and limits on exposures to credit rating levels. Just Group companies only invest in Investment Grade bonds for assets backing liabilities.

C.3.4 Credit risk mitigation The risk of default on fixed income investments (where the counterparty fails to pay back the capital and/or interest on a corporate bond) is mitigated by investing only in higher quality or investment grade assets. Spread risk is mitigated through the use of a “hold to maturity” strategy.

JRL and PLACL also manage credit risk on their corporate bond portfolios through the appointment of specialist fund managers, who execute diversified investment strategies, investing in investment-grade assets and imposing individual counterparty limits. Current economic and market conditions are closely monitored, as are spreads on the bond portfolio in comparison with benchmark data.

Credit risk on financial instruments used to mitigate risk is managed by the use of collateral arrangements. Group companies hold collateral from their derivative counterparties in the form of cash only, and margin calls are daily based on minimum transfer thresholds.

Credit risk on reinsurance balances is mitigated by the reinsurers depositing back of premiums ceded under the reinsurance agreement, in certain instances more than 100%.

Credit risk on cash assets is managed by imposing restrictions over the credit ratings of third parties with whom cash is deposited.

Credit risks for loans secured by mortgages has been considered within “property risk” above.

C.3.5 Sensitivity to credit risks

See section C.7.1.

C.4 Liquidity risk C.4.1 Nature of material liquidity risks The investment of Retirement Income cash in corporate bonds, gilts and lifetime mortgages, and commitments to pay policyholders and other obligations, requires liquidity risks to be taken.

Liquidity risk is the risk of loss because Group companies, although solvent, either do not have sufficient financial resources available to it in order to meet their obligations as they fall due, or can secure them only at excessive cost.


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Exposure to liquidity risk arises from:

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

realising assets to meet liabilities during stressed market conditions;

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

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

ensuring financial support can be provided across the Group; and

maintaining and servicing collateral requirements arising from the changes in market value of financial derivatives used by the Group.

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

C.4.2 Compliance with the “Prudent Person Principle” for liquidity risk The prudent person principle requires companies to invest in assets and instruments whose risks we can identify, measure, monitor, management, control and report, and take into account in the assessment of our overall solvency needs. Investments have to be made so as to ensure the security, quality, liquidity and profitability of the portfolio as a whole. In addition, companies should not be exposed to excessive concentration risk.

Within Just Group, liquid assets are considered to be composed of cash, cash equivalents such as liquidity funds, and short dated gilts. The majority of public corporate bond holdings, both in the MAP and NMAP, could, if required, be liquidated at short notice. The majority of JR’s cash is invested in several liquidity funds managed by well-known counterparties which have a substantial asset size. These include BlackRock, Goldman Sachs, Royal London and Standard Life. The liquidity funds diversify risk by investing in a portfolio of short dated bank deposits and short dated bonds across a wide range of counterparties. This reduces the concentration risk which would occur if Just Group invested directly with the banks. Cash at bank is kept at a minimum to avoid this risk. The underlying assets in the liquidity funds are of a vanilla nature, and can be valued independently if required. Short duration liquid assets invested under the Royal London mandate are required to be MAP compliant.

C.4.3 Liquidity risk concentration Within Just Group, liquid assets are considered to be composed of cash, cash equivalents such as liquidity funds, and short dated gilts. The majority of public corporate bond holdings, both in the MAP and NMAP, could, if required, be liquidated at short notice. The majority of Just Group’s cash is invested in several liquidity funds managed by well-known counterparties which have a substantial asset size. These include BlackRock, Goldman Sachs, Royal London and Standard Life. The liquidity funds diversify risk by investing in a portfolio of short dated bank deposits and short dated bonds across a wide range of counterparties. This reduces the concentration risk which would occur if Just Group invested directly with the banks. Cash at bank is kept at a minimum to avoid this risk. The underlying assets in the liquidity funds are of a vanilla nature, and can be valued independently if required. Short duration liquid assets invested under the Royal London mandate are required to be MAP compliant.

C.4.4 Liquidity risk mitigation Liquidity risk is managed by ensuring that assets of a suitable maturity and marketability are held to meet liabilities as they fall due. Just Group’s short-term liquidity requirements are predominantly funded by advance Retirement Income premium payments, investment coupon receipts, and bond principal repayments out of which contractual payments need to be made. There are significant barriers for policyholders to withdraw funds that have already been paid to Group companies in the form of premiums. Cash outflows associated with Retirement Income liabilities can be reasonably estimated and liquidity can be arranged to meet this expected outflow through asset-liability matching and new business premiums.


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The cash flow characteristics of the lifetime mortgages are reversed when compared with Retirement Income products, with cash flows effectively representing an advance payment, which is eventually funded by repayment of principal plus accrued interest. Policyholders are able to redeem mortgages, albeit at a cost. The mortgage assets are considered illiquid, as they are not readily saleable due to the uncertainty about their value and the lack of a market in which to trade them.

Cash flow forecasts over the short, medium and long terms are regularly prepared to predict and monitor liquidity levels in line with limits set on the minimum amount of liquid assets required.

C.4.5 Sensitivity to liquidity risks Liquidity stress testing is carried out for both short-term and long-term liquidity. The stress testing is carried out in accordance with Just’s short-term and long-term liquidity policies.

Just Group’s Treasury function works closely with its investment team and asset/liability management team to ensure that Group companies have sufficient liquidity for their immediate, near-term, and long-term needs taking into account potential market movements or short-term adverse business environments. Companies also ensure that they remain within risk appetite.

C.5 Operational risk

C.5.1 Nature of material operational risks During the period of integration since the merger between Just Retirement and Partnership, there has been a heightened exposure to operational risk due to the challenges of bringing two businesses together. Following completion of the consultation period and the new management structure, the overall level of operational risk is now reducing. The level of dependencies between the integration workstreams and other change activities does however increase the likelihood of delays to the overall change programme. A value stream approach to change delivery is being implemented to build on agile capabilities and aid the prioritisation and deployment of change to deliver the greatest value.

Every effort was made during the restructuring to maintain corporate knowledge where there were redundancies by ensuring effective handovers. Loss of knowledge or ineffective handovers could otherwise have resulted in poor decisions in business as usual or in growth or integration initiatives reducing the quality of deliverables.

Cultural differences may persist beyond the completion of integration activity potentially resulting in inconsistent customer experience and/or ineffective execution of the business strategy and plans. A programme is underway to bring all employees together under the new Just brand and a common set of values.

The complexity in capital and solvency management introduced by Solvency II and the Internal Model (notably the relationship between Matching Adjustment and the Internal Model) is exacerbated by the need to develop an Internal Model for the new Group at a stage where Solvency II is still bedding in. In the short to medium term the Group’s solvency capital position requires more effort to assess and understand.

The inception of Just Retirement Money Limited and the establishment of a 3-box model to structure lifetime mortgage cashflows to meet Matching Adjustment requirements has introduced additional steps to Just’s operations, which could be susceptible to error or omission.

The combined Group has a material exposure to underperformance of its third party administration relationships (TPAs). A review of some outsourced relationships has been carried out and adjustments are being made to better serve Just’s customers in the future. During any period of transition between a TPA and Just, there is a heightened risk of underperformance which will be carefully managed.


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The external threat of cyber-crime and increasing sophistication of attacks continues. Exposure to the threat will increase as our online presence is expanded with digital and ecommerce capability. Separate systems across the two legacy organisations increases the challenge of delivery of cyber security controls in a holistic manner for the period in which they remain in place. Our information security is under constant review as the cyber-threats evolve. Due diligence is performed on all partners to ensure that they work to the same high security standards as the Group. We recognise that the speed of change in cyber-threats means that this risk exposure will persist.

The Group’s owned distribution arm has an ambitious growth plan being met through the expansion of existing services and implementation of new propositions. An increase in risk exposure could arise while new internal processes and structures are established and embedded.

The Group has developed and launched both simplified and non-advised distribution models to help address the needs of consumers for whom the costs of full advice may not be appropriate. Customer journeys are regularly reviewed and the experience of customers monitored to ensure that advice given is meeting the needs of its target market. Quality assurance is undertaken on operational and sales activities.

C.5.2 Compliance with the “Prudent Person Principle” for Operational risk The prudent person principle requires companies to invest in assets and instruments whose risk we can identify, measure, monitor, management, control and report, and take into account in the assessment of our overall solvency needs. Investments have to be made so as to ensure the security, quality, liquidity and profitability of the portfolio as a whole. Assets backing liabilities have to be appropriate to the nature and duration of the liabilities. They are also to be invested in the best interest of policyholders. Derivatives must only be used insofar as they reduce risks or to facilitate efficient portfolio management. Assets not trading on regulated financial market are kept to prudent levels. In addition, companies should not be exposed to excessive concentration risk.

Operational risks in respect of invested assets could arise from the following areas:

Failings from people such as external asset managers (e.g. incorrect purchase of assets) and internal teams (e.g. incorrect execution of derivatives)

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

IT infrastructure which includes the systems, controls and processes for assets

Investments made in fraudulent assets Just Group currently only invests in Lifetime mortgages, corporate bonds, CRE Lending,

Infrastructure Loans, gilts and cash.

The asset portfolio activities are managed through the appointment of specialist asset managers. These external managers execute a diversified investment strategy under signed Investment Management Agreements (IMAs). The IMAs clearly set out the investment strategy, the permissible investible universe, various limits such as credit rating and counterparty limits. The external asset managers are only able to invest in permissible assets and instruments defined in the IMAs. Invested assets including the concentration limits are closely monitored by JR’s Investment and Finance Teams. If there are any breaches or non-compliance, the asset managers are required to report the issues to Just Group as soon as possible.

Any investment in new asset classes are subject to detailed internal approval process which includes approvals from the ALCO and the Board Investment Committee. Due diligence on the operational aspects of the new asset class and the new asset manager is carried out prior to investing. New investment processes are agreed by all relevant internal and external parties, and are clearly documented.

C.5.3 Operational risk concentration The majority of Just’s operations are based in Reigate, in buildings in close proximity. This concentration is reduced to an extent through the Group having offices in London which could be used for alternative working in the event of an incident in Reigate.


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C.5.4 Operational risk mitigation Just Group maintains a risk taxonomy including core operational risks. Each core operational risk has been assigned to a risk owner who is responsible for overseeing the management of that risk and the assessment and reporting on risk exposure; this includes key risk indicators and actions in progress (or planned) to reduce risk exposure or to mitigate risk events. Risks are assessed against the Just Group’s standard impact and likelihood risk rating criteria. Core operational risk owners are also responsible for ensuring scenario analysis is undertaken on their core risk, and to consider the results of the analysis in their assessment of the core risk exposure.

In addition owners of core operational risks are required to implement control environments commensurate to the operational risk exposure and record both risks and controls on the Group’s risk management database, reviewing their risk assessments on a quarterly basis. On a monthly basis, controls owners attest to the adequacy of the control environment and are required to implement action plans where control deficiencies are identified. Adequacy and timeliness of action to resolve issues is monitored by the Risk Function and any concerns are escalated to relevant management.

Reports from core operational risk owners are reviewed and challenged in the quarterly Operational Risk Committee chaired by the Group Chief Risk Officer; any risk events that have occurred are also reviewed by the Committee to consider any trends and the adequacy of remedial action. The top operational risk exposures are reported to the Group Risk and Compliance Committee every quarter.

Group policies and procedures define the mandatory standards for the mitigation of business disruption; financial crime; outsourcing; legal risk management; data protection; information security; inside information; conflicts of interest; training & competency; remuneration; insider dealing; health & safety; internal control; regulatory compliance; treating customers fairly; advice standards; suitability letter standards; business change; and strategic and business planning. Policy owners are required to annually attest to the Group’s material adherence to policy requirements.

Material enhancements to the operational risk environment may take the form of a change project or a programme of work, for example, a leadership programme. Progress and the effectiveness of such activity is assessed and monitored via regular risk reporting. For major changes, a Chief Risk Officer’s Report is prepared for the Group Executive Committee and the appropriate Board providing an independent assessment of the risks involved and how they are being managed.

An annual assessment is made on the effectiveness of the Group’s risk management to help guide efforts to further enhance the way in which risks are addressed.

Just Group purchases insurance cover to mitigate the impact of a number of its operational risks should they materialise. The insurance includes employer’s liability and public liability cover for accidents and injury at the Group’s premises; buildings and contents cover, cover for acts of financial crime against the Group and cover for the quality of advice and other professional activities of the Group which may be relied upon by others. The Group is reviewing the purchase of specific cyber-risk cover for the costs incurred should the Group be the victim of a material cyber security incident. This cover is being reviewed in the context of the Group’s digital strategy and the more general, industry-wide move towards customer servicing to online channels.

It is Just Group’s intention that its corporate insurance programme mitigates all conceivable, and insurable, financial impacts of operational risk events.

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

The Group’s core operational risk framework.

Risk control self-assessment (RCSA) data.

Actual operational risk events experienced (internal loss data).


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Loss events experienced by the wider insurance industry.

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

The scenario suite is periodically presented to the Operational Risk Committee for it to consider the completeness of coverage of the potential operational risks.

Workshop analysis is carried out for each material scenario attended by subject matter experts within the Group. Workshop analysis derives an agreed likelihood and potential severity for the risk event being examined. Where appropriate, external data and expertise are used to support this consideration. This information is then used as the basis for capital modelling of the potential financial impact of the risk.

Sensitivity analysis is undertaken on the capital assessment of operational risk scenarios. Sensitivity tests are run on both the aggregate capital requirement and on individual scenario capital requirements.

The tests undertaken include:

increasing and decreasing correlations;

forced selection of mathematical distributions in the model;

adjusting criteria for fitting mathematical distributions or external loss data; and

varying scenario inputs to test the calibration.

C.6 Other material risks None noted.

C.7 Any other information

C.7.1 Sensitivities The Group Solvency II results at 31 December 2016 have been recalculated to show the sensitivity of the results to changes in certain of the assumptions. The Group uses sensitivity analysis to understand the impact of changes to all the individual risks would have on the Group’s solvency coverage ratio. This section describes the sensitivity analysis carried out.

Market Risk

Interest rate environment -50 bps: this sensitivity is modelled as a 50bp 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 -50bp sensitivity the reference rate has a floor of 0%.

20% fall in property values: this sensitivity allows for the change in lifetime mortgage and commercial mortgage asset value arising from an immediate fall of 20% in property prices. For lifetime mortgages, from 30 June 2017 onwards, the sensitivity assumes an additional 10% reduction in 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.


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Credit Risk

The 100bps increase in credit spread assumed that the Fundamental Spread remains unchanged in stress.

Underwriting Risk

10% proportionate change in lapses: this sensitivity is modelled as a change assumptions for both covered business lapse rates and lifetime mortgage voluntary repayment rates. The sensitivity is applied as a proportionate reduction in the rate of withdrawal (e.g. a withdrawal rate of 5.5% becomes 4.95% under the sensitivity). The best estimate liabilities are also changed in this scenario as a result of changing yields on the lifetime mortgages.

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 prudent margins remain unchanged.

Estimated Group Solvency II sensitivities: %

Solvency II capital surplus at 31 December 2016 151%

-50 bps fall in interest rates (no TMTP recalculation) -14%

-50 bps fall in interest rates (with TMTP recalculation) -2%

-20% property values -13%

+100 bps credit spreads +4%

+10% LTM early redemption +1%

-5% longevity -14%

Assumptions and limitations of the sensitivity analysis

No future management actions are modelled following the change to the assumptions and therefore do not take into account post-stress asset/liability matching that would take place.

For each of the sensitivities, all of the other assumptions remain unchanged, unless otherwise stated. Except where explicitly noted, the best estimate basis is changed to reflect the revised assumptions in each sensitivity.

The table of sensitivities below shows the effect of a change in a key assumption while other assumptions remain unchanged. However, in reality, there is a correlation between the assumptions and therefore the stresses should not simply be summed to obtain a combined effect.

The choice of sensitivities are simple stresses that have been disclosed over time to allow for comparison purposes. The sensitivities are not intended to represent any particular probability of occurrence.

C.7.2 Stress and Scenario analysis The Group uses stress and scenario analysis, which includes reverse stress testing, to better understand the robustness of its business plans and balance sheet to all risks represented by real world scenarios. The stress and scenario analysis is carried out as part of the Group’s ORSA process, run-off and recovery planning, and liquidity risk management. A wide range of stress tests and scenarios are considered, including 1-in-X losses consistent with the Group’s risk appetite, in addition to real world scenarios.


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Chapter D contents

D. Valuation for Solvency Purposes .............................................................................................................................. 55 D.1 Assets ............................................................................................................................................................................ 57

D.1.1 Asset valuation as at 31 December 2016..................................................................................................... 57 D.1.2 Valuation for solvency purposes ..................................................................................................................... 57

D.2 Technical Provisions ................................................................................................................................................... 61 D.2.1 Methodology used in the calculation of Technical Provisions ................................................................. 61 D.2.2 Valuation as at 31 December 2016 ............................................................................................................... 61 D.2.3 Differences to statutory IFRS reporting ........................................................................................................ 63 D.2.4 Key assumptions used in calculation of Technical Provisions ................................................................. 63 D.2.5 Level of uncertainty in valuation .................................................................................................................... 64 D.2.6 Long-term guarantee measures .................................................................................................................... 65 D.2.7 Transitional measures ....................................................................................................................................... 65

D.3 Other liabilities ............................................................................................................................................................ 66 D.3.1 Other liabilities valuation as at 31 December 2016 ................................................................................... 66 D.3.2 Valuation for solvency purposes ..................................................................................................................... 67

D.4 Alternative methods for valuation ......................................................................................................................... 68 D.5 Other information ...................................................................................................................................................... 70

D.5.1 Reconciliations to IFRS statutory accounts.................................................................................................. 70


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D. Valuation for Solvency Purposes

This chapter provides narrative information on the valuation of assets, technical provisions and other liabilities for solvency reporting purposes including the solvency valuation bases and the methods and assumptions used by the Just Group.

