Just Group plc Just Retirement Limited Partnership …/media/Files/J/JRMS-IR...2017/12/31 · Just Group plc SFCR 31 December 2017 1 Summary Introduction This is the Solvency and

Just Group plc

Just Retirement Limited

Partnership Life Assurance Company Limited

Solvency and Financial Condition Report

as at 31 December 2017

Just Group plc SFCR 31 December 2017

Just Group plc

Solvency and Financial Condition Report as at 31 December 2017

Contents

Summary 1

A. Business and Performance 6 A.1 Business 6 A.2 Underwriting Performance 15 A.3 Investment Performance 17 A.4 Performance of other activities 18

B. System of Governance 20 B.1 General information on the system of governance 20 B.2 Fit and proper requirements 30 B.3 Risk management system including the own risk and solvency assessment 32 B.4 Internal control system 36 B.5 Internal audit function 38 B.6 Actuarial function 39 B.7 Outsourcing 40 B.8 Any other information 40

C. Risk Profile 42C.1 Underwriting risk 44 C.2 Market risk 45 C.3 Credit risk 47 C.4 Liquidity risk 49 C.5 Operational risk 50 C.6 Other material risks 53 C.7 Any other information 56

D. Valuation for Solvency Purposes 58 D.1 Assets 60 D.2 Technical provisions 65 D.3 Other liabilities 72 D.4 Alternative methods for valuation 75 D.5 Reconciliations to IFRS statutory accounts 77

E. Capital Management 80 E.1 Own funds 80 E.2 Solvency Capital Requirement and Minimum Capital Requirement 84 E.3 Internal model 86 E.4 Differences between the standard formula and any internal model used 87 E.5 Non-compliance with the MCR and non-compliance with the SCR 89

F. Other information F.1 Quantitative Reporting Templates (QRTs) 90 F.2 Directors’ statement 117 F.3 Approvals, determinations and modifications 118 F.3 Audit opinion 119 F.4 Glossary 126


1

Summary

Introduction

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

Group”) as at 31 December 2017.

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 Group has seen significant change recently, following the acquisition by Just Retirement Group

(“JRG”) of Partnership Assurance Group plc (“PAG”), which was effective from 1 April 2016. In May

2016 JRP Group plc changed its accounting reference date from 30 June to 31 December and hence

comparative information is for the 18 month period ended 31 December 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

Just Group remains a leading specialist provider of retirement income products and services to both

individuals and corporates, and a major provider of lifetime mortgages (“LTM”). During 2017 the

Group has improved margins and delivered significant growth in new business operating profit and

adjusted operating profit.

The Group competes in attractive growth markets and its strategy is focused on growing profits not

headline sales. New business operating profit was £169.8m for 2017 (2016: £123.9m), and adjusted

operating profit before tax was £220.6m (2016: £163.7m). IFRS profit before tax for 2017 was

£181.3m (2016: £172.5m). 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. PLACL focuses on Care products in both the UK and USA.

Section A contains business performance comparative information on both a proforma and a

statutory reporting basis. The statutory basis comparative information has been prepared

consistently with Just Group plc’s and JRL’s 18 month reporting periods in their December 2016 IFRS

statutory accounts. PLACL’s 2016 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. Pro forma information on a calendar year basis, 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 clearly defined, enabling robust governance

supportive of strong decision making. Oversight of the risk management and compliance activities

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


2

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

between the ‘three lines of defence’, with the Finance and Actuarial reporting teams constituting

the first line, the Risk function, Compliance function and the Chief Actuary’s function representing

the second line, which is independent of 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.

Regulatory risk and uncertainties - the financial services industry continues to see a high level of

prudential regulatory activity and intense regulatory supervision. There is a risk that the

implementation of one or more of the PRA consultation papers or supervisory statements could

result in a material negative impact on the regulatory capital position of the Group, JRL and

PLACL. In particular, there is a risk that a change in the regulatory treatment of lifetime

mortgages will result in a material negative impact on the Solvency II recognisable value of

those products or the capital which needs to be held in respect of them which could have a

negative effect on the business, results of operations, financial condition and prospects of the

Just Group, JRL, and PLACL.

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, reinsurance recoverable, subordinated liabilities, and goodwill and intangibles, are based

on IFRS values, representing accounting fair values.

At 31 December 2017, Just Group’s excess of assets over liabilities on a Solvency II basis amounted

to £1,747m (31 December 2016: £1,743m), and those of JRL and PLACL were £931m and £598m

respectively (31 December 2016: £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 of revaluing their balance sheets onto the

Solvency II basis.

At Group level, Solvency II net assets were £6m higher than on the IFRS basis mainly due to the

removal of prudent margins held for IFRS reporting, whereas on the Solvency II basis the

transitional relief on technical provisions offset the risk margin.


3

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

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

E. Capital Management

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

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

Capital Requirement (“SCR”). The annual business planning process includes 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 on a consistent basis to:

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 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. PLACL currently uses the Solvency II

standard formula to calculate its SCR and is in the process of seeking approval to use an internal

model.

At 31 December 2017, Just Group held £596m (2016: £706m) of Excess Own Funds representing a

capital coverage ratio of 139% (2016: 151%) of SCR. Excess Own Funds and coverage ratios were

£296m (2016: £443m) and 130% (2016: 147%) for JRL, and £161m (2016: £67m) and 129% (2016:

115%) for PLACL respectively. In October 2016 Just issued £250m of Tier 2 subordinated debt, and

in February 2018 Just issued £230m of Tier 3 subordinated debt (the latter of which is excluded

from the above figures).

The Group’s capital position remains strong and has benefitted from the continued focus on pricing

discipline together with careful asset liability management. The reduction in capital coverage ratio

is as expected, reflecting TMTP recalculation and new business strain from the strong new business

volumes written during the year.

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

on the Internal model.

Changes since 2017 Annual Report and Accounts

The Excess Own Funds and capital coverage ratio of the Group as at 31 December 2017 are lower than the estimated figures in the Group’s December 2017 Annual Report and Accounts published in March 2018. The figures published in March 2018 were £663m for Excess Own Funds and 141% for capital coverage ratio. The main reason for the change since the publication in March 2018 follows the Group’s decision to change the assumptions underlying the valuation and credit rating of the LTM notes (described in D.2.6) in the Matching Adjustment in JRL as at 31 December 2017. These changes reflect the company’s understanding of the requirements set out by the PRA in SS3/17 - Solvency II: matching adjustment - illiquid unrated assets and equity release mortgages (“SS3/17”), feedback and on-going dialogue with the PRA and feedback from work done to review the 2017


4

rating of the LTM notes by an External Credit Assessment Institution (“ECAI”) which completed in Q2 2018. The change resulted in a reduction in the Matching Adjustment in JRL. The effect of this reduction on excess own funds was partly mitigated by an increase in TMTP to the extent the reduction in Matching Adjustment was in respect of the business written pre 1 January 2016; and the changes in allowance for deferred tax and the Solvency Capital Requirements as a consequence of the changes in the LTM notes rating and spread on the balance sheet. The following table reconciles the estimated results to the final results:

Just Group - 31 December 2017

Own

Funds

£m

SCR

£m

Excess Own

Funds

£m

Ratio

Estimated Position 2,269 1,606 663 141%

Impact of reduction in Matching Adjustment (net of tax) (470)

Impact of increase in TMTP (net of tax) 336

Impact of reduction in SCR (67)

Final Position 2,135 1,539 595 139%

Details on the Matching Adjustment and TMTP are covered in Section D.


5

Chapter A contents

A Business and Performance ........................................................................................................................................... 6 A.1 Business ......................................................................................................................................................................... 6

A.1.1 Significant events in the year to 31 December 2017.................................................................................. 7 A.1.2 Business objectives ............................................................................................................................................. 7 A.1.3 Material lines of business .................................................................................................................................. 9 A.1.4 New business sales (pro forma basis comparatives) .................................................................................. 9 A.1.5 Current business performance ....................................................................................................................... 11 A.1.6 Other information ............................................................................................................................................. 14

A.2 Underwriting Performance...................................................................................................................................... 15 A.3 Investment Performance ........................................................................................................................................ 17

A.3.1 Income and expenses by asset class ........................................................................................................... 17 A.3.2 Gains and losses recognised directly in equity .......................................................................................... 18 A.3.3 Investments in securitisation ......................................................................................................................... 18

A.4 Performance of other activities ............................................................................................................................. 18


6

A Business and Performance (Unaudited)

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

A.1 Business

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

The Group had circa 550,000 customers and 1,108 employees at 31 December 2017.

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, however, a decision has been made to cease writing new protection business from March 2018.

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

The activities of other companies in the Group are:

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

HUB Financial Solutions Limited - provision of services and distribution of products for the at-and-in retirement market

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 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.

Just Group plc

Just Retirement

Limited

HUB Financial Solutions

Limited

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 Limited


7

The Group organisational structure is explained in Section B. A.1.1 Significant events in the year to 31 December 2017

The Group completed the integration of the Partnership Assurance Group into the Just Retirement Group during 2017 following the acquisition by Just Retirement Group plc of Partnership Assurance Group plc on 1 April 2016, delivering significant synergy benefits in excess of target, which has contributed materially to the Group’s new business profitabilty.

A.1.2 Business objectives

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

The Group aims to deliver consistent growth in revenues and profits through risk and margin selection in our current markets combined with growth into new markets and strong internal cost and capital discipline.

Strategic objectives Why this is important How we achieve this

1. Grow our markets and broaden our distribution reach Increase sales in our markets by working to grow market demand: we capture our share of these growing markets by ensuring growth in distribution reach and customer access.

We have a fundamental belief that our products meet needs that, if unaddressed, create risks to the quality of later life that our customers may experience. So it’s important to grow markets and reduce experience of those risks. Of course, larger markets create more sales opportunities for us and more value for shareholders. And a combination of distribution reach and larger markets means greater opportunity for us to select the risks we want to address.

In our UK DB De-risking business we continue to drive growth in the small and medium transaction segment. Our innovative medical underwriting solutions enable us to provide more options and better value for pension scheme trustees. We support growth in the UK GIfL, LTM and care markets through market and distributor education and regulatory engagement. We expand our distribution reach through the active pursuit of new partner business relationships.

2. Give customers a distinctly ‘Just’ experience every time Align our customer experience with our brand promise across all channels and businesses.

Our brand embodies fairness, a strong social purpose and our desire to improve retirement for customers by providing them with simple-to-use products and services. It expresses our ambition to present ourselves differently, provide outstanding service to our customers and support people with the broader challenges of later life.

We have defined our customer experience principles and framework to ensure that our products and services live up to the brand promise we live by. We are working hard to ensure that our post-merger culture embraces the brand promise and customer perspective. For instance, in our call centres, no one is measured against call-handling time. Such measures undermine willingness to spend time on the phone to address customer needs fully.