This section is audited with the exception of the calculation of risk margin in JRL and at Just Group level and Transitional Measures on Technical Provisions (TMTP) in JRL, PLACL and at Just Group level.

The table below shows the valuation of reinsurance recoverables, other assets, technical provisions and other liabilities for the Group as well as JRL and PLACL on a legal entity basis as at 31 December 2016, with comparison to the International Financial Reporting Standards (IFRS) basis. The statutory basis figures in this report are stated after solvency reporting reclassifications for investment products, deposits, the FPP unit-linked product and the JRL reinsurance deficit account to the Solvency II reporting balance sheet format. Reconciliations of the statutory basis to the IFRS Report and accounts for each company are provided in Section D.5.

These figures are analysed further in the following sections.

Just Group plc



Limited

Solvency

Basis Statutory

Basis Solvency

Basis Statutory

Basis Solvency

Basis Statutory

Basis

£m £m £m £m £m £m

Reinsurance recoverables (D1) 6,160.5 6,057.1 2,692.1 2,724.0 3,468.5 3,333.1

Other Assets (D1) 17,583.4 17,818.1 11,511.7 11,511.7 5,791.7 5,779.3

Total assets 23,743.9 23,875.2 14,203.8 14,235.7 9,260.2 9,112.4

Technical provisions (D2) 15,808.8 16,003.9 9,836.4 10,302.2 5,972.4 5,665.2

Other liabilities (D3) 6,192.5 6,260.7 3,295.4 3,215.0 2,887.1 2,972.5

Total liabilities 22,001.3 22,264.6 13,131.8 13,517.2 8,859.5 8,637.7

Excess of Assets over liabilities 1,742.6 1,610.6 1,072.0 718.5 400.7 474.7

Key aspects of the preparation of the Solvency II balance sheet that apply to assets and liabilities are as follows: Valuation Assets and liabilities under Solvency II are valued in accordance with the Group’s accounting policies under IFRS as adopted by the European Union (“EU”), unless stated otherwise in sections D.1 ‘Assets’, D.2 ‘Technical provisions’ and D.3 ‘Other liabilities’. The effects of these valuation differences are at Just Group level £132.0m, in JRL £353.5m, and in PLACL £(74.0)m.

The valuation for solvency purposes of the Group's assets, technical provisions and other liabilities are consistent with those used by its subsidiaries.

A summary of the Group’s IFRS accounting policies can be found in the accounting policies note of the Group’s 2016 financial statements. Reclassification of PLACL reinsurance deposit back liability In this Report, the Directors have reclassified £83.4m of a financial liability in PLACL’s IFRS accounts as an adjustment to reinsurance recoverable. The financial liability is in respect of reinsurance premiums deposited back and accounted for in their entirety as a financial liability in the IFRS accounts. The value of the financial liability reclassified is equivalent to the value of the adjustment to reinsurance recoverable, and the impact of the reclassification on the overall financial position of the firm is considered by the Directors to be immaterial.


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Going concern The Directors have considered the key assumptions underlying the preparation of accounts on a going concern basis, including the results of sensitivity analysis and possible management actions, the company’s latest business plan and consequences for projections of cash flow, liquidity and regulatory solvency. Their assessment concluded that it remains appropriate to value assets and liabilities on the assumption that there are adequate resources to continue in business and meet obligations as they fall due for the foreseeable future. Accordingly, the going concern basis has been adopted in the valuation of assets and liabilities.

Method of consolidation The Group Solvency II balance sheet has been prepared using the default accounting consolidation method (‘method 1’). This differs to the methods applied under IFRS for the Group consolidated financial statements as noted in the table below. All of the principal subsidiaries of the Group are 100% held.

Type of undertaking Solvency II Group balance sheet IFRS Group balance sheet

Insurance undertakings, insurance holding companies and ancillary service companies

Full consolidation Full consolidation

Other financial sectors Own funds according to relevant sectoral rules, with value included in ‘Participations’ line of balance sheet

Full consolidation

Other, including related undertakings

Valued according to Solvency II rules and included in ‘Participations’ line of balance sheet

Full consolidation if entity is controlled by Just, otherwise equity accounted in a single line in IFRS balance sheet

Just Retirement South Africa Excluded from consolidation Full consolidation

Entities have been deconsolidated and reported as participations where material, with the result that intra-group transactions with the equity-accounted participations of value £402m are recognised and investments totalling £402m derecognised.

Just Group has a waiver reference 967471 dated 9 December 2016 from the PRA to exclude Just Retirement South Africa (JRSA) from the scope of its regulatory reporting as this company has been deemed to be of negligible

interest with respect to the objectives of group supervision. JRSA’s IFRS net assets of £2.4m as at 31 December 2016 have therefore been excluded from the scope of the Solvency II balance sheet and supporting analyses within this report.


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D.1 Assets

D.1.1 Asset valuation as at 31 December 2016

The table below shows the composition of assets of the Group as well as in the JRL and PLACL legal entity balance sheets as at 31 December 2016 presented on the Solvency II reporting basis, with statutory reporting valuation bases presented alongside for comparison purposes. The IFRS statutory accounts values are presented after reclassification to the solvency reporting format, but before any valuation adjustments. Reconciliations of the IFRS statutory basis to the IFRS Report and accounts for each company are provided in Section D.5.

Just Group plc Just Retirement Limited


Limited

Solvency

Basis Statutory

Basis Solvency

Basis Statutory

Basis Solvency

Basis Statutory

Basis

£m £m £m £m £m £m

Goodwill - 33.1 - - - 1.3

Intangible assets - 183.9 - - - 1.0

Deferred tax assets - 10.3 - - 14.7 -

Property, plant & equipment 17.0 17.0 9.4 9.4 - -

Participations 0.3 0.3 - - - -

Bonds 9,390.6 9,390.6 5,794.0 5,794.0 3,570.3 3,570.3

Collective investment undertakings

538.4 543.7 186.4 186.4 164.4 164.4

Derivatives 107.0 107.0 55.5 55.5 26.7 26.7

Deposits other than cash equivalents

71.0 71.0 52.3 52.3 - -

Assets held for index-linked and unit-linked funds

29.7 29.7 29.7 29.7 - -

Loans & mortgages 6,782.9 6,786.7 4,825.7 4,825.7 1,959.4 1,959.4

Reinsurance recoverables 6,160.5 6,057.1 2,692.1 2,724.0 3,468.5 3,333.1

Insurance & intermediaries receivables

114.0 114.0 109.1 109.1 4.4 4.4

Reinsurance receivables 13.7 13.7 - - 13.7 13.7

Receivables (trade, not insurance)

433.2 433.1 409.1 409.1 3.0 3.0

Own shares (held directly) 1.6 - - - - -

Cash and cash equivalents 84.0 84.0 40.5 40.5 35.1 35.1

Total assets 23,743.9 23,875.2 14,203.8 14,235.7 9,260.2 9,112.4

D.1.2 Valuation for solvency purposes

Assets have been valued according to the requirements of the Solvency II Directive and related guidance, which requires that assets are recognised at the value that they could be exchanged between knowledgeable parties in an arm’s length transaction. For the most part, measurement of assets under Solvency II is consistent with the IFRS valuations used in the statutory accounts. The most significant differences are:

• Valuation of goodwill and intangibles • Valuation of reinsurance recoverables • Classification of deposits

Extensive use of market data and alternative valuation methodologies are applied for the purpose of valuation of financial assets, similar to their treatment for IFRS reporting purposes. Individual assets and liabilities are valued separately in accordance with Article 9 (5) and (6) of the Delegated Regulation (EU 2015/35).


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Solvency II valuation policies relevant to the Group are as follows:

Goodwill Goodwill is valued at nil for Solvency II purposes in accordance with Article 12 of the Solvency II Delegated Regulation.

The IFRS valuation recognises the excess of the costs of the acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary and represents the future economic benefit arising from acquired assets that are not capable of being individually identified and valued. Goodwill is not amortised, but assessed for impairment annually or when circumstances or events indicate there may be uncertainty over its carrying value.

Intangible assets For Solvency II purposes, intangible assets that can be sold separately in an active market are valued at realisable value less sale costs. An active market for this purpose is one where prices can be observed. All other intangible assets are valued at nil value.

The Group holds PVIF (Purchased Value of In-force business), distribution network, intellectual property, and software intangible assets, none of which are attributed any value under Solvency II reporting as they considered to be a non-separable assets.

Under IFRS, intangible assets are recognised if it is probable that the relevant future economic benefits attributable to the assets will flow to the Company, and are recognised at cost less accumulated amortisation and any impairment. Intangible assets are amortised on a straight-line basis over their useful lives.

Property, Plant and equipment JRL holds only a property asset which it acquired in late 2015 which is held for own use. The intention is that this property will be regularly revalued for IFRS reporting purposes, providing a fair value also appropriate for Solvency II reporting purposes.

Other plant and equipment held by Just Group includes computer equipment, furniture and fittings for which the replacement cost is considered to be similar to its depreciated cost valuation under IFRS.

Participations The Solvency II value represents the Just Group’s and JRL’s shares of the net assets of material non-insurance operations deconsolidated under Solvency II as noted above, and of all associated undertakings.

Under IFRS, all entities that are controlled by the Group are consolidated in the Just Group accounts, and only associated undertakings are reported on this line.

Financial investments - Bonds, Investment funds and Derivatives All financial investments are measured at fair value for both Solvency II and IFRS purposes. Consistent with IFRS reporting, Just uses alternative valuation methods in accordance with Article 10 of the Delegated Regulation where values are not readily available. Further information on financial investments valued using an alternative method to either a quoted market price or a quoted market price for a similar asset is included in section D.4.

The difference between the IFRS and Solvency II investment fund values in Just Group is due to the removal of JRSA from the scope of Solvency II reporting.

Deposits and Cash equivalents Deposits are classified on the Solvency II balance sheet according to Annex II of the Implementing Technical Standard (EU 2015/2450): • Deposits held within UCITS are reported within Collective Investments Undertakings. • Deposits that cannot be used to make payments until before a specific maturity date are classified as deposits. • Deposits exchangeable for cash on demand without penalty or restriction are classified as cash equivalents. There are no differences in valuation compared with IFRS, however there is a difference in presentation as IFRS applies a three month term beyond which balances are treated as deposits, unless that are immediately callable, in which case they are treated as cash.


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Loans and mortgages The valuation of loans and mortgages is consistent with IFRS reporting. As a trading market for Lifetime Mortgages (LTM’s) does not exist, the value of the residential mortgage portfolio is calculated by marking to model. The value of the cash flows for each individual mortgage has been calculated using a discount rate equivalent to the risk-free rate based on the swap curve plus a liquidity premium adjustment. The liquidity premium adjustment is calculated separately for each mortgage at the date of the initial advance for that mortgage in JRL, and by suitable cohort in PLACL.

Under the terms of the lifetime mortgages (LTM), a guarantee is provided that when a property is sold on the event of death or move into long-term care and the mortgage repaid, the amount repayable will be capped at the sale value of the underlying property after deducting reasonable costs of selling the property. The value of the ‘No Negative Equity Guarantee’ (NNEG) has been calculated using a variant of the Black-Scholes option pricing formula in which an explicit house price growth assumption is used together with the last known value placed on the property by an independent third party surveyor.

The fair value of loans secured by commercial mortgages is initially deemed to be the transaction price and subsequently marked to model. The valuation model produces a series of projected future cash flows for each mortgage, based on a range of simulations of changes in property prices drawn from a distribution based on historical observed changes. Potential changes in property tenancy are also modelled in a range of simulations. The discount rates that are applied to cash flows to produce the fair values are based on long-dated swaps adjusted so that they would produce transaction date prices on the date of the transaction.

The difference between the IFRS and Solvency II values in Just Group is due to the deconsolidation of JRSA.

Reinsurance recoverables The amounts recoverable from reinsurance arrangements are calculated as the sum of the present value of the expected recoverable cash flows.

The present value of the expected recoverable cash flows is calculated using the same cash flows, methodology, assumptions and discount rate used to derive the Best Estimate Liability of the cash flows that are reinsured, as explained in Section D.2 below.

Recoverable amounts for financial reinsurance in JRL are limited to the value of reinsurance deposit for both Solvency II and IFRS reporting, as it is anticipated that all underwriting years will be recaptured at some point. In the event of underwriting years being recaptured, the reinsurance deposit and recoverable are effectively netted off.

The Group also holds a number of reinsurance swaps as protection against adverse deviation in longevity. The financial terms of these swaps are based on the experience of the JRL portfolio, rather than the population as a whole, and consequently it is not appropriate to treat these swaps as derivatives.

Under Solvency II the reinsurance recoverable includes an adjustment to allow for the risk of reinsurance counterparty default using the methodology prescribed by the regulations.

Insurance and other receivables Insurance receivables are specified in Annex II of the Implementing Technical Standard as “Amounts past-due for payment by policyholders, insurers, and other linked to insurance business, that are not included in cash-in flows of technical provisions.” Material insurance prepayments and receivables that are not overdue are therefore not included in the insurance receivables line, and are instead adjusted against the best estimate cash flow projections.

Insurance receivables in the IFRS balance sheet reflect all amounts due, whether overdue or not.

Own shares (held directly) Just Group plc shares held by the Group itself are presented as an asset on the Solvency II balance sheet and are removed in the calculation of own funds.

Own shares are deducted from share capital for IFRS reporting purposes.


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D.2 Technical Provisions

The calculation of Risk Margin in JRL and at Just Group level and Transitional Measures on Technical Provisions (TMTP) in JRL, PLACL and at Just Group level are unaudited.

D.2.1 Methodology used in the calculation of Technical Provisions

General Methodology Under Solvency II, the Technical Provisions gross of reinsurance are the sum of the Best Estimate Liability (BEL) and Risk Margin (RM). Transitional Measures can be used to reduce the calculated Solvency II Technical Provisions. Best Estimate Liabilities Best Estimate Liabilities are calculated by projecting expected future benefit outgoings (e.g. annuity payments), premium income and the costs of maintaining the contracts. These cash flows are discounted to take into account the time value of money. The relevant discount rate is discussed further below.

The nature of insurance business means that the timing and in some cases, the amount of future insurance cash flows paid to policyholders is uncertain. To allow for this uncertainty, assumptions are made using actuarial judgement where appropriate. Risk Margin The Risk Margin is calculated using the assumptions and methodology prescribed by the regulations.

The regulations require an SCR for each future year to be calculated for non-hedgeable risks. For some simple Standard Formula SCRs – e.g. Longevity and Operational Risk, the future SCR can be calculated directly. For the other risks, a Risk Driver approach is used to project the non-hedgeable SCR in each future year. The non-hedgeable SCR used in the risk margin calculation includes expense and counterparty risks.

D.2.2 Valuation as at 31 December 2016

A breakdown of Solvency II Technical Provisions is summarised in the table below.

Just Group plc



Limited

Solvency

Basis Statutory

Basis Solvency

Basis Statutory

Basis Solvency

Basis Statutory

Basis

£m £m £m £m £m £m

Gross Best Estimate 16,164.9 10,195.3 5,969.6

Risk Margin 951.0 685.0 266.0

TMTP (1,336.6) (1,073.4) (263.2)

Technical provisions – Other life 15,779.3 15,974.4 9,806.9 10,272.7 5,972.4 5,665.2 Technical provisions – Index-linked and unit-linked 29.5 29.5 29.5 29.5 - -

Technical provisions – Total gross 15,808.8 16,003.9 9,836.4 10,302.2 5,972.4 5,665.2

Reinsurance recoverable 6,160.5 6,057.1 2,692.1 2,724.0 3,468.5 3,333.1

Technical provisions – Net of reinsurance 9,648.3 9,946.8 7,144.3 7,578.2 2,503.9 2,332.1

The Group has two lines of business under Solvency II:

• 'Other life', in which all of the Company's principal products are reported • 'Index-linked and Unit-linked' within which the Flexible Pension Plan (FPP) product is reported, representing less

than 0.5% of the total


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A significant part of the exposure to reinsurers is mitigated by the deposit back terms of certain reinsurance treaties. To consider the net exposure, the reinsurance recoverable asset should be considered alongside the deposits due from reinsurers described in section D.3.

The Risk Margin and Transitional Measure on Technical Provisions (TMTP) are both entirely allocated to the 'Other life' line of business as the FPP product's Technical Provisions were unaffected by the transition to Solvency II.