8

Strategic objectives Why this is important How we achieve this

3. Make smart risk choices Identify and price for the business we want. We ensure new business complements our balance sheet and provides the best balance of risk, reward and capital usage.

Efficient deployment of our capital is key to optimising the amount of business that we write. In addition, we seek to ensure that the synergies between our businesses are maximised through careful matching of the duration of mortgages, DB and GIfL solutions.

We combine customer insight, market knowledge and unrivalled medical IP to target the business and customer segments that are most attractive. Our distribution reach gives us access into our target segments and significant business flows from which to pick our preferred risks. Strong relationships with high quality reinsurers allow us to mitigate risks cost-effectively.

4. Focus on strong financial management Ensure that we spend money wisely, avoid waste and deliver value for the business. We consider the capital impact and return of all our decisions.

We have a firm target to achieve capital self-sufficiency, through the careful application of our available capital and ensuring that expenses are aligned to the needs of the business. Careful stewardship of our finances makes money available to fund our existing business and diversification ambitions.

Having delivered the synergy benefits of the merger we are continuing to focus on our on-going operating costs. We use internal model to drive a disciplined approach to pricing our services and to continuously improve our capital management activities.

5. Diversify our business away from any single business line or market Grow outside our core businesses by leveraging our insights, capabilities and intellectual property. We diversify to grow and also to reduce dependency on any one business line, distributor or market.

Our current markets have growth potential, but we already have substantial market shares in GIfL and a focus on profitable new business over growth for the sake of it. So identifying new markets helps us access profitable and potentially higher growth potential. Just as importantly, new markets are a means to diversify away from any concentration in market, regulatory or balance sheet risk. With diversification we can seek to develop businesses that have a lower new business strain on capital, meaning growth is not constrained by our balance sheet.

We are selective in pursuing a limited number of diversification prospects. Our focus is on opportunities in which our existing assets and capabilities create advantage, maximise potential, and minimise downside risk.


9

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”) For pension scheme trustees to reduce the financial risks of operating pension schemes and increase certainty that members’ pensions will be paid in the future.

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

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

United States Care business Sold in the USA by our partner Genworth and reinsured with PLACL

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

Protection For people wanting to support a residential mortgage, for business or inheritance tax planning purposes or simply to have financial peace of mind. A decision has been made to cease writing new protection business from March 2018.

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

A.1.4 New business sales (pro forma basis comparatives)

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

The table below shows sales in the 12 months to 31 December 2017 and the 12 months to 31 December 2016:

New business sales

Partnership Life

Just Group plc Just Retirement Assurance Company

(Pro forma) Limited Limited

2017 20161 2017 20162 2017 2016

To 31 December 12 months 12 months 12 months 12 months 12 months 12 months

£m £m £m £m £m £m

Defined Benefit De-risking Solutions (DB)

997.8 943.4 997.8 945.9 - (2.5)

Guaranteed Income for Life Solutions (GIfL)

820.5 778.1 802.8 624.2 4.9 148.4

Care Plans (CP) 71.6 97.2 - 26.5 71.6 70.7

Retirement Income sales 1,889.9 1,818.7 1,800.6 1,596.6 76.5 216.6

Drawdown 51.2 25.2 51.2 25.2 - -

Total Retirement sales 1,941.1 1,843.9 1,851.8 1,621.8 76.5 216.6

Protection 6.0 4.7 - - 6.0 4.7

LTM loans advanced 510.0 559.3 468.7 387.6 41.3 171.7

Total new business sales 2,457.1 2,407.9 2,320.5 2,009.4 123.8 393.0 1 Just Group figures on a calendar year pro forma basis, including 12 months of JRL and 12 months of PLACL. 2 JRL figures on a calendar year basis.


10

New business sales Total new business sales for Just Group increased by 2% from £2,407.9m on a pro forma basis for the year ended 31 December 2016 to £2,457.1m for the year ended 31 December 2017. This increase reflected the combined effect of the following changes:

Defined Benefit De-risking sales JRL DB sales were £997.8m for 2017 (2016: £945.9m) increasing 5% year on year. The momentum in DB continues to be strong and the DB market is expected to grow substantially over the next decade. We have made a strong start in 2018 and are quoting on a healthy pipeline of new Buy-in and Buy-out business.

PLACL stopped making DB sales on becoming part of the Just Group in 2016, and the £2.5m in the prior year represents a premium adjustment.

GIfL sales Total GIfL sales for Just Group totalled £820.5m (2016 pro forma: £778.1m).

JRL GIfL sales increased by 29% year on year to £802.8m compared to 2016 sales of £624.2m. During 2017 GIfL sales benefited from individual customers transferring from their defined benefit pension schemes into a pensions drawdown and GIfL mix. The GIfL outlook remains positive for the Company, especially as the trend for retirees to shop around the market gathers momentum.

PLACL GIfL sales for the year ended 31 December 2017 were £4.9m (2016: £148.4m). PLACL stopped selling new GIfL contracts on becoming part of the Just Group in 2016, except for small volumes where there were contractual requirements in place.

Care sales Total Care sales for 2017 were £71.6m, down from pro forma 2016 sales of £97.2m, reflecting renewed emphasis on risk selection, and political uncertainty in relation to Care provision around the time of the general election.

Care Sales are no longer a core business for JRL and all sales are written by PLACL, who remain one of the market leaders in this sector.

Drawdown sales Drawdown sales were £51.2m for the year ended 31 December 2017 (2016: £25.2m) and mainly represent Flexible Pension Plan (“FPP”) sales. The FPP allows consumers to take advantage of Pensions Freedoms and this product continues to grow in popularity.