The “Other Life Insurance” includes: Guaranteed Income for Life (GIfL) These are non-profit individually enhanced pension annuities from premiums in respect of occupational or personal pension funds, written on either a single life or joint life last survivor basis, which provide a level series of payments throughout the life of the annuitant(s), reducing where appropriate on the death of the first life, or incorporate a provision for payments to increase annually at a guaranteed rate. The annuity may incorporate a guaranteed period of payment.

Defined Benefit Schemes This business is similar to regular annuity, except that each scheme contains a number of individual policyholders. There are two propositions, a “buy-in”, where in return for the payment of a single premium, pension scheme trustees buy a bulk purchase annuity insurance policy which provides pension benefit payments for identified scheme members and their qualifying beneficiaries. In the “bulk buy-out” proposition the scheme of trustees secure member benefits by purchasing, in bulk, many individual annuity policies in the names of the individual scheme members. Care Plans This product is similar to a regular annuity, but will contribute to the costs of providing immediate nursing care for clients. In return for a single premium, the income payable directly to the care provider(s), for life in order to cover care costs. The product also includes a “payment protection” option whereby the income paid by the policy can be set to be no less than a guaranteed minimum amount. Fixed Term Annuity (FTA) This is a non-profit single premium pension plan written under the capped drawdown rules. The plan provides a lump sum that is payable if the insured life survives to the end of the fixed term. An income selectable at outset is payable throughout the plan term while the insured life is alive. The life insured may elect to include additional death benefit at outset including a guaranteed period, dependant’s annuity or value protection on the annuity. Term Assurance and Whole of Life Protection These are non-profit whole of life or fixed term assurances, written on a single life or joint life first death basis. The benefit is a single lump sum payable on death. 'Index-linked and Unit-linked' includes: Flexible Pension Plan (FPP) The Flexible Pension Plan is an income drawdown product. FPP is a unitised product which allows investment in a number of underlying funds. Policies are sold on a single life basis and can be passed on to a dependant on death. The policyholder has the ability to withdraw part/all of those funds as and when required. The product was launched in May 2015. In form S.12, there is also a split of the lines of business, into “contracts with options and guarantees” and “contracts without options and guarantees”. Here the guarantee refers to a financial guarantee rather than an insurance guarantee. For JRL and PLACL we define contracts with options and guarantees to be any inflation linked contract.


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D.2.3 Differences to statutory IFRS reporting The Solvency II liabilities differ from the liabilities reported in the (IFRS) financial statements for several reasons including:

Under Solvency II, Technical Provisions include a Risk Margin. IFRS liabilities do not include this Risk Margin.

Solvency II Technical Provisions are reduced by the TMTP.

The assumptions used to derive expected future cash flows and discount rate are different under IFRS and Solvency II.

There are certain regulatory restrictions over the assets that can be used to back liabilities discounted at rates inclusive of the Matching Adjustment under Solvency II.

At Just Group level, the deconsolidation of JRSA.

D.2.4 Key assumptions used in calculation of Technical Provisions The key assumptions used in the calculation of Technical Provisions are the current rates of mortality for annuitants and future improvements in mortality. Longevity Assumptions Mortality assumptions have been set by reference to appropriate standard mortality tables. These tables have been adjusted to reflect the future mortality experience of the policyholders, taking into account the medical and lifestyle evidence collected during the underwriting process, premium size, gender and the Group’s assessment of how this experience will develop in the future. The assessment takes into consideration relevant industry and population studies, published research materials, input from the Group’s lead reinsurer and management’s own industry experience. The standard tables which underpin the mortality assumptions are summarised in the table below.

Product Group Assumption

Individually underwritten Guaranteed Income for Life Solutions (JRL)

Modified PCMA/PCFA00, with CMI model mortality improvements

Individually underwritten Guaranteed Income for Life Solutions (PLACL)

Modified E&W Population mortality, with CMI model mortality improvements

Defined Benefit (JRL)

Reinsurer supplied tables underpinned by the Self-Administered Pension Scheme (SAPS) S1 tables, with CMI model mortality improvements

Defined Benefit (PLACL) Modified E&W Population mortality, with CMI model mortality improvements

Other annuity products (PLACL) Modified PCMA/PCFA bespoke improvements

Term and whole of life products (PLACL) TM/TF00 Select

Expenses Assumptions for future costs of maintaining policies are set with reference to analysis of the existing expense base and actual fees payable under the contracts for those services outsourced. The assumptions cover both the direct and indirect costs of maintaining policies. The assumed future policy expense levels incorporate a best estimate annual inflation rate allowance of 4.3% derived from the expected retail price index implied by inflation swap rates and an additional allowance for earnings inflation.


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Discount rates In order to calculate Best Estimate Liabilities, cash flows are discounted to take into account the time value of money.

Under Solvency II, the relevant discount rate is comprised of: • A basic risk-free interest rate term structure, provided by the European Insurance and Occupational Pensions

Authority (EIOPA), plus • A flat adjustment to that rate, where approved by the PRA for either the Matching Adjustment or the Volatility

Adjustment. The two types of flat adjustment, sometimes referred to as “long-term guarantees”, for which approval has been obtained are Matching Adjustment and Volatility Adjustment:

Matching Adjustment (MA) Volatility Adjustment (VA)

JRL Written notice 2201079 on 7 November 2015 n/a

PLACL Written notice 2200601 on 24 December 2015* Written notice 2200623 on 11 March 2016

*the written notice is dated 7 November 2015 and gives conditional approval, subject to certain conditions being met. The PRA confirmed they were satisfied that those conditions had been met on 24 December 2015.

Further explanation is given in section D.2.6 below.

D.2.5 Level of uncertainty in valuation Set out below are the main areas of uncertainty over the calculation of liabilities.

Life Insurance Technical Provisions The best estimate liability corresponds to the probability-weighted average of future cash flows, taking account of the time value of money using the relevant risk-free interest rate term structure. They reflect estimates of how markets and the business might behave in the future given policyholder data, cash flow models and a set of assumptions.

All estimates are based on management’s knowledge of current facts and circumstances; assumptions based on that knowledge; and their predictions of future events and actions. Actual results may differ from those estimates, possibly significantly. Fluctuation in the amount and/or timing of claims events is considered particularly susceptible to valuation uncertainty, e.g. when estimating the length of time for which an annuity will be paid which requires a projection of annuitant mortality rates in excess of 20 years into the future which cannot be done with certainty.

The best estimate liability assumptions are governed by a rigorous process, underpinned by actuarial judgement and peer review. The scope of assumption review papers includes considering the degree of uncertainty inherent in the assumptions being reviewed.

Data governance and model governance standards are in place, which help to ensure that the cash flow models used to calculate technical provisions, and the data which is used within that calculation, are fit for purpose and are managed under appropriate change control processes.

Regulatory compliance The Company has compliance resources to respond to regulatory enquiries in a constructive way, and take corrective action when warranted. However, all regulated financial services companies face the risk that their regulator could find that they have failed to comply with applicable regulations or have not undertaken corrective action as required.

The impact of any such finding could have a negative impact on the Company’s reported results.


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D.2.6 Long-term guarantee measures The long-term guarantee and transitional measures are a component of the Solvency II rules and regulations, which require specific approval, so that firms for which it is appropriate to use these components can do so.

For example, for firms that sell annuity business where the liability cash flows are illiquid, it is well-established practice to invest in assets with illiquid characteristics since they are a good match for the illiquid liabilities and set a discount rate which reflects this illiquidity. Under Solvency II, the Matching Adjustment is the mechanism for doing this.

To obtain approval to use the MA, JRL and PLACL had to provide details to the PRA of the features of the assets and liabilities and operational structure that would be used to manage the portfolios. Once approval has been obtained from the PRA, it can only be withdrawn in specific circumstances where, for example, a firm breaches the conditions of the approval.

The conditions for approval of the TMTP primarily related to demonstrating that the calculation would be carried out appropriately and that as the TMTP runs-off in future, the firm is expected to have sufficient capital to cover its SCR as the TMTP runs-off in future. JRL and PLACL were able to satisfy both of these requirements.

Firms are required to show the impact of removing each of these long-term guarantee and transitional measures and this is shown in form s.22.01.

Matching Adjustment The Matching Adjustment (MA) is defined under Regulation 42 of the Solvency II Regulations (Article 77b of the Solvency II Directive).

It is a single flat addition, which can be applied to the basic risk-free interest rate term structure. The MA is applied to all material annuity business within the Group. The MA is based on the yield on the portfolio of assets that have been chosen to replicate the liability cash flows. An adjustment is made to allow for the risk of default and downgrade, based on inputs provided by EIOPA.

The assigned assets consist primarily of GBP denominated corporate bonds, government bonds, Lifetime Mortgages Notes, derivatives and cash. Lifetime Mortgages Notes are structured assets that JRL constructs from Lifetime Mortgages and which are eligible for Matching Adjustment purposes. A smaller volume of corporate bonds denominated in foreign currencies are held alongside derivatives (cross currency swaps) which transform the cash flows back to GBP. Inflation swaps are held to replicate the cash flows of insurance obligations that are linked to inflation.

PLACL does not include lifetime mortgages in its Matching Adjustment.

Volatility Adjustment The Volatility Adjustment is a flat adjustment to the basic risk-free interest rate term structure. It is provided by EIOPA and can be used where approval has been obtained from the PRA.

JRL has not applied to use the VA for its insurance or reinsurance obligations.

PLACL has approval to use the VA for certain insurance and reinsurance obligations. It has been used for a small number of policies at 31 December 2016.

D.2.7 Transitional measures

The Solvency II Regulations allow two alternative types of transitional relief:

Risk-free interest rate term-structure transitional measure

The Group has not applied to use the risk-free interest rate-term structure transitional measure.

Transitional Measures on Technical Provisions The Transitional Measures on Technical Provisions (TMTP), referred to in Article 308d of the Solvency II Directive and Regulation 54 of the Solvency 2 Regulations has been used by the company to phase in the impact of moving from Solvency I to Solvency II for business written under the Solvency I regime. It reflects differences between the


66

value of the Solvency I and Solvency II Technical Provisions. This includes most significantly the introduction of the Risk Margin under Solvency II.

JRL and PLACL obtained approval under written notices (2201404 and 11072 respectively) dated 22 December 2015 to use the TMTP.

The TMTP was calculated in line with these Regulations as at 31 December 2015. Approval was then obtained for JRL and PLACL, under written notices (2794519 and 2794559 respectively), dated 19 August 2016, to recalculate the TMTP as at 30 June 2016 to allow for changes in economic conditions in the period to 30 June 2016.

The TMTP reported at 31 December 2016 has been reduced from the TMTP recalculated using 30 June 2016 economic factors to reflect the amortisation required by condition 1 of Regulation 54. This condition requires the TMTP to be reduced by 1/16th of its original value (i.e. the value as at 1 January 2016), by January 1st of each following year. For simplicity and consistency with the solvency ratio disclosed in the financial statements, we have applied this amortisation on 31 December 2016, one day earlier than required.

In some of the forms (notably the s.12), the TMTP needs to be allocated across BEL and Risk Margin. The approach taken by the Group is to allocate to Risk Margin (in respect of business written before 31 December 2015 and thus subject to the TMTP) first, with any remaining TMTP to the BEL for the line of business “Other Life Insurance”.

D.3 Other liabilities

D.3.1 Other liabilities valuation as at 31 December 2016 The table below shows the composition of non-technical liabilities (Technical Provisions are considered in section D.2) in the legal entity balance sheets as at 31 December 2016. Figures are presented on the solvency reporting basis, with statutory reporting valuation bases presented alongside for comparison purposes. The statutory accounts values are presented after reclassification to the solvency reporting format, but before any valuation adjustments. Reconciliations of the statutory basis to the IFRS Report and accounts for each company are provided in Section D.5.

Just Group plc Just Retirement

Limited


Limited

Solvency

Basis Statutory

Basis Solvency

Basis Statutory

Basis Solvency

Basis Statutory

Basis

£m £m £m £m £m £m

Provisions other than technical provisions 3.0 3.0 0.5 0.5 - -

Deposits from reinsurers 5,350.0 5,433.5 2,692.3 2,692.3 2,657.7 2,741.1

Deferred tax liabilities 55.9 46.4 75.2 12.7 - - Derivatives 189.3 189.3 80.3 80.3 67.5 67.5

Debts owed to credit institutions 76.1 76.1 45.7 45.7 30.4 30.4 Insurance & intermediaries payables 4.4 4.4 - - 4.2 4.2

Reinsurance payables 9.0 9.0 6.0 6.0 3.0 3.0

Payables (trade, not insurance) 144.2 144.4 73.4 73.4 18.9 18.9

Subordinated liabilities 360.6 354.6 322.0 304.1 105.4 107.4

Total liabilities (excluding Technical Provisions) 6,192.5 6,260.7 3,295.4 3,215.0 2,887.1 2,972.5

Total liabilities (including Technical Provisions) 22,001.3 22,264.6 13,131.8 13,517.2 8,859.5 8,637.7


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D.3.2 Valuation for solvency purposes The solvency II valuation policies relevant to the Group are as follows:

Contingent liabilities For Solvency II reporting, the Group’s policy is to consider whether any material contingent liability exists. For any contingent liability that does exist, risk weighted outcomes are applied to the set of values of the potential liability to derive a single liability valuation for inclusion in the solvency reporting balance sheet.

Contingent liabilities are only reported on the IFRS balance sheet if they are probable and material in size. Where the event is less than probable, the item is disclosed within narrative.

At 31 December 2016 there were no material contingent liabilities.

Deposits from reinsurers The Just Group balance sheet includes liabilities in respect of amounts payable to reinsurers through reinsurance deposit back arrangements.

These cash flows are fixed at outset and valued in accordance with the terms of the agreement, where this is specified, and where there is provision for netting of the reinsurance recoverable against the deposit in the event that an underwriting year is recaptured.

The ex-Just Retirement finance reinsurance treaties have these provisions. It should be noted that the reinsurance recoverable amount is capped at the value of the deposit anticipating that underwriting years will eventually be recaptured.

Within PLACL, as noted above, £83.4m of reinsurance premiums deposited back valued under IAS39 for IFRS reporting purposes has been reclassified as an adjustment to reinsurance recoverable.

In addition to the deposits received from reinsurers recognised on the Solvency II balance sheet, certain reinsurance arrangements give rise to deposits from reinsurers that are not included as described below:

• PLACL has an agreement with two reinsurers whereby financial assets arising from the payment of reinsurance premiums, less the repayment of claims, in relation to specific treaties, are legally and physically deposited back. Although the funds are managed by PLACL (as it controls the investment of the asset), no future benefits accrue to PLACL as any returns on the deposits are paid to reinsurers. Consequently the deposits are not recognised as assets of PLACL and the investment income they produce does not accrue to PLACL. The value at 31 December 2016 was £235.6m.

• PLACL also has an agreement with one reinsurer whereby assets equal to the reinsurer’s full obligation under the treaty are deposited into a ring-fenced collateral account. PLACL has first claim over these assets should the reinsurer default, but as PLACL has no control over these funds and does not accrue any future benefit, this fund is not recognised as an asset of PLACL. The value at 31 December 2016 was £296.9m.

Deferred tax liabilities Provision is made for deferred tax liabilities and credit taken for deferred tax assets using the liability method on all material temporary differences between the tax bases of assets and liabilities and their carrying amounts in the Solvency II and IFRS balance sheets. The principal temporary differences arise from the revaluation of certain financial assets and liabilities, including technical provisions, amortisation of intangible assets and other insurance items and tax losses carried forward. In accordance with IAS 12 (paragraph 55), temporary differences are determined by reference to the carrying amount of an asset or liability. This applies even where that carrying amount is itself determined on a discounted basis.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on tax rates/laws that have been enacted or substantively enacted by the end of the reporting period. The measurement reflects the Group's expectations, at the end of the reporting period, as to the manner in which the carrying amount of its assets and liabilities will be recovered or settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profits, assessed based on forecast future corporate tax returns, will be available against which the temporary differences can be utilised. Sources of future profits may include future new business based on annual plan data and other projections and potential offset with deferred tax liabilities.


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Valuation uncertainty in deferred tax balances exists to the extent that there is uncertainty within the pre-tax technical provisions IFRS to Solvency II reconciliation items.

Derivative liabilities Derivative liabilities are valued on an equivalent basis to derivative assets as described in section D.1.2 above. Debts owed to credit institutions For Solvency II, loans and borrowings are recognised at fair value, net of transaction costs. No adjustment is made for changes in the value of own credit risk.

IFRS reporting is at amortised cost with no difference in value to solvency reporting as the interest payments on the loans are at floating rate.

Other Financial liabilities including subordinated debt All financial liabilities, including subordinated debt, are held at fair value in the Solvency II balance sheet. The subordinated debt is adjusted to be included as capital in Own funds.

The fair value of issued debt is marked-to-model based on a current market premium for UK insurance entities based on a basket of listed corporate bonds and a company specific premium fixed at the time of issuance of the tranche of debt.

For IFRS reporting these liabilities are recognised at amortised cost, as a permissible option under IAS 39.

Under IFRS, where reinsurance contracts entered into by the Group are structured to provide financing components to be repaid in future periods, such amounts are classified as “reinsurance finance” and included as financial liabilities in the balance sheet at their contractual values.

Insurance intermediaries and reinsurance payables Solvency II regulations preclude adjustment for own-credit risk in the liabilities. Currently no adjustment for own credit risk is included in the measurement of these liabilities for IFRS purposes.