Protection sales Protection sales were £6.0m in 2017 (2016: £4.7m). A decision has been made to cease writing new protection business from March 2018.

Lifetime mortgage loans Total Lifetime mortgage advances were £510.0m (2016 pro forma: £559.3m).

JRL LTM advances were £468.7m in the year (2016: £387.6m). We take a risk based approach towards our mortgage appetite and use the longer duration characteristics of these assets to provide an optimum backing portfolio relative to the shape of the liabilities we write during a particular period.

PLACL LTM advances were £41.3m in 2017 (2016: £171.7m). PLACL stopped selling lifetime mortgages on becoming part of the Just Group in 2016, except where contractual arrangements remain in place.


11

A.1.5 Current business performance

As noted in section A.1.4, management consider the calendar year to be more relevant for performance measurement and assesses performance for JRL, PLACL and the Group in comparison to the 12 month period to 31 December 2016. In the table below, both comparative periods are provided to allow cross-referencing to the 18 months statutory profit before tax analysed in sections A.2 to A.4. As the acquisition was effective from the beginning of April 2016, Just Group’s comparative statutory performance includes PLACL’s performance for the 9 months to 31 December 2016.

Partnership

Life

Assurance

Just Retirement Company

Just Group plc Limited Limited

To 31 December 2017 12 months 12 months 12 months

£m £m £m

New business operating profit 169.8 173.7 (1.9)

In-force operating profit 71.0 32.1 38.1

Underlying operating profit 240.8 205.8 36.2

Operating experience and assumption changes

34.6 19.1 16.1

Reinsurance and financing costs (43.4) (33.9) (9.5)

Profit on underwriting activity - A.2 232.0 191.0 42.8

Investment and economic profits - A.3 22.6 (32.7) 55.3

Other Group companies' operating results

(11.4) - -

Non-recurring and project expenditure (11.6) (5.1) (5.0)

Acquisition transaction and integration costs

(25.6) - -

Amortisation costs (24.7) - -

Other activities - A.4 (73.3) (5.1) (5.0)

Profit before tax 181.3 153.2 93.1


12

Partnership

Life

Assurance

Just Group plc Just Retirement Company

(Pro forma)

Limited Limited

To 31 December 2016 12 months1 18 months2 12 months3 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


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 pro forma basis, including 12 months of JRL and 12 months of PLACL. 2 Just Group figures on a statutory basis, including 18 months of JRL and 9 months of PLACL. 3 JRL figures on a calendar year basis.

New business operating profit Total Just Group new business operating profit was £169.8m in the 12 months to 31 December 2017 (2016 pro forma: £123.9m).

JRL’s new business operating profit has increased by 31% on a calendar year basis. This mainly reflected its prioritisation of margin over volume, with margin increasing from 6.8% to 9.0%. The margin improvement was achieved through risk selection, pricing discipline, lower unit costs from synergy savings, and more efficient asset-liability management. In addition, the investment returns within our new business margin assumptions benefited from sustained attractive lifetime mortgage spreads.

PLACL’s new business operating loss for the 12 months to 31 December 2017 was only £1.9m (2016: loss of £9.0m), reflecting that the company largely stopped selling GIfL and DB business on becoming part of the Just Group in 2016. In-force operating profit In-force operating profit for the 12 months to 31 December 2017 was £32.1m for JRL (2016: £40.5m), £38.1m for PLACL (2016: £34.0m), and £71.0m for the Group (2016 pro forma: £74.6m). Overall the Group in-force operating profit was slightly lower than in the prior period, mainly as a result of tightening corporate bond spreads. Underlying operating profit The increase in underlying operating profit reflects movements in new business operating profit and in-force operating profit as explained above. Operating experience and assumption changes The favourable operating experience variances and assumption changes were as a result of a number of changes. In relation to expense reserves, the delivery of integration synergies has reduced the running per-policy costs, which has led to the release of c.£90m of maintenance expense reserves.


13

The operating experience variances actually experienced in the year amounted to a negative variance of £15m, being mainly driven by early mortgage mortality. In relation to mortality, a review has been completed on the mortality basis of our mortgage and non-medically underwritten defined benefit books to reflect the slower rate of longevity improvement in the general population. The strain arising from our mortgage mortality assumption changes was partly offset by mortality releases from our non-medically underwritten DB reserves, leading to a net charge of £30m. These items, when combined with some other smaller negative items of less than £10m, resulted in a net income statement benefit of £35m in operating experience and assumption changes. Reinsurance and finance costs JRL’s reinsurance and bank finance costs for the 12 months to 31 December 2017 were £33.9m (2016: £30.5m), which primarily represents interest payable on £300m of Tier 2 financing. (In October 2016, £250m of the £300m bond issued to JRH was replaced with a £250m bond issue by Just Group and guaranteed 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 2017 and 2016 were £9.5m, which represents the interest payable on the £100m of Tier 2 financing.