Leases The Group leases a number of properties under operating leases. The future minimum lease payments payable over the remaining terms of non-cancellable operating leases total £22.7m of which £4.4m falls due within one year.

Pension benefit obligations Just does not have any individually material obligations in respect of defined contribution pension plans, other long-term employee benefits or termination benefits. Contributions to Just’s defined contribution pension schemes are expensed when due. Just does not operate a defined benefit pension scheme.

D.4 Alternative methods for valuation

JRL, PLACL and Just Group hold certain financial investments and liabilities for which the markets are not active comprising:

Residential and commercial loans secured by mortgages

Infrastructure private placement bonds and other loans

Derivative assets and liabilities

Holdings in liquidity and unit-linked funds and other financial investments

Subordinated debt liabilities


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When the markets are not active, there is generally no or limited observable market data to account for financial investments at fair value. In these cases, the fair value is determined using alternative valuation techniques, consistent with IFRS reporting and in accordance with Article 10 of the Delegated Regulation.

The determination of whether an active market exists for a financial investment requires management’s judgement.

There is a hierarchy of three methods to value investments at fair value in the following order: 1. Current bid prices to value any investments with quoted prices 2. Actively traded investments without quoted prices are valued using prices provided by third parties 3. If there is no active established market for an investment or financial liability, the Group applies an

appropriate valuation technique such as discounted cash flow analysis, i.e. Marked-to-Model.

The valuation technique is chosen with the objective of arriving at a fair value measurement which reflects the price at which an orderly transaction would take place between market participants on the measurement date.

The valuation techniques include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, and discounted cash flow analysis.

The valuation techniques may include a number of assumptions relating to variables such as credit risk and interest rates and, for loans secured by mortgages, mortality, future expenses, voluntary redemptions and house price assumptions. Valuation of subordinated debt uses current prices of actively traded corporate debt of other insurance companies. Changes in assumptions relating to these variables impact the reported fair value of these financial instruments positively or negatively.

As can be seen above, the default valuation method is to use quoted market prices in active markets. This method is used extensively for bonds and other fixed income securities.

Investments which are actively traded but for which there are no quoted prices, or prices are provided by third parties instead, include holdings in liquidity and unit-linked funds.

It is Just Group’s policy that if the market for a financial investment or liability is not active, the fair value must be determined using alternative valuation techniques. The Group’s over the counter derivatives and residential and commercial mortgage portfolios are not quoted on active markets, and consequently fall into this category. Similarly, the markets for Just Group’s and PLACL’s subordinated debt have been judged to be insufficiently active to provide current market values as at 31 December 2016. In these circumstances, fair values are determined by using quotations from independent third parties or internally developed valuation models. These models utilise an income approach with market observable inputs, with conversion of projected future cash flows into a single current amount. These valuation techniques may include a number of assumptions relating to variables such as credit risk and interest rates.

The extent of any losses due to default is closely monitored; at present there is no indication that allowance for default within investment valuations is not adequate.


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D.5 Other information

D.5.1 Reconciliations to IFRS statutory accounts

Just Group plc

Statement of financial position R&A

reference R&A IFRS

value Reclassific-

ations Investment contracts

Insurance balances

not overdue

Deconsolida-tion of

Financial participations

IFRS value in SII

format SII basis

£m £m £m £m £m £m £m

Intangible assets 14 217.0 - - - - 217.0 -

Property, plant and equipment 15 17.1 (0.1) - - - 17.0 17.0

Investment in joint ventures and associates 0.3 - - - - 0.3 0.3

Financial investments 16 17,319.6 (28.3) 29.7 - (392.3) 16,928.7 16,919.6

Reinsurance assets 22 6,057.1 - - - - 6,057.1 6,160.5

Deferred tax assets 17 10.3 - - - - 10.3 -

Current tax assets 19 11.1 (11.1) - - - - - Prepayments and accrued income 18 53.3 (53.3) - - - - -

Insurance and other receivables 19 137.3 95.3 (28.5) (45.4) 402.1 560.8 560.9

Cash and cash equivalents 20 71.4 23.9 (1.2) - (10.1) 84.0 84.0

Own shares directly held - - - - - - 1.6

Total assets 23,894.5 26.4 - (45.4) (0.3) 23,875.2 23,743.9

Insurance liabilities* 22 15,748.0 65.9 222.3 (32.3) - 16,003.9 15,808.8

Deposits from reinsurers - 5,433.5 - - - 5,433.5 5,350.0

Investment contract liabilities 23 222.3 - (222.3) - - - -

Loans and borrowings 24 343.1 11.5 - - - 354.6 360.6

Other financial liabilities 25 5,740.8 (5,664.7) - - - 76.1 76.1

Derivatives - 189.3 - - - 189.3 189.3

Deferred tax liabilities 17 46.4 - - - - 46.4 55.9

Other provisions 28 8.5 (5.5) - - - 3.0 3.0

Current tax liabilities 29 27.3 (27.3) - - - - -

Accruals and deferred income 30 34.4 (34.4) - - - - -

Insurance and other payables 31 113.1 58.1 - (13.1) (0.3) 157.8 157.6

Total liabilities 22,283.9 26.4 - (45.4) (0.3) 22,264.6 22,001.3

Excess of assets over liabilities 1,610.6 - - - - 1,610.6 1,742.6

* The risk margin and transitional measure in technical provisions included in Insurance liabilities are unaudited


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reference R&A IFRS

value Reclassifications Investment

contracts

Insurance balances not

overdue IFRS value in

SII format SII basis

£m £m £m £m £m £m

Property, plant and equipment 10 9.4 - - - 9.4 9.4 Investment in joint ventures and associates 31 261.9 (261.9) - - - -

Financial investments 11 10,937.5 - 6.0 - 10,943.5 10,943.6

Reinsurance assets 22 2,724.1 - - - 2,724.1 2,692.1

Current tax assets 24 11.1 (11.1) - - - -

Prepayments and accrued income 13 46.2 (46.2) - - - -

Insurance and other receivables 14 264.0 304.5 (4.8) (45.5) 518.2 518.2

Cash and cash equivalents 15 17.7 24.0 (1.2) - 40.5 40.5

Total assets 14,271.9 9.3 - (45.5) 14,235.7 14,203.8

Insurance liabilities* 17 10,046.3 65.9 222.3 (32.3) 10,302.2 9,836.4

Deposits from reinsurers - 2,692.3 - - 2,692.3 2,692.3

Investment contract liabilities 18 222.3 - (222.3) - - -

Loans and borrowings 19 300.0 - - 4.1 304.1 322.0

Other financial liabilities 20 2,860.2 (2,734.2) (80.3) - 45.7 45.7

Derivatives - - 80.3 - 80.3 80.3

Deferred tax liabilities 12 12.6 - - - 12.6 75.2

Other provisions 23 0.5 - - - 0.5 0.5

Current tax liabilities 24 21.3 (21.3) - - - -

Accruals and deferred income 25 0.1 - - - 0.1 -

Insurance and other payables 16 90.1 6.6 - (17.3) 79.4 79.4

Total liabilities 13,553.4 9.3 - (45.5) 13,517.2 13,131.8

Excess of assets over liabilities 718.5 - - - 718.5 1,072.0



reference R&A IFRS value Reclassifications IFRS value in SII

format SII basis

£m £m £m £m

Intangible assets 7 & 8 2.3 - 2.3 -

Financial investments 10 5,720.8 - 5,720.8 5,720.8

Reinsurance assets 15 3,333.0 - 3,333.0 3,468.5

Deferred tax assets - - - 14.7

Prepayments and accrued income - 3.0 3.0 3.0

Insurance and other receivables 11 21.1 (3.0) 18.1 18.1

Cash and cash equivalents 13 35.2 - 35.2 35.1

Total assets 9,112.4 - 9,112.4 9,260.2

Insurance liabilities* 15 5,665.2 - 5,665.2 5,972.4

Deposits from reinsurers 18 - 2,741.1 2,741.1 2,657.7

Derivatives - 67.5 67.5 67.5

Loans and borrowings 17 107.4 - 107.4 105.4

Other financial liabilities 17 2,839.0 (2,808.6) 30.4 30.4

Other provisions 19 4.5 (4.5) - -

Insurance and other payables 16 21.6 4.5 26.1 26.1

Total liabilities 8,637.7 - 8,637.7 8,859.5

Excess of assets over liabilities 474.7 - 474.7 400.7

* The risk margin in JRL and transitional measures in JRL and PLACL within technical provisions included in Insurance liabilities are unaudited


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Chapter E Contents

E. Capital Management ........................................................................................................................................... 72

E.1 Basic Own funds .................................................................................................................................................. 72

E.1.1 Management of Own Funds ..................................................................................................................... 72

E.1.2 Own funds structure .................................................................................................................................. 73

E.1.3 Eligible own funds to meet SCR and MCR .............................................................................................. 74

E.1.4 Equity reconciliation between statutory and Solvency II valuations ............................................ 75

E.2 Solvency Capital Requirement and Minimum Capital Requirement ...................................................... 76

E.2.1 Solvency Capital Coverage ratios ............................................................................................................ 76

E.2.2 Solvency Capital Requirement ................................................................................................................. 76

E.2.3 Minimum Consolidated Group Solvency Capital Requirement ........................................................ 77

E.2.4 Change in MCR and SCR over the reporting period ............................................................................. 78

E.3 Use of the duration-based equity risk sub-module in the calculation of the Solvency Capital

Requirement ....................................................................................................................................................... 78

E.4 Differences between the standard formula and any internal model used .......................................... 78

E.4.1 Scope and purpose of Internal Model .................................................................................................... 78

E.4.2 Internal Model Methodology .................................................................................................................... 79

E.4.3 Internal Model data appropriateness .................................................................................................... 79

E.4.4 Differences between the standard formula and any internal model used .................................. 79

E.5 Non-compliance with the Minimum Capital Requirement and non-compliance with the Solvency

Capital Requirement ......................................................................................................................................... 81


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E. Capital Management

This chapter provides information on the Own funds held by Just Group, JRL and PLACL, and on the components of their Solvency Capital Requirements. It then considers the adequacy of Own funds coverage of the capital requirement during the period.

Finally it describes JRL's Internal model and its uses. JRL obtained approval for use of its Internal model for calculation of its SCR in December 2015.

This section is audited with the exception of the calculation of Solvency Capital Requirement in JRL and at Just Group level. Within Own Funds, the calculation of risk margin in JRL and at Just Group level and Transitional Measures on Technical Provisions (TMTP) in JRL, PLACL and at Just Group level are unaudited.

E.1 Basic Own funds

The table below shows the value and structure of basic own funds by tier for Just Group, JRL and PLACL as at 31 December 2016. This is the first annual report since the Solvency II regime took effect, and as such no comparative figures are provided relating to the position during the previous solvency regime.

Just Group plc

Just Retirement

Limited


£m £m £m

Ordinary share capital 93.3 19.9 147.2

Share premium account 91.7 179.1 -

Reconciliation reserve 1,556.0 873.0 238.8

Own shares (held directly) 1.6 - -

Solvency balance sheet 1,742.6 1,072.0 386.0

Own funds not eligible (1.5) - -

Participations in other financial undertakings (2.4) - - Own shares (held directly and indirectly) (1.6) - -

Total Tier 1 1,737.1 1,072.0 386.0

Subordinated liabilities 360.6 322.0 105.4

Total Tier 2 360.6 322.0 105.4

Deferred tax assets - - 14.7

Total Tier 3 - - 14.7

Total Basic Own Funds 2,097.7 1,394.0 506.1

E.1.1 Management of Own Funds

The management of capital in all Just Group companies, including JRL and PLACL, is governed by the Group's Capital Management Policy which describes the policies and responsibilities for managing and monitoring capital. The policy is also designed to describe the procedures for ongoing monitoring of the quality of Own Funds items as well as the forward-looking view of projected adequacy of Own Funds, and therefore their ongoing suitability for coverage of the Solvency Capital Requirements (SCR) and Minimum Capital Requirements (MCR) at entity and consolidated group levels. This ensures that the Group meets the requirements of Guideline 36 in the EIOPA Guidelines on System of Governance (EIOPA-BoS-14/253).

Medium term capital management plans covering a 5-year time horizon are produced for JRL, PLACL and the Just Group on a regular basis, in order to meet the requirements of the Own Risk and Solvency Assessment (ORSA) and any other internal or external reporting processes.


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A Capital Risk Appetite statement is produced and reviewed at least annually, and more frequently if the risk profile of the business changes materially.

Capital positions of all companies are monitored on a timely basis in order to identify any deteriorations and to help plan any appropriate remedial actions. Across the Group, an assessment is maintained of the contingent capital actions that could be deployed to restore capital positions in the event of a deterioration.

The Group ensures that Own Funds items within each company are of sufficient quality, structured and managed so as not to lead to tiering restrictions in determining SCR and MCR coverage.

E.1.2 Own funds structure

Basic Own Funds analysis The quality of basic own funds is described using the regulatory capital tiering analysis whereby Tier 1 is the highest quality and Tier 3 the lowest, based on the attributes of availability and sustainability of the various forms of capital funding.

The basic own funds of Just Group, JRL and PLACL comprised mainly Tier 1 capital as shown in the table above, representing the ordinary share capital, share premium and reconciliation reserve of each company. Ordinary share capital is classified as unrestricted as there are no restrictions on cancellation of the Companies’ dividends prior to payment, as set out in the Companies’ Articles of Association. The reconciliation reserve represents the total excess of Solvency II assets over liabilities reduced by the Other Basic Own Funds items that have been separately identified on the Own Funds QRT being; share capital and share premium.

Tier 1 unrestricted capital includes the highest quality assets with quality features such as permanence, subordination, undated, absence of redemption incentives, mandatory costs and encumbrances.

The remainder mainly represented subordinated liabilities all of which are classified as Tier 2, and comprised:

Entity Description Internal / external

Issue date / Redemption date Solvency II value

Just Group plc 9% £250m notes External Oct 2016 / Oct 2026 £256.7m

JRL 9% £250m notes Internal Oct 2016 / Oct 2026 £256.7m

JRL 10% £50m notes Internal Oct 2012 and May 2013 / Oct 2022 £65.3m

PLACL 9.5% £100m notes External March 2015 / March 2025 £105.4m

PLACL’s deferred tax asset is classified as Tier 3 capital in accordance with the regulatory requirement.

Changes in period since 1 January 2016

As noted in the table above, Just Group plc issued £250m of subordinated debt in October 2016. On the same date, JRL issued £250m of back to back debt to Just Group plc, enabling JRL to redeem £200m of debt previously held by Just Retirement (Holdings) Limited (JRH), leaving £50m outstanding. The JRH debt had been issued by JRL in tranches commencing in October 2012, including £30m in June 2016.

The PLACL debt had initially been issued to Partnership Assurance Group plc in March 2015 in a back to back arrangement with PAG’s external debt issued at the same time. In April 2016, PLACL replaced PAG plc as the principal obligator for the externally held debt.

In June 2016, PLACL issued £10m of ordinary shares at par to its immediate parent company, Partnership Group Holdings Limited.

Transitional relief

There was no transitional relief on capital items as the loans noted above comply with the Solvency II requirements to be counted as capital. Own funds are calculated after allowing 12 months of amortisation on transitional measures applied to technical provisions in both JRL and PLACL.


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Consolidation of Own Funds Consolidation of Own funds is in accordance with Method 1 ‘Accounting consolidation-based method’ as described in Article 230 of the Solvency II Directive. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are excluded from the date of disposal. Entities included in scope of consolidation are those entities in which the Group, directly or indirectly, has power to exercise control over the financial and operating policies in order to gain economic benefits.

Just Group has approval from the Prudential Regulation Authority (PRA) to exclude Just Retirement South Africa (JRSA) from its regulatory scope. As a result, adjustment is made to remove JRSA when comparing IFRS basis results with Solvency II basis.

Availability and transferability of own funds JRL’s and PLACL’s balance sheets include matching portfolios of assets and liabilities. Under the regulatory capital rules, there is a restriction on the transferability of assets out of matching portfolio and into the non-matching portfolio. There are no restrictions other than meeting the eligibility criteria on transfers into the matching asset portfolio.

The matching portfolio of assets is carefully managed to ensure that liabilities are cashflow matched. The net asset value of matching assets less liabilities in each case was lower than their respective solvency capital requirements.

Just Group maintains an Employee Benefits Trust which holds Just Group plc shares and cash which are not considered transferable.

Dividends A final dividend of 2.4 pence per ordinary share was approved by Just Group’s shareholders at its AGM on 18 May 2017, equating to a total of £22.3m. This dividend was approved after 31 December 2016 and has therefore not been recognised as a foreseeable dividend within Own funds at that date.

The JRL and PLACL Boards do not intend to distribute any profit to shareholders in respect of the period ended 31 December 2016. Ancillary Own funds

There are no ancillary Own funds in Just Group, JRL or PLACL at 31 December 2016.