Just Group’s reinsurance and finance costs for the 12 months to 31 December 2017 were £43.4m (2016: £40.0m), which includes the interest payable on the Tier 2 financing comprising the £250m Just Group bonds and the £100m of PLACL bonds. It also includes the interest payable on the £50m bond issued by JRL to JRH. The offsetting interest receivable is included in the Other Group companies’ operating results line. Acquisition related basis changes Basis changes arising on the one-off alignment of PLACL’s reserving methodology with that of the Just Group in 2016. Investment and economic profits Investment and economic variances were losses in JRL of £32.7m (2016: profits of £34.7m), profits in PLACL of £55.3m (2016: profits of £63.1m), and profits of £22.6m for the Group (2016 pro forma profits of £96.1m), mainly reflecting the impact of narrowing credit spreads, and positive corporate bond default experience. There were no bond defaults within our portfolio during the year. These gains were partly offset by changes to economic property assumptions and revision of the method used to allow for credit defaults and investment expenses for JRL. The prior period figure benefited from a significant fall in risk-free rates. Other Group companies’ operating results Just Group’s other Group companies’ operating results represents the results of the Group’s non-insurance undertakings. The operating result for other Group companies changed from a profit of £2.6m on a pro forma basis for the year to 31 December 2016 to a loss of £11.4m for the year to 31 December 2017. This line item includes expenses relating to the Group’s holding companies, and the Just Retirement Solutions (“JRS”) and The Open Market Annuity Service (“TOMAS”) businesses which were brought together during the year as HUB Financial Solutions to improve their efficiency. It also includes the interest receivable on the Tier 2 bonds issued by JRL to JRH, and the fall in other Group companies operating result in 2017 reflects the reduction in the bonds from £300m to £50m in October 2016, as mentioned above. Non-recurring and project expenditure Non-recurring and project expenditure amounted to £5.1m for JRL (2016: £7.8m), £5.0m for PLACL (2016: £6.2m), and £11.6m for the Group (2016 pro forma: £15.7m), and relates to a number of projects across the Group including Solvency II and the reorganisation of our corporate solutions and distribution businesses to form HUB Financial Solutions. In the prior period the Group incurred significant one-off costs relating to the preparation for the Solvency II regulatory reporting regime, which commenced on 1 January 2016. Acquisition transaction and integration costs Acquisition transaction costs reflect the one-off costs incurred during the prior 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. The restructuring has delivered £52m of synergies on a run rate basis.


14

Amortisation costs Amortisation mainly relates to the value of the acquired in-force business asset of £142.7m, which is being amortised over ten years in line with the expected run-off of the in-force business. Amortisation of the acquired in-force business relating to Partnership Assurance Group plc during the year to 31 December 2017 was £14.3m (2016: £10.7m). Additionally, in the prior period there were charges of £3.8m relating to the impairment of brand and property lease intangible assets.

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 2017

% of capital Ordinary shareholdings at 11

June 2018*

% of capital

Standard Life Aberdeen plc

United Kingdom

73,710,039 7.86 91,176,616 9.72

Kames Capital

United Kingdom

29,524,556 3.15 61,008,544 6.50

Baillie Gifford & Co

United Kingdom

58,079,222 6.19 60,536,923 6.45

Schroder Investment Management

United Kingdom

62,872,803 6.70 Not notified <5%

Avallux S.à.r.l. Luxemburg 216,057,001 23.03 - -

Cinven Limited / Cinven Funds

Guernsey 51,479,320 5.49 - -

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


15

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 comparative 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 comparative 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 £48.4m (18 months to 31 December 2016: £29.0m) representing 2.8% (18 months to 31 December 2016: 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 year to 31 December 2017 and 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

Partnership

Just Retirement Life Assurance

Just Group plc Limited Company Limited

12 months 18 months 12 months 18 months 12 months 12 months

To 31 December 2017 20161 2017 2016 2017 2016

£m £m £m £m £m £m

Gross premiums written 1,893.4 2,693.5 1,800.6 2,584.9 79.9 184.9

Reinsurance premiums ceded (17.1) (1,553.4) 14.0 (1,498.6) (31.1) (98.0)

Reinsurance recapture 467.5 1,166.9 467.5 1,166.9 - -

Net premium revenue 2,343.8 2,307.0 2,282.1 2,253.2 48.8 86.9

Normalised investment return 589.5 1,522.4 391.3 1,260.1 212.1 332.5

Fee and commission income (4.1) 5.6 1.9 3.1 - -

Total revenue 2,929.2 3,835.0 2,675.3 3,516.4 260.9 419.4

Gross claims paid (1,098.8) (1,204.5) (669.8) (880.5) (427.9) (431.5)

Reinsurers' share of claims paid 460.7 512.4 193.1 309.3 267.5 270.8

Net claims paid (638.1) (692.1) (476.7) (571.2) (160.4) (160.7)

Change in insurance liabilities:

Gross amount (884.7) (2,687.1) (1,056.2) (2,606.0) 183.0 (240.4)

Reinsurers' share (304.3) 1,447.3 (201.3) 1,413.8 (103.1) 129.0

Reinsurance recapture (467.5) (1,166.9) (467.5) (1,166.9) - -

(1,656.5) (2,406.7) (1,725.0) (2,359.1) 79.9 (111.4)

Change in investment contract liabilities

(6.3) (15.5) (6.3) (15.5) - -

Acquisition costs (41.2) (50.3) (59.0) (52.4) (1.3) (2.0)

Other operating expenses (144.8) (204.6) (109.8) (149.8) (33.5) (64.9)

Finance costs (210.3) (255.4) (107.5) (176.5) (102.8) (105.3)

Total claims and expenses (2,697.2) (3,624.6) (2,484.3) (3,324.5) (218.1) (444.3)

Total Underwriting result 232.0 210.4 191.0 191.9 42.8 (24.9)

Investment performance - A.3 22.6 93.1 (32.7) 37.5 55.3 63.1

Other activities - A.4 (73.3) (104.7) (5.1) (14.8) (5.0) (6.2)

Profit before tax 181.3 198.8 153.2 214.6 93.1 32.0

1 Just Group figures on a statutory basis, including 18 months of JRL and 9 months of PLACL.


16

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 for the period to 31 December 2017 amounted to £1,800.6m for JRL (18 months to 31 December 2016: £2,584.9m), £79.9m for PLACL (12 months to 31 December 2016: £184.9m), and £1,893.4m for the Group (18 months to 31 December 2016: £2,693.5m). The decreases reflect the longer comparative accounting period and that PLACL has largely stopped selling GIfL business on becoming part of the Just Group in 2016. Net premium revenue Net premium revenue represents the sum of gross premiums written and reinsurance recapture, less reinsurance premium ceded. Net premium revenue for the Group increased slightly from £2,307.0m for the 18 months ended 31 December 2016 to £2,343.8m for the year ended 31 December 2017. The prior period included the impact of reinsurance recaptures following the restructuring of a number of reinsurance arrangements ahead of the commencement of Solvency II. The current period reflects a fall in reinsurance premiums ceded following the adoption of a strategy of use of longevity swaps rather than quota share reinsurance. 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 £391.3m for JRL (18 months ended 31 December 2016: £1,260.1m), £212.1m for PLACL (12 months ended 31 December 2016: £332.5m), and £589.5m for the Group (18 months ended 31 December 2016: £1,522.4m). 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 Group decreased by £54.0m from £692.1m for the 18 month period ended 31 December 2016 to £638.1m for the year ended 31 December 2017. The decrease from the prior period is as a result of the longer accounting period to 31 December 2016, but the underlying trend year on year is an increase in net claims paid, reflecting the growth of the in-force book. 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 for the Group decreased from a £2,406.7m cost for the 18 months ended 31 December 2016 to a £1,656.5m cost for the year ended 31 December 2017. The reduced cost compared to the prior period reflects the longer accounting period to 31 December 2016, and also reflects the impact of reinsurance recaptures during the prior period, and operating and assumption changes made during the year. Acquisition costs Acquisition costs comprise the direct costs (such as commissions) and indirect costs of obtaining new business. Acquisition costs for the Group have decreased by £9.1m from £50.3m for the 18 months ended 31 December 2016 to £41.2m for the year ended 31 December 2017 reflecting mainly the longer accounting period in the prior period, but also taking into account increased commission paid on LTM sales compared to the previous period. Other operating expenses Other operating expenses represent the operational overheads, including personnel expenses, investment expenses and charges, depreciation, reinsurance fees, operating leases and other expenses incurred in running the Group’s operations. Other operating expenses decreased by £59.8m from £204.6m for the 18 months ended 31 December 2016 to £144.8m for the year ended 31 December 2017. The decrease mainly reflects the longer accounting period in the prior period, together with costs of integration during 2016. The current period also benefits from post-merger synergy savings. 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.


17

A.3 Investment Performance

A.3.1 Income and expenses by asset class

Investment performance Partnership

Life Assurance

Just Group plc Just Retirement Limited Company Limited


To 31 December 2017 20161 2017 2016 2017 2016

£m £m £m £m £m £m

Interest income

Bond interest 381.1 453.7 216.3 323.1 158.6 168.6

Cash interest 3.1 3.9 1.1 2.0 0.1 0.3

Mortgage interest 252.1 327.3 175.3 225.9 76.8 50.6

Collateral interest 0.1 0.2 0.1 0.1 - -

636.4 785.1 392.8 551.1 235.5 219.5

Fair value movements

Bonds 32.7 527.6 (14.8) 300.4 41.7 306.6

Mortgages (83.4) 544.7 (72.4) 532.4 (9.0) 207.9

Reassurance 2.1 (153.9) 21.7 (25.1) (19.7) (272.4)

Derivatives 28.7 (66.6) 13.0 (61.2) 14.9 (65.5)

Other 4.6 (20.4) 4.4 (19.3) (0.4) (0.5)

(15.3) 831.4 (48.1) 727.2 27.5 176.1

Other investment income - 0.3 13.9 19.3 4.4 -

Total net investment return

621.1 1,616.8 358.6 1,297.6 267.4 395.6

Less: Normalised return included in underwriting result

(598.5) (1,523.7) (391.3) (1,260.1) (212.1) (332.5)

Investment variance 22.6 93.1 (32.7) 37.5 55.3 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 and allowing for the longer prior period, has increased due to growth in the asset portfolio from underlying business growth.

Fair value movements The bond market has been relatively benign in the current period with a stable level of quantitative easing, resulting in a moderate level of realised and unrealised gains of £32.7m in the year to 31 December 2017. The comparative period saw a substantial fall of c.100bps in swap rates which generated £527.6m of realised and unrealised gains.

The movement in mortgage fair values includes an adverse valuation movement of £256.6m in the year ended 31 December 2017, compared to an increase of £467.0m in the prior period in respect of economic changes. The main driver of that change was the increase in long-dated swap rates in 2017. The favourable movement in the prior year reflected the significant fall in swap rates used for discounting in the valuation. The remainder of the fair value movement relates to realised gains.


18

Investment expenses

Investment expenses in the year were £6.6m in JRL (18 months ended 31 December 2016: £8.0m), £4.8m in PLACL (12 months ended 31 December 2016: £5.5m), and £11.2m for the Group (18 months ended 31 December 2016: £9.8m).