E.1.3 Eligible own funds to meet SCR and MCR

Just Group plc

Just Retirement

Limited


Available Own funds £m £m £m Total available own funds excluding other financial sectors

2,097.7 1,394.0 506.1

Total available own funds including other financial sectors

2,100.1

Eligible Own funds

Total eligible own funds to cover SCR 2,100.1 1,394.0 506.1

Total eligible own funds to cover minimum Group SCR

1,806.6

Total eligible own funds to cover MCR 1,119.6 407.9

There were no restrictions on the total available Own Funds to meet the Solvency Capital Requirement in any of Just Group, JRL or PLACL at 31 December 2016, and hence the analysis by tier is as presented in section E.1. When assessing solvency against the Minimum Capital Requirement, the regulations require that Tier 2 capital is restricted to 20% of the MCR and Tier 3 capital cannot be used and the eligible Own funds are lower as a consequence.


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For JRL, Tier 2 capital of £47.6m (20% of MCR) of the total £321.3m available was eligible to meet the MCR. When combined with Tier 1 capital of £1,072.0m, total eligible own funds to cover MCR totalled £1,119.6m.

For PLACL Tier 2 capital of £21.9m (20% of MCR) of the total £105.4m available was eligible to meet the MCR. When combined with Tier 1 capital of £386.0m, total eligible own funds to cover MCR totalled £407.9m. The Tier 3 capital of £14.7m is not eligible to meet MCR.

E.1.4 Equity reconciliation between statutory and Solvency II valuations

The table below shows the material differences between shareholders’ equity as presented in the respective companies' financial statements and the excess of assets over liabilities as calculated for solvency purposes presented in their Solvency II balance sheets.

Just Group plc

Just Retirement

Limited


£m £m £m

Statutory accounts - Shareholders funds 1,610.6 718.5 474.7

Deconsolidation of JRSA (2.4) - -

Goodwill (33.1) - (1.3)

Intangible assets (183.9) - (1.0)

Risk Margin (951.0) (685.0) (266.0)

TMTP 1,336.6 1,073.4 263.2

Other valuation differences and impact on deferred taxes (35.8) (34.9) (68.9)

Adjustment for own shares 1.6 - -

Solvency balance sheet - Excess Assets over Liabilities

1,742.6 1,072.0 400.7

Ineligible items (3.1) - -

Subordinated debt 360.6 322.0 105.4

Eligible Own funds 2,100.1 1,394.0 506.1

The material differences are described in the table below:

Adjustments between Shareholder funds and Excess of assets over liabilities on the Solvency reporting balance sheet:

Deconsolidation of JRSA Just Retirement South Africa is out of scope for regulatory reporting, as noted in section D

Goodwill Goodwill in Just Group and PLACL’s IFRS statutory accounts has arisen on acquisition of subsidiaries. Goodwill assets are not recognisable under the solvency reporting valuation rules.

Intangible assets Just Group holds present value of in-force acquired business and other intangible assets, including software, on its IFRS balance sheet. These asset types have no value assigned for solvency reporting purposes.

Risk Margin Risk Margin is a requirement of Solvency II and not a feature of the statutory balance sheet. It is described further in section D.2.

TMTP The TMTP is a feature of the Solvency II balance sheet and not the statutory balance sheet. It is described further in section D.2.

Own shares Own shares held by the Group itself are presented as an asset on the Solvency II balance sheet and are removed in the calculation of own funds


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Other valuation differences and impact on deferred taxes

This represents the other differences in Technical Provisions and other liabilities between the Statutory and Solvency II balance sheets. These are described further in section D.

Additional adjustment between Excess of assets over liabilities on the Solvency reporting balance sheet and own funds:

Ineligible items Represents cash and own shares held in the Employee Benefits Trust

Subordinated debt Subordinated debt is revalued as noted in section D3.2 and treated as a liability on the Solvency reporting balance sheet is added to capital as an own funds item

E.2 Solvency Capital Requirement and Minimum Capital Requirement (The calculation and explanation of Solvency Capital Requirement in JRL and at Just Group level is unaudited)

E.2.1 Solvency Capital Coverage ratios The Solvency Capital Requirement (SCR) for Just Group, JRL and PLACL are quantified in the table below as at 31 December 2016. The Group consolidated minimum SCR for Just Group, and the Minimum Capital Requirement (MCR) for JRL and PLACL are also shown below:

Just Group plc

Just Retirement

Limited


£m £m £m

SCR


Capital Requirement 1,393.8 951.5 439.1

Excess Own Funds 706.3 442.5 67.0

Coverage ratio % 151% 147% 115%

Minimum Group SCR / MCR / MCR


Capital Requirement 347.7 237.9 109.8

Excess Own Funds 1,458.9 881.7 298.1

Coverage ratio % 520% 471% 372%

E.2.2 Solvency Capital Requirement

Just Group uses a Partial Internal Model to calculate its Solvency Capital Requirement (SCR), approved following the merger between JRG and PAG.

The Partial Internal Model comprises:

i) an approved internal model for the ex-Just Retirement Group of companies (JRG), where Just Retirement Limited is the sole insurance entity, and

ii) a Standard Formula result for the ex-Partnership Assurance Group of companies (PAG), where Partnership Life Assurance Company Limited is the sole insurance entity.

Just is in the process of applying for approval from the PRA to move the ex-Partnership Assurance Group of companies under the scope of the Internal Model.


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To derive the Partial Internal Model results for Just Group, the Standard Formula results for the PAG companies are added to the Internal Model results for the JRG companies, with components consolidated using Method 1- Consolidation method.

The Solvency II SCR is defined as the Value at Risk (VaR) of the change in basic own funds over a 1 year period at the 99.5% confidence level. This can be regarded as the capital required for the business to sustain a 1 in 200 year event.

The risks included in JRG’s model for which capital is held are: Property; Nominal interest rate; RPI inflation; Foreign exchange rates; Credit spread; Longevity; Withdrawal; Expense; and Operational.

The Solvency II Standard Formula is a calculation using a defined set of stresses that are set out in the Solvency II regulations. The stresses are split into “risk modules” and the risk modules into sub-risk modules. Credit can be taken for diversification between risks using a method and set of parameters defined by the regulations.

A breakdown of the Just Group, JRL and PLACL SCRs at 31 December 2016 by risk category as detailed in form S.25.03 is summarised in the following table:

Just Group plc Partial Internal

Model

JRL Internal Model

PLACL Standard Formula

£m £m £m

Market 1,311 1,001 307

Counterparty Default 20 - 20

Life underwriting 756 551 205

Operational 60 33 27

Other risks - - -

Other adjustments (42) (42) -

Sub-total pre-diversification 2,105 1,543 559

Diversification (491) (396) (95)

Sub-total post-diversification 1,614 1,147 464

LACoDT & New Business Strain (220) (195) (25)

Solvency Capital Requirement 1,394 952 439

All internal model risks which are quantified as having a capital impact of more than 2.5% of the current JRL SCR are modelled within the calculation kernel.

At 31 December 2016 there are three identified risks which are included in the Internal Model but for which no capital is held: concentration risk, counterparty default risk and equity risk. These risks have been quantified as not exceeding the defined threshold.

E.2.3 Minimum Consolidated Group Solvency Capital Requirement The Minimum Consolidated Group Solvency Capital Requirement is a formulaic calculation prescribed by the regulations. It is the sum of the Minimum Capital Requirements for the insurance entities within the group.

For each insurance entity the calculation compares the result of a calculation using the sum of i) defined proportions of the net of reinsurance Technical Provisions being 2.1% for ‘Other life’ and 0.7% for Unit-linked, and ii) a defined proportion (0.07%) of the Capital at Risk.

This is known as the “linear MCR”, which is then compared against a cap and floor. The cap and floor are based on defined proportions of the Solvency Capital Requirement. The upper limit is 40% of the SCR and the lower limit is 25% of the SCR.


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The table below sets out the calculation and inputs:

£m Just Group plc Just Retirement

Limited


Company Limited

Linear MCR - 150 53

SCR - 952 439

MCR cap (45% of SCR) - 428 198

MCR floor (25% of SCR) - 238 110

Minimum Capital Requirement - 238 110

Minimum Consolidated Group SCR 348

For both JRL and PLACL, the floor of the corridor is the biting measure and therefore the MCR is equal to 25% of their respective SCRs.

E.2.4 Change in MCR and SCR over the reporting period This is the first time that the SFCR has been prepared and hence comparatives are not presented.

E.3 Use of the duration-based equity risk sub-module in the calculation of the Solvency Capital Requirement (Unaudited)

Neither the Group or its subsidiaries, JRL and PLACL, use the duration-based equity risk sub-module in the calculation of the SCR.

E.4 Differences between the standard formula and any internal model used (Unaudited)

E.4.1 Scope and purpose of Internal Model

Currently, Just Group operates an approved Partial Internal Model, where an internal model covers the ex-Just Retirement Group of companies and the ex-Partnership Assurance Group companies are currently outside its scope. As noted above, Just is in the process of applying for approval from the PRA to move the ex-Partnership Assurance Group of companies under the scope of the Internal Model. The internal model is applied to all relevant areas of the companies within its scope where capital considerations are part of the decision making process. The Internal Model is used across the following categories:

Capital and risk reporting/monitoring/management

ORSA

Business planning/strategy formulation/short term forecasting

Strategic decisions

Pricing

New product development

Risk mitigation assessment

Investment strategy assessment A register is maintained recording the specific occasions where the Internal Model is used across these categories.


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E.4.2 Internal Model Methodology The Solvency Capital Requirement (SCR) is defined as the Value at Risk (VaR) of the change in Basic Own Funds (BOF) over 1 year at the 99.5th confidence level. The SCR is derived directly from the probability distribution forecast produced by the Internal model which assigns probabilities to changes in the BOF over 1 year. The probability distribution forecast is derived by calibrating risk distributions for the individual risk drivers. These are then combined using a copula to produce a number of scenarios. Changes in BOF with respect to the base balance sheet are calculated in each scenario and then ranked. The SCR is the change in BOF that relates to 99.5% on the probability distribution forecast. The SCR is calibrated so as to ensure that all quantifiable risks to which we are exposed, are taken into account. It uses the same 60 year projection period as is used for the calculation of technical provisions. The SCR is calculated on a going concern basis and anticipates new business expected to be written over the coming twelve months. With respect to existing business, it covers only unexpected losses.

E.4.3 Internal Model data appropriateness Data is an integral part of the Internal Model, specifically in the risk quantification and aggregation parts of the process. Risk quantification involves analysis of historical data to determine the probability distribution for the one-year variation in respect of each modelled risk. The historical data used is from market data sources, and where possible and applicable internal data sources. Where historical data is limited or unreliable expert judgement is applied. All data sources used are those selected to be most appropriate by considering accuracy, granularity and completeness of the data. Where possible multiple data sources are considered to ensure that which is most appropriate is used. Aggregation involves deriving a multivariate distribution of all the risks being modelled using a dependency structure consisting of a correlation matrix and a copula. The correlation matrix is derived using the same data sources as those used in the Risk Quantification process. Where expert judgement is used in this part, it is also used in setting the dependency between that risk and the others.

E.4.4 Differences between the standard formula and internal model used The ex-JRG Internal model represents a specific assessment of the risks faced by the ex-JRG business. A successful application to the PRA was made to use this model for regulatory reporting purposes, rather than use the generic Standard Formula model used by entities without approved Internal models. The key comparisons between the Internal model used for the ex-JRG business and the Standard Formula methodology are as follows: Modelling methodology

The Standard Formula (SF) SCR is calculated as the Value at Risk (VaR) of the change in Basic Own Funds (BOF) over 1 year at the 99.5% confidence level. The SCR under the Internal Model (IM) is calculated under the same definition.

The SF calculates individual SCR’s for each risk sub-module based on prescribed deterministic stresses. These individual sub-module SCR’s are aggregated to give the risk module SCR using defined correlation matrices. The risk module SCR’s are then aggregated to give the final SCR using another defined correlation matrix.

The Internal Model produces a full probability distribution forecast of the change in basic own funds (BOF) over 1 year. This is derived by calibrating risk distributions for the individual risk drivers. These are then combined using a copula to produce a number of scenarios. Changes in BOF with respect to the base balance sheet are calculated in each scenario which are then ranked to produce the probability distribution forecast. The change in BOF that relates to 99.5% point of the distribution is the SCR.


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Risk Quantification:

Longevity Risk

The Internal Model Longevity Risk calibration uses a stochastic model to capture trend (mortality improvement) and level (current assumptions) risk allowing for the age distribution of JRL’s policyholders and the concentrations in its risk e.g. relating to enhanced annuities.

This is considered more appropriate to the insurance business within JRL than the Standard Formula which uses a single deterministic stress across the whole portfolio of business.

Credit Risk

The credit risk calibrations in both SF and IM apply a stress across the whole spread curve, with a different stress for each issuer rating. The IM calibration also allows for sector (financial / non-financial).

This is considered more appropriate than the Standard Formula's approach of a single factor. The SF stress is deterministic, whereas the IM stress is defined by a distribution.

Property Risk

JRL is exposed to property risk via the No Negative Equity Guarantee on its lifetime mortgage products rather than being exposed to property values directly. The IM models property price volatility and house price inflation in additional to changes in property prices. This calculation is considered to be more appropriate than the Standard Formula approach.

Interest Rate Risk

The stresses define a shift up and down respectively, with the stress based on term.

The IM models interest rate shocks use Principal Component Analysis (PCA). This allows for more complex yield interactions across the whole yield curve by allowing for changes in the shape as well as level. SF prescribes a “stress-up” and “stress-down” for Interest Rates, with the SCR for the sub-module being the largest as a result of the two deterministic shocks.

Lapse Risk

The SF Life lapse risk module relates to the risk of withdrawal of insurance savings and life protection products. JRG’s exposure to lapse risk relates to the “pre-payment” risk associated with the lifetime mortgage products which is significantly different and not directly comparable.

Inflation Risk

In the IM, changes to the RPI inflation curve are modelled using Principal Component Analysis (PCA) which allows for changes in the shape and level of the inflation curve. Inflation risk is modelled for its impact on RPI linked annuities, investments and expenses. SF does not have an explicit inflation risk module, inflation is incorporated where appropriate amongst the other sub-risk modules.

Operational Risk

The IM models Operational Risk as an empirical loss distribution, derived using industry data and internal data regarding operational risk loss events. Additionally the Internal Model allows for diversification between Operational Risk and other risks, whereas for SF the Operational Risk capital is added directly to the Basic SCR without allowing for diversification. This is considered more appropriate than the SF approach which calculates Operational Risk based on the Basic SCR and Expenses, producing a single value.

Foreign Currency Exchange Risk

The IM models foreign currency exchange rate stresses using statistical distributions, allowing for up and down movements in the exchange rate. SF prescribes a “stress-up” and “stress-down” for each foreign currency exchange rate with the SCR for the sub-module being the largest as a result of the two deterministic shocks.

Counterparty Risk

A similar approach is used in assessing Counterparty Risk for the IM as is used for standard formula, which models Counterparty Risk using a loss given default / probability of default approach.


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Diversification

Aggregation in the IM involves deriving a multivariate distribution of all the risks being modelled using a dependency structure consisting of a correlation matrix and a copula. This allows for a more appropriate modelling of diversification between risks than in the SF where a simple correlation matrix is used.

E.5 Non-compliance with the Minimum Capital Requirement and non-compliance with the Solvency Capital Requirement

Just Group, JRL and PLACL have all maintained sufficient capital to comply with the SCR and MCR requirements throughout 2016.

F.1.1 Just Group plc

31 December 2016

Quantitative Reporting Templates

S.02.01.02 Balance sheet

S.05.01.02 Premiums, claims and expenses by line of business

S.22.01.22 Impact of long term guarantees and transitional measures

S.23.01.22 Own funds

S.25.02.22 Solvency Capital Requirement - for undertakings on standard formula and a partial internal model

S.32.01.22 Undertakings in the scope of the group

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S.02.01.02

Balance sheet

£000 Solvency II value

Assets C0010

Intangible assets R0030 -

Deferred tax assets R0040 -

Pension benefit surplus R0050 -

Property, plant & equipment held for own use R0060 16,999

Investments (other than assets held for index-linked and unit-linked contracts) R0070 10,107,253

Property (other than for own use) R0080 -

Holdings in related undertakings, including participations R0090 270

Equities - unlisted R0120 -

Bonds R0130 9,390,593

Government Bonds R0140 1,035,780

Corporate Bonds R0150 8,215,482

Structured notes R0160 -

Collateralised securities R0170 139,331

Collective Investments Undertakings R0180 538,416

Derivatives R0190 106,951

Deposits other than cash equivalents R0200 71,022

Other investments R0210 -

Assets held for index-linked and unit-linked contracts R0220 29,673

Loans and mortgages R0230 6,782,932

Loans on policies R0240 -

Loans and mortgages to individuals R0250 6,349,776

Other loans and mortgages R0260 433,156

Reinsurance recoverables from: R0270 6,160,496

Non-life and health similar to non-life R0280 -

Non-life excluding health R0290 -

Health similar to non-life R0300 -

Life and health similar to life, excluding health and index-linked and unit- R0310 6,160,496

Health similar to life R0320 -

Life excluding health and index-linked and unit-linked R0330 6,160,496

Life index-linked and unit-linked R0340 -

Deposits to cedants R0350 -

Insurance and intermediaries receivables R0360 113,990

Reinsurance receivables R0370 13,720

Receivables (trade, not insurance) R0380 433,164

Own shares (held directly) R0390 1,619

Amounts due in respect of own fund items or initial fund called up but not yet R0400 -

Cash and cash equivalents R0410 84,019

Any other assets, not elsewhere shown R0420 -

Total assets R0500 23,743,865

83


S.02.01.02

Balance sheet (continued)


C0010

Technical provisions – non-life R0510 -

Technical provisions – non-life (excluding health) R0520 -

TP calculated as a whole R0530 -

Best Estimate R0540 -

Risk margin R0550 -

Technical provisions - health (similar to non-life) R0560 -



Risk margin R0590 -

Technical provisions - life (excluding index-linked and unit-linked) R0600 15,779,246

Technical provisions - health (similar to life) R0610 -



Risk margin R0640 -

Technical provisions – life (excluding health and index-linked and unit-linked) R0650 15,779,246


Best Estimate R0670 15,656,589

Risk margin R0680 122,657

Technical provisions – index-linked and unit-linked R0690 29,561


Best Estimate R0710 29,561

Risk margin R0720 -

Contingent liabilities R0740 -

Provisions other than technical provisions R0750 2,963

Pension benefit obligations R0760 -

Deposits from reinsurers R0770 5,349,947

Deferred tax liabilities R0780 55,888


Debts owed to credit institutions R0800 76,126

Financial liabilities other than debts owed to credit institutions R0810 -

Insurance & intermediaries payables R0820 4,453

Reinsurance payables R0830 8,982

Payables (trade, not insurance) R0840 144,170

Subordinated liabilities R0850 360,568

Subordinated liabilities not in BOF R0860 -

Subordinated liabilities in BOF R0870 360,568

Any other liabilities, not elsewhere shown R0880 -

Total liabilities R0900 22,001,222

Excess of assets over liabilities R1000 1,742,643

84


S.05.01.02

Premiums, claims and expenses by line of business

(Unaudited)

£000

Total

Health

insurance

Insurance

with profit

participation

Index-linked and

unit-linked

insurance

Other life

insurance

Annuities

stemming from

non-life insurance

contracts and

relating to health

insurance

obligations

Annuities

stemming from

non-life insurance

contracts and

relating to

insurance

obligations other

than health

insurance

obligations

Health

reinsurance

Life

reinsurance

C0210 C0220 C0230 C0240 C0250 C0260 C0270 C0280 C0300

Premiums written

Gross R1410 - - 28,990 2,690,849 - - - - 2,719,839

Reinsurers' share R1420 - - - 386,425 - - - - 386,425

Net R1500 - - 28,990 2,304,424 - - - - 2,333,414

Premiums earned

Gross R1510 - - 28,990 2,690,849 - - - - 2,719,839


Net R1600 - - 28,990 2,304,424 - - - - 2,333,414

Claims incurred

Gross R1610 - - 2,211 1,255,922 - - - - 1,258,133


Net R1700 - - 2,211 743,489 - - - - 745,699Changes in other technical

provisions Gross R1710 - - 29,168 2,646,190 - - - - 2,675,357


Net R1800 - - 29,168 2,365,742 - - - - 2,394,909

Expenses incurred R1900 - - 261 126,393 - - - - 126,653

Other expenses R2500 138,718

Total expenses R2600 265,371

Line of Business for: life insurance obligationsLife reinsurance

obligations

85


S.22.01.22

Impact of long term guarantees and transitional measures

£000

Amount with Long

Term Guarantee

measures and

transitionals

Impact of transitional on

technical provisions

Impact of

transitional on

interest rate

Impact of volatility

adjustment set to zero

Impact of matching


C0010 C0030 C0050 C0070 C0090

Technical provisions R0010 15,808,807 1,336,594 - 3 2,994,017

Basic own funds R0020 2,097,681 (1,120,574) - (2) (2,099,973)

Eligible own funds to meet Solvency

Capital RequirementR0050

2,100,135 (1,120,574) - (2) (2,323,949)

Solvency Capital Requirement R0090 1,393,838 119,009 - - 901,127

86


S.23.01.22Own funds

£000

TotalTier 1 -

unrestricted

Tier 1 -

restricted Tier 2 Tier 3

C0010 C0020 C0030 C0040 C0050

Basic own funds before deduction for participations in other financial sector

Ordinary share capital (gross of own shares) R0010 93,300 93,300 -

Non-available called but not paid in ordinary share capital at group level R0020 - - -

Share premium account related to ordinary share capital R0030 91,745 91,745 -

Iinitial funds, members' contributions or the equivalent basic own - fund item for mutual and mutual-type undertakings R0040 - - -

Subordinated mutual member accounts R0050 - - - -

Non-available subordinated mutual member accounts at group level R0060 - - - -

Surplus funds R0070 - -

Non-available surplus funds at group level R0080 - -

Preference shares R0090 - - - -

Non-available preference shares at group level R0100 - - - -

Share premium account related to preference shares R0110 - - - -

Non-available share premium account related to preference shares at group level R0120 - - - -

Reconciliation reserve R0130 1,555,979 1,555,979

Subordinated liabilities R0140 360,568 - 360,568 -

Non-available subordinated liabilities at group level R0150 - - - -

An amount equal to the value of net deferred tax assets R0160 - -

The amount equal to the value of net deferred tax assets not available at the group level R0170 - -

Other items approved by supervisory authority as basic own funds not specified above R0180 - - - - -

Non available own funds related to other own funds items approved by supervisory authority R0190 - - - - -

Minority interests (if not reported as part of a specific own fund item) R0200 - - - - -

Non-available minority interests at group level R0210 - - - - -

Own funds from the financial statements that should not be represented by the reconciliation reserve and do

not meet the criteria to be classified as Solvency II own fundsOwn funds from the financial statements that should not be represented by the reconciliation reserve and do not

meet the criteria to be classified as Solvency II own fundsR0220

1,457

DeductionsDeductions for participations in other financial undertakings, including non-regulated undertakings carrying out

financial activitiesR0230

2,454 2,454 - -

whereof deducted according to art 228 of the Directive 2009/138/EC R0240 - - - - -

Deductions for participations where there is non-availability of information (Article 229) R0250 - - - - -

Deduction for participations included by using D&A when a combination of methods is used R0260 - - - - -

Total of non-available own fund items R0270 - - - - -

Total deductions R0280 2,454 2,454 - - -

Total basic own funds after deductions R0290 2,097,681 1,737,113 - 360,568 -

Ancillary own fundsUnpaid and uncalled ordinary share capital callable on demand R0300 - -

Unpaid and uncalled initial funds, members' contributions or the equivalent basic own fund item for mutual and

mutual - type undertakings, callable on demandR0310

- -

Unpaid and uncalled preference shares callable on demand R0320 - -

Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC R0350 - -

Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC R0340 - -- - - - -

Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0360 - -

Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0370 - - -

Non available ancillary own funds at group level R0380 - - -

Other ancillary own funds R0390 - - -

Total ancillary own funds R0400 - - -

Own funds of other financial sectors

Reconciliation reserve R0410 2,454 2,454 - -

Institutions for occupational retirement provision R0420 - - - - -

Non regulated entities carrying out financial activities R0430 - - - -

Total own funds of other financial sectors R0440 2,454 2,454 - -

Own funds when using the D&A, exclusively or in combination of method 1Own funds aggregated when using the D&A and combination of method R0450 - - - - -

Own funds aggregated when using the D&A and a combination of method net of IGT R0460 - - - - -

Total available own funds to meet the consolidated group SCR (excluding own funds from other financial sector

and from the undertakings included via D&A )R0520

2,097,681 1,737,113 - 360,568 -

Total available own funds to meet the minimum consolidated group SCR R0530 2,097,681 1,737,113 - 360,568 -

Total eligible own funds to meet the consolidated group SCR (excluding own funds from other financial sector

and from the undertakings included via D&A )R0560

2,097,681 1,737,113 - 360,568 -

Total eligible own funds to meet the minimum consolidated group SCR R0570 1,806,645 1,737,113 - 69,532

Minimum consolidated Group SCR R0610 347,661

Ratio of Eligible own funds to Minimum Consolidated Group SCR R0650 519.7%

Total eligible own funds to meet the group SCR (including own funds from other financial sector and from the

undertakings included via D&A )R0660

2,100,135 1,739,567 - 360,568 -

Group SCR R0680 1,393,838

Ratio of Eligible own funds to group SCR including other financial sectors and the undertakings included via

D&AR0690 150.7%

C0060

Reconciliation reserveExcess of assets over liabilities R0700 1,742,643

Own shares (included as assets on the balance sheet) R0710 1,619

Forseeable dividends, distributions and charges R0720 -

Other basic own fund items R0730 185,045

Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced funds R0740 -

Other non available own funds R0750 -

Reconciliation reserve before deduction for participations in other financial sector R0760 1,555,979

Expected profitsExpected profits included in future premiums (EPIFP) - Life business R0770 -

Expected profits included in future premiums (EPIFP) - Non- life business R0780 -

Total EPIFP R0790 -

87


S.25.02.22

Solvency Capital Requirement - for groups using the standard formula and partial internal model

(Unaudited)

£000

Unique number of component Components description

Calculation of the

Solvency Capital

Requirement

Amount

modelledUSP Simplifications

C0010 C0020 C0030 C0070 C0080 C0090

1***** Market Risk 1,310,758 1,003,344 - -

2***** Counterparty Risk 19,543 - - -

3***** Life underwriting risk 756,274 551,255 - -

7***** Operational Risk 60,101 33,233 - -

801*** Other risks - - - -

803*** LACoDT (219,812) (194,884) - -

804*** Other adjustments (42,431) (42,431) - -

Calculation of Solvency Capital Requirement C0100

Total undiversified components R0110 1,884,432

Diversification R0060 (490,594)

Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC R0160 -

Solvency capital requirement excluding capital add-on R0200 1,393,838

Capital add-ons already set R0210 -

Solvency capital requirement for undertakings under consolidated method R0220 1,393,838

Other information on SCR

Amount/estimate of the overall loss-absorbing capacity of technical provisions R0300 -

Amount/estimate of the overall loss-absorbing capacity ot deferred taxes R0310 (219,812)

Capital requirement for duration-based equity risk sub-module R0400 -

Total amount of Notional Solvency Capital Requirements for remaining part R0410 524,628

Total amount of Notional Solvency Capital Requirements for ring fenced funds (other than those related to

business operated in accordance with Art. 4 of Directive 2003/41/EC (transitional))R0420

-

Total amount of Notional Solvency Capital Requirement for matching adjustment portfolios R0430 1,481,435

Diversification effects due to RFF nSCR aggregation for article 304 R0440 (612,224)

Minimum consolidated group solvency capital requirement R0470 347,661

Information on other entities

Capital requirement for other financial sectors (Non-insurance capital requirements) R0500 644Capital requirement for other financial sectors (Non-insurance capital requirements) - Credit institutions,

investment firms and financial institutions, alternative investment funds managers, UCITS management

companies

R0510

644

Capital requirement for other financial sectors (Non-insurance capital requirements) - Institutions for

occupational retirement provisionsR0520

-

Capital requirement for other financial sectors (Non-insurance capital requirements) - Capital requirement for

non- regulated entities carrying out financial activitiesR0530

-

Capital requirement for non-controlled participation requirements R0540 -

Capital requirement for residual undertakings R0550 -

C0100

Overall SCR

SCR for undertakings included via D and A R0560 -

Solvency capital requirement R0570 1,393,838

88

F.1.1 Just Group plcS.32.01.22

Undertakings in the scope of the group

Country Identification code of the undertakingType of code of the ID

of the undertakingLegal name of the undertaking Type of undertaking Legal form

Category (mutual/non

mutual)Supervisory Authority

C0010 C0020 C0030 C0040 C0050 C0060 C0070 C0080

UNITED KINGDOM LEI/5493006456YEZEELRR90 LEI Just Group Plc

Insurance holding company as defined in Art. 212§ [f]

of Directive 2009/138/EC Public Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300O2RJG4POJCT414 LEI Just Retirement Group Holdings Limited


of Directive 2009/138/EC Limited Company Non-mutual 0

UNITED KINGDOM LEI/CL37F72IHHVQKFJYQU50 LEI Just Retirement (Holdings) Limited



UNITED KINGDOM LEI/P5SP0XPUO3I6PBITKC96 LEI Just Retirement Limited Life insurer Limited Company Non-mutual Prudential Regulation Authority

UNITED KINGDOM LEI/5493003W8JS1XYTM0O22 LEI Just Retirement Solutions Limited Other Limited Company Non-mutual Financial Conduct Authority

UNITED KINGDOM LEI/549300PFCWHQEKP3RX50 LEI Just Retirement Management Services Limited

Ancillary services undertaking as defined in Article 1

(53) of Delegated Regulation (EU) 2015/35 Limited Company Non-mutual 0

UNITED KINGDOM LEI/5493005H4ZZ8SSBXAQ56 LEI TOMAS Acquisitions Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300XOY061F28LXY46 LEI The Open Market Annuity Service Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300YNECUYY4YCB995 LEI TOMAS Online Development Limited Other Limited Company Non-mutual 0

UNITED KINGDOM SC/JREB SC Just Retirement Employee Benefit Trust Other Trust Non-mutual 0

UNITED KINGDOM LEI/549300YC1K6V4K44NH40 LEI Just Re 1 Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300ESHO4MEK1F1Q39 LEI Just Re 2 Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300GCBOHKFJJAPE23 LEI Just Retirement Money Limited

Credit institutions, investment firms and financial

institutions Limited Company Non-mutual Financial Conduct Authority

UNITED KINGDOM LEI/549300IAERQ88IEB7Q62 LEI Just Retirement Finance plc Other Public Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300Q6T12B1QQXPW72 LEI Just Retirement Nominees Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300T2SSXODFKX3O83 LEI Just Equity Release Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300ZQKFZQWUVTPX41 LEI Just Annuities Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300D198Z4OWXF4P82 LEI Just Protection Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/5493000WL98XFIGVUI18 LEI Enhanced Retirement Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/2138006K6GMGKWPFO418 LEI Partnership Assurance Group plc



UNITED KINGDOM LEI/213800CBWLV4ZIFSL551 LEI Partnership Life Assurance Company Limited Life insurer Limited Company Non-mutual Prudential Regulation Authority

UNITED KINGDOM LEI/549300HSTP9B7NWRYX93 LEI Partnership Home Loans Limited

Credit institutions, investment firms and financial

institutions Limited Company Non-mutual Financial Conduct Authority

UNITED KINGDOM LEI/549300KI18CEVNU8JU80 LEI Partnership Services Limited

Ancillary services undertaking as defined in Article 1 (53) of

Delegated Regulation (EU) 2015/35 Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300KM5KU04ID09S69 LEI Partnership Holdings Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300R20XQ1RR0MNC23 LEI Partnership Group Holdings Limited Other Limited Company Non-mutual 0

UNITED KINGDOM SC/2138006K6GMGKWPFO418GB00007 SC Eldercare Group Limited Other Limited Company Non-mutual 0

UNITED STATES SC/2138006K6GMGKWPFO418US00008 SC Partnership Life US Company Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/549300LMRJMK7XLKDQ49 LEI PASPV Limited Other Limited Company Non-mutual 0

JERSEY LEI/549300DOYZUFZS0VRK64 LEI PAG Holdings Limited Other Limited Company Non-mutual 0

JERSEY LEI/5493000EXZL6KSS4SC88 LEI PAG Finance Limited Other Limited Company Non-mutual 0

UNITED KINGDOM SC/HUB SC HUB Financial Solutions Limited Other Limited Company Non-mutual 0

UNITED KINGDOM SC/JRPNom SC JRP Nominees Limited Other Limited Company Non-mutual 0

UNITED KINGDOM SC/JustInc SC Just Incorporated Limited Other Limited Company Non-mutual 0

UNITED KINGDOM SC/FAIR SC Fairflex Limited Other Limited Company Non-mutual 0

UNITED KINGDOM SC/TrfRight SC Transfer Right Limited Other Limited Company Non-mutual 0

UNITED KINGDOM SC/Pay4care SC Payingforcare Limited Other Limited Company Non-mutual 0

UNITED KINGDOM LEI/2138008G4Q04W4DK5F35 LEI PAERSPV Limited Other Limited Company Non-mutual 0

UNITED KINGDOM SC/ElderSolns SC Eldercare Solutions Ltd Other Limited Company Non-mutual Financial Conduct Authority

UNITED KINGDOM SC/ElderPropPtnr SC Eldercare Property Partners Limited Other Limited Company Non-mutual 0

UNITED KINGDOM SC/CARE SC Care Fees Investment Limited Other Limited Company Non-mutual 0

89


S.32.01.22

Undertakings in the scope of the group (continued)

Group solvency calculation

Legal name of the undertaking % capital share

% used for the

establishment of

consolidated

accounts

% voting rights Other criteria Level of influence

Proportional share used

for group solvency

calculation

YES/NO

Date of decision

if art. 214 is

applied

Method used and under method 1,

treatment of the undertaking

C0040 C0180 C0190 C0200 C0210 C0220 C0230 C0240 C0250 C0260

Just Group Plc 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Retirement Group Holdings Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Retirement (Holdings) Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Retirement Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Retirement Solutions Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Retirement Management Services Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

TOMAS Acquisitions Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

The Open Market Annuity Service Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

TOMAS Online Development Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Retirement Employee Benefit Trust 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Re 1 Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Adjusted equity method

Just Re 2 Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Adjusted equity method