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

Partnership

Life Assurance

Just Group plc Just Retirement Limited Company Limited


To 31 December 2017 2016 2017 2016 2017 2016

£m £m £m £m £m £m


(11.4) 5.3 - - - -

Non-recurring and project expenditure

(11.6) (21.1) (5.1) (14.8) (5.0) (6.2)

Acquisition integration costs (25.6) (40.7) - - - -

Acquisition transaction costs - (23.4) - - - -

Amortisation and impairment of intangible assets

(24.7) (24.8) - - - -

Other activities (73.3) (104.7) (5.1) (14.8) (5.0) (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 integration costs of £25.6m (18 months ended 31 December 2016: £40.7m) relate to the cost arising from the post-merger integration of the Just Retirement and Partnership businesses and operations. The restructuring has delivered £52m of synergies on a run rate basis.

Acquisition transaction costs in the 18 months ended 31 December 2016 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.

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 Just Group plc.

Just Group SFCR Report 31 December 2017

19

Chapter B contents

B. System of Governance ................................................................................................................................................. 20 B.1 General information on the system of governance ........................................................................................... 20

B.1.1 Governance in the Just Group ......................................................................................................................... 20 B.1.2 Governance structure in Just Retirement Limited and Partnership Life Assurance CompanyLimited ............................................................................................................................................................................. 23 B.1.3 Allocation of responsibilities to functions..................................................................................................... 24 B.1.4 Changes in the system of governance .......................................................................................................... 25 B.1.5 Assessment of adequacy .................................................................................................................................. 25 B.1.6 Remuneration policy .......................................................................................................................................... 26 B.1.7 Material transactions ........................................................................................................................................ 29 B.1.8 Intra-group outsourcing arrangements........................................................................................................ 29

B.2 Fit and proper requirements .................................................................................................................................... 30 B.2.1 Requirement applicable to Directors ............................................................................................................. 30 B.2.2 Assessing fitness and propriety....................................................................................................................... 32

B.3 Risk management system including the own risk and solvency assessment ............................................. 32 B.3.1 Risk governance and management framework .......................................................................................... 32 B.3.2 Integration of risk management into the decision making processes .................................................. 34 B.3.3 Determination of own solvency needs .......................................................................................................... 34 B.3.4 Internal Model Governance .............................................................................................................................. 34 B.3.5 ORSA management ............................................................................................................................................ 34 B.3.6 ORSA process ....................................................................................................................................................... 35

B.4 Internal control system ............................................................................................................................................ 36 B.4.1 Internal control system description ............................................................................................................... 36 B.4.2 Roles and responsibilities of the Compliance function .............................................................................. 37

B.5 Internal audit function .............................................................................................................................................. 38 B.5.1 Internal audit function description ................................................................................................................ 38 B.5.2 Independence and objectivity of internal audit .......................................................................................... 39

B.6 Actuarial function ....................................................................................................................................................... 39 B.7 Outsourcing .................................................................................................................................................................. 40

B.7.1 Group Outsourcing Policy .................................................................................................................................. 40 B.7.1 Principal outsourced activities ......................................................................................................................... 40

B.8 Any other information ............................................................................................................................................... 40


20

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 Just Retirement Limited (“JRL”) and Partnership Life Assurance Company Limited (“PLACL”).

Details of the structure of the Company's “administrative, management or supervisory body” (defined as including the Board, subsidiary boards and Board sub-committees) are provided. The roles, responsibilities and governance of key functions (defined as the Risk, Compliance, Internal Audit and Actuarial functions) are also provided. Other components of the system of governance are also outlined, including the risk management system and 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”). As at 31 December 2017, the Just Group Board was made up of 11 board members, following the retirement of the Deputy Chairman on 17 May 2018, the Board comprised of ten board members, which includes three Executive Directors, six NEDs, and the Chair (independent on appointment).

The governance structures established for JRL and PLACL are aligned with the structure for Just Group plc. As at 31 December 2017, the JRL and PLACL boards each had 14 board members, and as at 17 May 2018, there were 12 board members, which includes three Executive Directors, six NEDs, one NED and one Executive who are not board members of Just Group plc, and the Chair (independent on appointment).

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

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

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.


21

The Group Board has delegated specific responsibilities to the Audit, Remuneration, Nomination 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 Committee (previously Group Executive Office Committee), are the principal operating committees of the Group.

Pre February 2018, the Group Executive Office Committee (“GEO”) was supported by the UK Business Executive Committee and the Executive Integration Committee. GEO’s primary focus was on the development and implementation of Group strategy, the monitoring of operational and financial performance, and assessment of control and risk, while the UK Business Executive Committee concentrated on the operational risk, pricing, assets and liabilities, products and propositions, and insurance. The Executive Integration Committee was formed in April 2016 following the merger of Just Retirement Group and Partnership Assurance Group to assist, advise, challenge, and support the Executives in respect of the merger integration programme. The Executive Integration Committee was disbanded in December 2017, and the UK Business Executive Committee was rolled over into the GEO, later renamed as Group Executive Committee (“GEC”).

The Group Chief Executive Officer (“CEO”) is supported by his Executive team 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 GEC comprises of three Executive Directors, Rodney Cook, David Richardson and Simon Thomas, and Executives, David Cooper (Group Marketing & Distribution Director), Alex Duncan (Group Chief Risk Officer), Kathryn Gray (Group Human Resources Director) Giles Offen (Chief Digital Information Officer), Hugh McKee (Managing Director of UK Retail Business), Paul Turner (Managing Director of Retirement Lending, International & Group Development) and Jo Varley (Interim Chief Operating Officer). The Group Executive Committee meets fortnightly 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, HUB Senior Leadership Team 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 Chris Gibson-Smith (Chairman), Keith Nicholson, Rodney Cook, David Richardson and Simon Thomas. Chris Gibson-Smith was appointed Chairman of the Market Disclosure Committee following Tom Cross Brown’s retirement from the Board at the AGM in May 2018.