Just Retirement Money Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Retirement Finance plc 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Retirement Nominees Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Equity Release Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Annuities Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Protection Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Enhanced Retirement Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Partnership Assurance Group plc 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Partnership Life Assurance Company Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Partnership Home Loans Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Partnership Services Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Partnership Holdings Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Partnership Group Holdings Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Eldercare Group Limited 33% 100% 100% 0% Significant 100% Included into scope of group supervision Method 1: Adjusted equity method

Partnership Life US Company 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

PASPV Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

PAG Holdings Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

PAG Finance Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

HUB Financial Solutions Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

JRP Nominees Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Just Incorporated Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Fairflex Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Transfer Right Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Payingforcare Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

PAERSPV Limited 100% 100% 100% 0% Dominant 100% Included into scope of group supervision Method 1: Full consolidation

Eldercare Solutions Ltd 33% 100% 100% 0% Significant 100% Included into scope of group supervision Method 1: Adjusted equity method

Eldercare Property Partners Limited 33% 100% 100% 0% Significant 100% Included into scope of group supervision Method 1: Adjusted equity method

Care Fees Investment Limited 33% 100% 100% 0% Significant 100% Included into scope of group supervision Method 1: Adjusted equity method

Criteria of influence Inclusion in the scope of group supervision

90

F.1.2 Just Retirement Limited

31 December 2016




S.12.01.02 Life and Health SLT Technical Provisions



S.25.03.21 Solvency Capital Requirement - for undertakings on Full Internal Models

S.28.01.01 Minimum Capital Requirement

91


S.02.01.02

Balance sheet


Assets C0010


Deferred tax assets R0040 -


Property, plant & equipment held for own use R0060 9,439



Holdings in related undertakings, including participations R0090 13

Equities R0100 -

Equities - listed R0110 -


Bonds R0130 5,793,957

Government Bonds R0140 467,544






Deposits other than cash equivalents R0200 52,310


Assets held for index-linked and unit-linked contracts R0220 29,673









Life and health similar to life, excluding health and index-linked and unit-linked R0310 2,692,132






Reinsurance receivables R0370 -


Own shares (held directly) R0390 -

Amounts due in respect of own fund items or initial fund called up but not yet paid in R0400 -




92


S.02.01.02



Liabilities C0010





Risk margin R0550 -




Risk margin R0590 -





Risk margin R0640 -





Technical provisions – index-linked and unit-linked R0690 29,561


Best Estimate R0710 29,561

Risk margin R0720 -


Provisions other than technical provisions R0750 500



Deferred tax liabilities R0780 75,193




Insurance & intermediaries payables R0820 6









93


S.05.01.02

Premiums, claims and expenses by line of business

(Unaudited)£000

Total

Health

insurance

Insurance

with profit

participation

Index-linked

and unit-linked

insurance

Other life

insurance

Annuities

stemming from non-

life insurance

contracts and

relating to health

insurance

obligations

Annuities

stemming from

non-life insurance

contracts and

relating to

insurance

obligations other

than health

insurance

obligations

Health

reinsurance

Life

reinsurance

C0210 C0220 C0230 C0240 C0250 C0260 C0270 C0280 C0300

Premiums written

Gross R1410 - - 28,990 2,588,264 - - - - 2,617,254


Net R1500 - - 28,990 2,256,475 - - - - 2,285,465

Premiums earned

Gross R1510 - - 28,990 2,588,264 - - - - 2,617,254


Net R1600 - - 28,990 2,256,475 - - - - 2,285,465

Claims incurred

Gross R1610 - - 2,211 932,165 - - - - 934,376


Net R1700 - - 2,211 622,886 - - - - 625,097

Changes in other technical provisions

Gross R1710 - - 29,168 2,570,817 - - - - 2,599,985


Net R1800 - - 29,168 2,323,868 - - - - 2,353,035

Expenses incurred R1900 - - 261 86,506 - - - - 86,767



Line of Business for: life insurance obligations Life reinsurance

94


S.12.01.02

Life and Health SLT Technical Provisions£000

Contracts

without

options

and

guarante

es

Contracts

with options

or

guarantees

Contracts

without

options

and

guarantee

s

Contracts

with

options or

guarantee

s

C0020 C0030 C0040 C0050 C0060 C0070 C0080 C0090 C0100 C0150

Technical provisions calculated as a whole R0010 - - - - - -Total Recoverables from reinsurance/SPV and

Finite Re after the adjustment for expected losses

due to counterparty default associated to TP as a

whole

R0020

- - - - - -Technical provisions calculated as a sum of BE

and RM

Best Estimate

Gross Best Estimate R0030 - 29,561 - 8,490,890 1,704,387 - - 10,224,839

Total Recoverables from reinsurance/SPV and

Finite Re after the adjustment for expected losses

due to counterparty default

R0080

- - - 2,654,863 37,269 - - 2,692,132Best estimate minus recoverables from

reinsurance/SPV and Finite Re - totalR0090

- 29,561 - 5,836,027 1,667,118 - - 7,532,706

Risk Margin R0100 - - 684,990 - - - - 684,990

Amount of the transitional on Technical

ProvisionsTechnical Provisions calculated as a whole

R0110- - - - - -

Best estimate R0120 - - - (492,581) - - - (492,581)

Risk margin R0130 - - (580,804) - - (580,804)

Technical provisions - total R0200 - 29,561 9,806,882 - - 9,836,443

Total (Life

other than

health

insurance,

incl. Unit-

Linked)

Insurance

with profit

participatio

n

Index-linked and unit-linked

insuranceOther life insurance

Annuities

stemming from

non-life

insurance

contracts and

relating to

insurance

obligation

other than

health

insurance

Accepted

reinsuranc

e

95


S.22.01.21


£000

Amount with Long

Term Guarantee

measures and

transitionals



Impact of

transitional on

interest rate



Impact of matching


C0010 C0030 C0050 C0070 C0090

Technical provisions R0010 9,836,443 1,073,385 - - 2,155,110

Basic own funds R0020 1,393,962 (902,111) - - (1,788,741)



1,393,962 (902,111) - - (1,978,429)

Solvency Capital Requirement R0090 951,493 119,009 - - 747,908

Eligible own funds to meet Minimum


1,119,561 (992,242) - - (2,117,714)

Minimum Capital Requirement R0110 237,873 29,752 - - 186,977

96


S.23.01.01Own funds

£000

TotalTier 1 -

unrestricted

Tier 1 -


C0010 C0020 C0030 C0040 C0050

Basic own funds before deduction for participations in other financial sector as foreseen in article 68 of

Delegated Regulation (EU) 2015/35Ordinary share capital (gross of own shares) R0010 19,900 19,900 -

Share premium account related to ordinary share capital R0030 179,100 179,100 -






Reconciliation reserve R0130 872,986 872,986


An amount equal to the value of net deferred tax assets R0160 - -

Other own fund items approved by the supervisory authority as basic own funds not specified above R0180 - - - - -

Own funds from the financial statements that should not be represented by the reconciliation reserve and do not

meet the criteria to be classified as Solvency II own funds

Own funds from the financial statements that should not be represented by the reconciliation reserve and do not meet

the criteria to be classified as Solvency II own fundsR0220

-

DeductionsDeductions for participations in financial and credit institutions R0230 - - - -

Total basic own funds after deductions R0290 1,393,962 1,071,986 - 321,975 -Ancillary own funds

Unpaid and uncalled ordinary share capital callable on demand R0300 - -

Unpaid and uncalled initial funds, members' contributions or the equivalent basic own fund item for mutual and mutual

- type undertakings, callable on demandR0310

- -

Unpaid and uncalled preference shares callable on demand R0320 - -

A legally binding commitment to subscribe and pay for subordinated liabilities on demand R0330 - -

Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC R0340 - -

Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC R0350 - -



Other ancillary own funds R0390 - - -

Total ancillary own funds R0400 - - -

Available and eligible own fundsTotal available own funds to meet the SCR R0500 1,393,962 1,071,986 - 321,975 -

Total available own funds to meet the MCR R0510 1,393,962 1,071,986 - 321,975

Total eligible own funds to meet the SCR R0540 1,393,962 1,071,986 - 321,975 -

Total eligible own funds to meet the MCR R0550 1,119,561 1,071,986 - 47,575

SCR R0580 951,493.

MCR R0600 237,873.

Ratio of Eligible own funds to SCR R0620 147%Ratio of Eligible own funds to MCR R0640 471%

C0060

Reconciliation reserve


Own shares (held directly and indirectly) R0710 -

Foreseeable dividends, distributions and charges R0720 -


Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced fundsR0740

-

Reconciliation reserve R0760 872,986

Expected profits

Expected profits included in future premiums (EPIFP) - Life business R0770 -


Total Expected profits included in future premiums (EPIFP) R0790 -

97


S.25.03.21

Solvency Capital Requirement - for undertakings on Full Internal Models

(Unaudited)

£000

Unique number of component Components description

Calculation of the

Solvency Capital

Requirement

C0010 C0020 C0030

1***** Market Risk 1,000,957

2***** Counterparty Risk -

3***** Life underwriting risk 551,255

7***** Operational Risk 32,688

801*** Other risks -

803*** LACoDT (194,884)

804*** Other adjustments (42,431)


Total undiversified components R0110 1,347,584


Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC (transitional) R0160-

Solvency capital requirement excluding capital add-on R0200 951,493


Solvency capital requirement R0220 951,493


Amount/estimate of the overall loss-absorbing capacity of technical provisions R0300 -

Amount/estimate of the overall loss-absorbing capacity ot deferred taxes R0310 (194,884)

Total amount of Notional Solvency Capital Requirements for remaining part R0410 409,767Total amount of Notional Solvency Capital Requirements for ring fenced funds (other than those related to

business operated in accordance with Art. 4 of Directive 2003/41/EC (transitional))R0420

-

Total amount of Notional Solvency Capital Requirement for matching adjustment portfolios R0430 1,153,951

Diversification effects due to RFF nSCR aggregation for article 304 R0440 (612,224)

98


S.28.01.01

Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity

£000

Linear formula component for life insurance and reinsurance obligations

C0040

MCRL Result R0200 149,618

Net (of

reinsurance/SP

V) best

estimate and

TP calculated

as a whole

Net (of

reinsurance/SPV)

total capital at

risk

C0050 C0060

Obligations with profit participation - guaranteed benefits R0210 -

Obligations with profit participation - future discretionary benefits R0220 -

Index-linked and unit-linked insurance obligations R0230 29,561

Other life (re)insurance and health (re)insurance obligations R0240 7,114,749

Total capital at risk for all life (re)insurance obligations R0250 1,814

Overall MCR calculation

C0070

Linear MCR R0300 149,618

SCR R0310 951,493

MCR cap R0320 428,172

MCR floor R0330 237,873

Combined MCR R0340 237,873

Absolute floor of the MCR R0350 3,332

C0070

Minimum Capital Requirement R0400 237,873

99

F.1.3 Partnership Life Assurance Company Limited

31 December 2016




S.12.01.02 Life and Health SLT Technical Provisions



S.25.03.21 Solvency Capital Requirement - for undertakings on Standard Formula

S.28.01.01 Minimum Capital Requirement

100


S.02.01.02

Balance sheet


Assets C0010


Deferred tax assets R0040 14,690


Property, plant & equipment held for own use R0060 -



Holdings in related undertakings, including participations R0090 -

Equities R0100 -

Equities - listed R0110 -


Bonds R0130 3,570,274

Government Bonds R0140 568,236






Deposits other than cash equivalents R0200 -


Assets held for index-linked and unit-linked contracts R0220 -









Life and health similar to life, excluding health and index-linked and unit- R0310 3,468,364






Reinsurance receivables R0370 13,720


Own shares (held directly) R0390 -

Amounts due in respect of own fund items or initial fund called up but not yet R0400 -




101


S.02.01.02



Liabilities C0010





Risk margin R0550 -




Risk margin R0590 -





Risk margin R0640 -





Technical provisions – index-linked and unit-linked R0690 -



Risk margin R0720 -


Provisions other than technical provisions R0750 -



Deferred tax liabilities R0780 -




Insurance & intermediaries payables R0820 4,218








Excess of assets over liabilities R1000 400,675

102


S.05.01.02

Premiums, claims and expenses by line of business(Unaudited)£000

Total

Health

insurance

Insurance

with profit

participation

Index-linked

and unit-

linked

insurance

Other life

insurance

Annuities

stemming

from non-life

insurance

contracts and

relating to

health

insurance

obligations

Annuities

stemming from

non-life insurance

contracts and

relating to

insurance

obligations other

than health

insurance

obligations

Health

reinsurance

Life

reinsurance

C0210 C0220 C0230 C0240 C0250 C0260 C0270 C0280 C0300

Premiums written

Gross R1410 - - - 184,909 - - - - 184,909


Net R1500 - - - 86,945 - - - - 86,945

Premiums earned

Gross R1510 - - - 184,909 - - - - 184,909


Net R1600 - - - 86,945 - - - - 86,945

Claims incurred

Gross R1610 - - - 431,580 - - - - 431,580


Net R1700 - - - 160,740 - - - - 160,740

Changes in other technical provisions

Gross R1710 - - - 240,380 - - - - 240,380


Net R1800 - - - 111,408 - - - - 111,408

Expenses incurred R1900 - - - 60,588 - - - - 60,588



Line of Business for: life insurance obligations Life reinsurance

103


S.12.01.02

Life and Health SLT Technical Provisions£000

Contracts

without

options and

guarantees

Contracts

with options

or

guarantees

Contracts

without

options and

guarantees

Contracts

with options

or

guarantees

C0020 C0030 C0040 C0050 C0060 C0070 C0080 C0090 C0100 C0150

Technical provisions calculated as a whole R0010 - - - - - -Total Recoverables from reinsurance/SPV and

Finite Re after the adjustment for expected

losses due to counterparty default associated to

TP as a whole

R0020

- - - - - -Technical provisions calculated as a sum of BE

and RM

Best Estimate

Gross Best Estimate R0030 - - - 5,338,028 631,558 - - 5,969,587

Total Recoverables from reinsurance/SPV and

Finite Re after the adjustment for expected

losses due to counterparty default

R0080

- - - 3,324,771 143,592 - - 3,468,364 Best estimate minus recoverables from

reinsurance/SPV and Finite Re - totalR0090

- - - 2,013,257 487,966 - - 2,501,223

Risk Margin R0100 - - 265,986 - - 265,986

Amount of the transitional on Technical

ProvisionsTechnical Provisions calculated as a whole

R0110- - - - - -

Best estimate R0120 - (15,694) - - - (15,694)

Risk margin R0130 - - (247,514) - - (247,514)

Technical provisions - total R0200 - - 5,972,364 - - 5,972,364

Total (Life

other than

health

insurance,

incl. Unit-

Linked)

Insurance

with profit

participation

Index-linked and unit-linked

insuranceOther life insurance

Annuities

stemming from

non-life

insurance

contracts and

relating to

insurance

obligation other

than health

insurance

obligations

Accepted

reinsurance

104


S.22.01.21


£000

Amount with Long

Term Guarantee

measures and

transitionals



Impact of

transitional on

interest rate



Impact of matching


C0010 C0030 C0050 C0070 C0090

Technical provisions R0010 5,972,364 263,208 - 3 838,907

Basic own funds R0020 506,089 (218,463) - (2) (311,232)



506,089 (218,463) - (2) (345,559)

Solvency Capital Requirement R0090 439,149 - - - 153,219

Eligible own funds to meet Minimum


407,942 (263,208) - (3) (367,317)

Minimum Capital Requirement R0110 109,787 - - - 38,305

105


S.23.01.01

Own funds

£000

TotalTier 1 -

unrestricted

Tier 1 -


C0010 C0020 C0030 C0040 C0050

Basic own funds before deduction for participations in other financial sector as foreseen in article 68 of Delegated

Regulation (EU) 2015/35

Ordinary share capital (gross of own shares) R0010 147,190 147,190 -

Share premium account related to ordinary share capital R0030 - - -






Reconciliation reserve R0130 238,794 238,794


An amount equal to the value of net deferred tax assets R0160 14,690 14,690

Other own fund items approved by the supervisory authority as basic own funds not specified above R0180 - - - - -


meet the criteria to be classified as Solvency II own funds


meet the criteria to be classified as Solvency II own fundsR0220

-Deductions

Deductions for participations in financial and credit institutions R0230 - - - -Total basic own funds after deductions R0290 506,089 385,984 - 105,415 14,690 Ancillary own funds

Unpaid and uncalled ordinary share capital callable on demand R0300 - -

Unpaid and uncalled initial funds, members' contributions or the equivalent basic own fund item for mutual and

mutual - type undertakings, callable on demandR0310

- -

Unpaid and uncalled preference shares callable on demand R0320 - - -

A legally binding commitment to subscribe and pay for subordinated liabilities on demand R0330 - - -

Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC R0340 - -

Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC R0350 - - -



Other ancillary own funds R0390 - - -Total ancillary own funds R0400 - - -Available and eligible own funds

Total available own funds to meet the SCR R0500 506,089 385,984 - 105,415 14,690

Total available own funds to meet the MCR R0510 491,399 385,984 - 105,415

Total eligible own funds to meet the SCR R0540 506,089 385,984 - 105,415 14,690

Total eligible own funds to meet the MCR R0550 407,942 385,984 - 21,957 SCR R0580 439,149 MCR R0600 109,787 Ratio of Eligible own funds to SCR R0620 115%Ratio of Eligible own funds to MCR R0640 372%

C0060

Reconciliation reserve

Excess of assets over liabilities R0700 400,675

Own shares (held directly and indirectly) R0710 -

Foreseeable dividends, distributions and charges R0720 -


Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced fundsR0740

-

Reconciliation reserve R0760 238,794

Expected profits

Expected profits included in future premiums (EPIFP) - Life business R0770 -


Total Expected profits included in future premiums (EPIFP) R0790 -

106


S.25.01.21

Solvency Capital Requirement - for undertakings on Standard Formula

£000

Gross solvency

capital

requirement

USP Simplifications

C0110 C0090 C0100

Market risk R0010 307,251 - -

Counterparty default risk R0020 19,543 - -

Life underwriting risk R0030 205,020 - -

Health underwriting risk R0040 - - -

Non-life underwriting risk R0050 - - -


Intangible asset risk R0070 -

Basic Solvency Capital Requirement R0100 437,209


Operational risk R0130 26,868

Loss-absorbing capacity of technical provisions R0140 -

Loss-absorbing capacity of deferred taxes R0150 (24,928)

Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC R0160 -

Solvency Capital Requirement excluding capital add-on R0200 439,149


Solvency capital requirement R0220 439,149


Capital requirement for duration-based equity risk sub-module R0400 -

Total amount of Notional Solvency Capital Requirements for remaining part R0410 111,665

Total amount of Notional Solvency Capital Requirements for ring fenced funds R0420 -

Total amount of Notional Solvency Capital Requirements for matching adjustment portfolios R0430 327,484

Diversification effects due to RFF nSCR aggregation for article 304 R0440 -

107


S.28.01.01

Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity

£000

Linear formula component for life insurance and reinsurance obligations

C0040

MCRL Result R0200 52,606

Net (of

reinsurance/SPV)

best estimate and

TP calculated as a

whole

Net (of

reinsurance/SPV)

total capital at

risk

C0050 C0060

Obligations with profit participation - guaranteed benefits R0210 -

Obligations with profit participation - future discretionary benefits R0220 -

Index-linked and unit-linked insurance obligations R0230 -

Other life (re)insurance and health (re)insurance obligations R0240 2,501,223

Total capital at risk for all life (re)insurance obligations R0250 115,011

Overall MCR calculation

C0070

Linear MCR R0300 52,606

SCR R0310 439,149

MCR cap R0320 197,617

MCR floor R0330 109,787

Combined MCR R0340 109,787

Absolute floor of the MCR R0350 3,332

C0070

Minimum Capital Requirement R0400 109,787

108

109

F.2 Directors’ statement

We acknowledge our responsibility for preparing the Solvency and Financial Condition Report of Just Group plc, including the SFCR contents for Just Retirement Limited and Partnership Life Assurance Company Limited (together the ‘Companies’) at 31 December 2016 in all material respects in accordance with the PRA Rules, the Solvency II Regulations, and the approvals, determinations and modifications in section F.3. The Boards are satisfied that to the best of their knowledge and belief:

a) throughout the financial year to 31 December 2016, the Companies haves complied in all material respects with the requirements of the PRA Rules and the Solvency II Regulations as applicable to the Companies, and with the approvals, determinations and modifications set out in section F.3 and b) it is reasonable to believe that in respect of the period from 31 December 2016 to the date of the publication of the SFCR, the Companies have continued so to comply and that they will continue so to comply for the remainder of the financial year to 31 December 2017.

S Thomas Director Just Group plc Just Retirement Limited Partnership Life Assurance Company Limited 30 June 2017

110

F.3 Approvals, determinations and modifications

The following approvals apply for Just Group, JRL and PLACL at 31 December 2016

Approval

PRA Regulated entity

PRA reference

Single SFCR JRL PLACL

3184789 3184790 (effective from 1 January 2017)

Exclusion of Just Retirement South Africa from group supervision

JRL PLACL


Internal model in the calculation of the SCR

JRL 2201474 (effective to 27 September 2016)

Partial Internal Model (JRP Group Model)

JRL 2868770 (effective from 28 September 2016)

Use of JRP Group Model for group SCR

PLACL 2868780 (effective from 28 September 2016)

Matching Adjustment JRL PLACL

2201079 2200601

Volatility Adjustment

PLACL 2200623

Transitional Measure on Technical Provisions (TMTP)

JRL PLACL

2794519 2794559

Single ORSA document JRL PLACL


111

F.4 Audit opinion

Report of the external independent auditor to the Directors of Just Group plc (‘the Group’), Just Retirement Limited (‘JRL’) and Partnership Life Assurance Company Limited (‘PLACL’) pursuant to Rule 4.1 (2) of the External Audit Chapter of the PRA Rulebook applicable to Solvency II firms

Except as stated below, we have audited the following documents prepared by the Group, JRL and PLACL as at 31 December 2016:

The ‘Valuation for solvency purposes’ and ‘Capital Management’ sections of the Solvency and Financial Condition Report as at 31 December 2016 (‘the Narrative Disclosures subject to audit’); and

Group templates S02.01.02, S22.01.22, S23.01.22, S32.01.22 for the Group, Solo templates S02.01.02, S12.01.02, S22.01.21, S23.01.01, S28.01.01 for JRL and Solo templates S02.01.02, S12.01.02, S22.01.21, S23.01.01, S25.01.21, S28.01.01 for PLACL (‘the Templates subject to audit’).

The Narrative Disclosures subject to audit and the Templates subject to audit are collectively referred to as the ‘Relevant Elements of the Solvency and Financial Condition Report’.

We are not required to audit, nor have we audited, and as a consequence do not express an opinion on the Other Information which comprises:

information contained within the Relevant Elements of the Solvency and Financial Condition Report set out about above which are, or derive from the Solvency Capital Requirement, as identified in the Appendix to this report;

The ‘Business and performance’, ‘System of governance’ and ‘Risk profile’ sections of the Solvency and Financial Condition Report;

Group templates S.05.01.02, S.25.02.22 Company templates S.05.01.02, S.25.03.21 for JRL and Company templates S.05.01.02 for PLACL;

information calculated in accordance with the previous regime used in the calculation of the transitional measure on technical provisions, and as a consequence all information relating to the transitional measures on technical provisions as set out in the Appendix to this report;

the written acknowledgement by the Directors of their responsibilities, including for the preparation of the Solvency and Financial Condition Report (‘the Responsibility Statement’);

To the extent the information subject to audit in the Relevant Elements of the Solvency and Financial Condition Report includes amounts that are totals, sub-totals or calculations derived from the Other Information, we have relied without verification on the Other Information.

Respective responsibilities of directors and auditor

As explained more fully in the Responsibility Statement, the Directors are responsible for the preparation of the Solvency and Financial Condition Report in accordance with the financial reporting provisions of the PRA rules and Solvency II regulations, which have been modified by the modifications, and supplemented by the approvals and determinations made by the PRA under section 138A of FSMA, the PRA Rules and Solvency II regulations on which they are based.

The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of a Solvency and Financial Condition Report that is free from material misstatement, whether due to fraud or error.

Our responsibility is to audit, and express an opinion on, the Relevant Elements of the Solvency and Financial Condition Report in accordance with applicable law and International Standards on Auditing (UK and Ireland) together with ISA (UK) 800 and ISA (UK) 805. Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

112

Scope of the audit of the Relevant Elements of the Solvency and Financial Condition Report

A description of the scope of an audit is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate.

Opinion on the Relevant Elements of the Solvency and Financial Condition Report

In our opinion, the information subject to audit in the Relevant Elements of the Solvency and Financial Condition Report of the Group, JRL and PLACL as at 31st December 2016 is prepared, in all material respects, in accordance with the financial reporting provisions of the PRA Rules and Solvency II regulations on which they are based, as modified by relevant supervisory modifications, and as supplemented by supervisory approvals and determinations.

Emphasis of Matter - Basis of Accounting

We draw attention to the ‘Valuation for solvency purposes’ and ‘Capital Management’ sections of the Solvency and Financial Condition Report, which describe the basis of accounting. The Solvency and Financial Condition Report is prepared in compliance with the financial reporting provisions of the PRA Rules and Solvency II regulations, and therefore in accordance with a special purpose financial reporting framework. The Solvency and Financial Condition Report is required to be published, and intended users include but are not limited to the Prudential Regulation Authority. As a result, the Solvency and Financial Condition Report may not be suitable for another purpose. Our opinion is not modified in respect of this matter.

Other Matter

The Group has authority to calculate its Group Solvency Capital Requirement using a partial internal model and JRL has the authority to calculate its Solo Solvency Capital Requirement using an internal model ("the Models") approved by the Prudential Regulation Authority in accordance with the Solvency II Regulations. In forming our opinion (and in accordance with PRA Rules), we are not required to audit the inputs to, design of, operating effectiveness of and outputs from the Models, or whether the Models are being applied in accordance with the approval orders obtained by the Group and JRL.

Opinion on other matter prescribed by the PRA Rulebook

In our opinion, in accordance with Rule 4.2 of the External Audit Chapter of the PRA Rulebook, the sectoral information has been properly compiled in accordance with the PRA rules and EU instruments relating to that undertaking from information provided by members of the group and the relevant insurance group undertaking.

Matters on which we are required to report by exception

In accordance with Rule 4.1 (3) of the External Audit Chapter of the PRA Rulebook for Solvency II firms we are also required to consider whether the Other Information is materially inconsistent with our knowledge obtained in the audit of the Group, JRL and PLACL statutory financial statements. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

The purpose of our audit work and to whom we owe our responsibilities

This report of the external auditor is made solely to the directors of the Group, JRL and PLACL as their governing bodies, in accordance with the requirement in Rule 4.1(2) of the External Audit Part of the PRA Rulebook and the terms of our engagement. We acknowledge that the directors are required to submit the report to the PRA, to enable the PRA to verify that an auditor’s report has been commissioned by the directors and issued in accordance with the requirement set out in Rule 4.1(2) of the External Audit Part of the PRA Rulebook and to facilitate the discharge by the PRA of its regulatory functions in respect of the company, conferred on the PRA by or under the Financial Services and Markets Act 2000.

http://www.frc.org.uk/auditscopeukprivate

113

Our audit has been undertaken so that we might state to the directors those matters we are required to state to them in an auditor’s report issued pursuant to Rule 4.1(2) and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group, JRL and PLACL through their governing bodies, for our audit, for this report, or for the opinions we have formed.

KPMG LLP

Chartered Accountants 15 Canada Square London E14 5GL 30 June 2017

The maintenance and integrity of the Group website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the Solvency and Financial Condition Report since it was initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of Solvency and Financial Condition Reports may differ from legislation in other jurisdictions.

114

Appendix – relevant elements of the Solvency and Financial Condition Report that are not subject to audit

Group - partial internal model The relevant elements of the Solvency and Financial Condition Report that are not subject to audit comprise:

The following elements of Group template S.02.01.02: Row R0550: Technical provisions - non-life (excluding health) - risk margin Row R0590: Technical provisions - health (similar to non-life) - risk margin Row R0640: Technical provisions - health (similar to life) - risk margin Row R0680: Technical provisions - life (excluding health and index-linked and unit-linked) - risk margin Row R0720: Technical provisions - Index-linked and unit-linked - risk margin

The following elements of Group template S.22.01.22 Column C0030 – Impact of transitional on technical provisions Row R0010 – Technical provisions Row R0090 – Solvency Capital Requirement

The following elements of Group template S.23.01.22 Row R0020: Non-available called but not paid in ordinary share capital at group level Row R0060: Non-available subordinated mutual member accounts at group level Row R0080: Non-available surplus at group level Row R0100: Non-available preference shares at group level Row R0120: Non-available share premium account related to preference shares at group level Row R0150: Non-available subordinated liabilities at group level Row R0170: The amount equal to the value of net deferred tax assets not available at the group level Row R0190: Non-available own funds related to other own funds items approved by supervisory authority Row R0210: Non-available minority interests at group level Row R0380: Non-available ancillary own funds at group level Rows R0410 to R0440 – Own funds of other financial sectors Row R0680: Group SCR Row R0740: Adjustment for restricted own fund items in respect of matching adjustment portfolios

and ring fenced funds Row R0750: Other non-available own funds

Elements of the Narrative Disclosures subject to audit identified as ‘unaudited’.

JRL - Solo internal model

The relevant elements of the Solvency and Financial Condition Report that are not subject to audit comprise:

The following elements of template S.02.01.02: Row R0550: Technical provisions - non-life (excluding health) - risk margin Row R0590: Technical provisions - health (similar to non-life) - risk margin Row R0640: Technical provisions - health (similar to life) - risk margin Row R0680: Technical provisions - life (excluding health and index-linked and unit-linked) - risk margin Row R0720: Technical provisions - Index-linked and unit-linked - risk margin

The following elements of template S.12.01.02 Row R0100: Technical provisions calculated as a sum of BE and RM - Risk margin Rows R0110 to R0130 – Amount of transitional measure on technical provisions

The following elements of template S.22.01.21 Column C0030 – Impact of transitional measure on technical provisions Row R0010 – Technical provisions Row R0090 – Solvency Capital Requirement

The following elements of template S.23.01.01 Row R0580: SCR Row R0740: Adjustment for restricted own fund items in respect of matching adjustment portfolios

and ring fenced funds

115

The following elements of template S.28.01.01 Row R0310: SCR


PLACL – Solo standard formula

The Relevant Elements of the Solvency and Financial Condition Report that are not subject to audit comprise:

The following elements of template S.12.01.02 Rows R0110 to R0130 – Amount of transitional measure on technical provisions

The following elements of template S.22.01.21 Column C0030 – Impact of transitional measure on technical provisions


116

F.5. Glossary and definitions

Auto-enrolment – new legal duties being phased in that require employers to automatically enrol workers into a workplace pension.

Buy-In – an exercise enabling a pension scheme to obtain an insurance contract that pays a guaranteed stream of income sufficient to cover the liabilities of a group of the scheme’s members.

Buy-Out – an exercise that wholly transfers the liability for paying member benefits from the pension scheme to an insurer which then becomes responsible for paying the members directly.

Capped Drawdown – A Non-marketed product from JRP Group previously described as Fixed Term Annuity. Capped Drawdown products ceased to be available to new customers when the tax legislation changed for pensions in April 2015.

Care Plan – a specialist insurance contract contributing to the costs of long-term care by paying a guaranteed income to a registered care provider for the remainder of a person’s life.

Just Group – formed on the merger of Just Retirement Group with Partnership Assurance Group plc, and formally known as JRP Group plc, represents Just Group plc and each of its consolidated subsidiaries and subsidiary undertakings.

Defined benefit pension scheme – a pension scheme, usually backed or ‘sponsored’ by an employer, that pays members a guaranteed level of retirement income based on length of membership and earnings.

Defined contribution (“DC”) pension scheme – a work-based or personal pension scheme in which contributions are invested to build up a fund that can be used by the individual member to provide retirement benefits.

De-risk/de-risking – an action carried out by the trustees of a pension scheme with the aim of transferring investment, inflation and longevity risk from the sponsoring employer and scheme to a third party such as an insurer.

Drawdown – (in reference to Just Group sales or products) collective term for Flexible Pension Plan and capped drawdown.

Employee benefit consultant (“EBC”) – an adviser offering specialist knowledge to employers on the legal, regulatory and practical issues of rewarding staff including non-wage compensation such as pensions, health and life insurance and profit sharing.

Equity release – products and services enabling homeowners to generate income or lump sums by accessing some of the value of the home while continuing to live in it.

Flexi-access drawdown – the option introduced in April 2015 for DC pension savers who have taken tax-free cash to take a taxable income directly from their remaining pension with no limit on withdrawals.

Guaranteed income for life (“GIfL”) – retirement income products which transfer the investment and longevity risk to the company and provide the retiree a guarantee to pay an agreed level of income for as long as a retiree lives. On a “joint-life” basis, continues to pay a guaranteed income to a surviving spouse/partner. Just provides modern individually underwritten GIfL solutions.

Guaranteed Guidance – see Pensions Wise (below).

Lifetime mortgages – an equity release product that allows homeowners to take out a loan secured on the value of their home, typically with the loan plus interest repaid when the home is no longer needed.

Medical underwriting – the process of evaluating an individual’s current health, medical history and lifestyle factors such as smoking when pricing an insurance contract.

Pension Freedoms/Pension Freedom and Choice/Pension Reforms – the UK Government’s pension reforms, implemented in April 2015.

Pensions Wise – the free and impartial service introduced in April 2015 to provide “Guaranteed Guidance” to defined contribution pension savers considering taking money from their pensions.

PrognoSys™ – a next generation underwriting system, which is based on individual mortality curves derived from JRP Group’s own data collected since its launch in 2004.

Retirement Income sales (in reference to JRP Group sales or products) – collective term for GIfL, DB and Care Plan.

Regulated financial advice – personalised financial advice for retail customers by qualified advisers who are regulated by the Financial Conduct Authority.

Simplified advice – regulated financial advice offering a limited service on a limited or specialist area of financial need, such as retirement, to retail customers taking into account information relevant to that need.

Solvency II – an EU Directive that codifies and harmonises the EU insurance regulation. Primarily this concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency.

Date post:	30-Mar-2018
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