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 Nomination 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


22

in place within the Group. The Audit Committee will normally meet not less than four times a year and is chaired by Paul Bishop.

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 Group 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.

Group Nomination Committee The Nomination Committee assists the Board in determining the composition and make-up of the Board. It reviews the balance of skills, experience, independence, and knowledge of the Company provided by the Directors, with the aim of ensuring the Board has the capabilities necessary to deliver its responsibilities for business strategy and governance. The Committee determines succession plans for the Chairman and the CEO. It will normally meet not less than twice a year and is chaired by Chris Gibson-Smith. The Nomination Committee actively supports the Board on the principle of improving gender balance in the boardroom.

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.

Investment Committees The Investment Committees of the Boards of Just Retirement Limited and Partnership Life Assurance Company Limited assist their respective Boards in achieving their investment objectives. 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.

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 ten Board members: the Chairman (independent on appointment), six Non-Executive Directors (all of whom are considered to be independent), and three Executive Directors. 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


23

• Fostering relationships within the Board and providing a sounding board for the CEO on important businessissues

• 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• 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

As the Senior Independent Director, Keith Nicholson provides a sounding board for the Chairman, and serves as an intermediary for the other Directors when necessary. The Senior Independent Director will also meet annually with the Non-Executive Directors without the Chairman being present to approve the Chairman’s performance, and address any other matters, which the Directors might wish to raise. The Senior Independent Director conveys the outcome of their discussions to the Chairman. The Non-Executive Directors of the Board will meet at least twice per year without the Executive Directors being present.

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 LifeAssurance Company LimitedThe 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.


24

At least half of the Board of any regulated subsidiary of Just Group plc must be comprised of Independent NEDs. The Chairman of Just Group plc is also the Chair of JRL and PLACL. The Board of Just Group plc agreed that HUB Financial Solutions (“HUB”), 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.

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 MD RL&I Managing Director Retirement Lending and International

GCRO Group Chief Risk Officer GBDD Group Business Development Director GCA Group Chief Actuary

GHRD Group Human Resources Director GCD Group Change Director CEO Chief Executive Officer

Management committees

CSMT UK Corporate SMT INT SMT International SMT ROC Regulatory Oversight Committee

RSMT UK Retail SMT ALCO Asset and Liability Committee PPC Product and Proposition Committee

RLSMT UK Retirement Lending SMT RFC Retail Funds Committee OpRisk Operational Risk Committee

HUB SLT HUB Senior Leadership Team SMT InsCom Insurance Committee

Group Executive Committee Members: CEO, DCEO, GCFO, GMDD, GCRO, GHRD, GCDIO, MDUKR, MD RL&I, GCOO In attendance: GDS Agenda specific: GCD, GBDD Matters: Group financial performance, Group capital position / strategy & SII, Group risk (ORSA), regulatory issues, asset & liability oversight, Group strategy and Group Development.

UK Business Executive Board (disbanded 23 January 2018) Members: MDUKC, MDUKR, MD RL&I, GMDD, GCDIO, GCRO, GCOO, GHRD, GCA Matters: Detailed review of business interaction, risk and operational matters.

Executive Integration Committee (disbanded 19 December 2017) 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)


25

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.

In addition to the Group Executive Committee (“GEC”), there were two executive committees as follows:

UK Business Executive Board This Committee disbanded on 23 January 2018. It undertook a detailed review of business interaction, risk and operational matters. These activities have now been transferred to the Management Committees.

Executive Integration Committee This Committee disbanded on 24 November 2017. It ensured that the integration programme delivered against its stated objectives to time and budget.

Management Committees Just Group has eleven permanent management committees which support the Group Executive Committee: • UK Corporate SMT• UK Retail SMT• UK Retirement Lending SMT• HUB Senior Leadership Team (previously known as 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.


26

B.1.6 Remuneration policy

Remuneration Policy At the AGM in May 2017, the new remuneration policy was approved and is applied consistently across the Group, including JRL and PLACL. This reflected developments in market and best practice remuneration practice, with the key changes being: • 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 two year 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.

Remuneration practices in 2017 were focused primarily on implementing the new Remuneration Policy for the Group and reviewing the remuneration arrangements of senior employees including our three Executive Directors

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 UK regulators, the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“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 othercompanies 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 deliveryof 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.

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


27

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 below) 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 Total Shareholder Return (“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.

Directors Remuneration Policy

Element Purpose and link to strategy

Operation (including framework used to assess performance)

Opportunity

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

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

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

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

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

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

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

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 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 insurance benefits 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.


28

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.


29

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 and NICs.

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 55 to 72 of the Just Group plc Annual report and accounts, in note 7 of JRL’s Annual report and accounts and in note 7 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 those disclosed below:

Year ended 31 December 2017 Just Group plc

£m


£m

Partnership Life Assurance Company

Limited £m

Aggregate emoluments including benefits 7.1 5.7 1.4 Loans owed by Directors 0.3 - -

Period to 31 December 2016

Just Group plc

18 months ended 31 December 2016

£m


18 months ended 31 December 2016

£m

Partnership Life Assurance Company

Limited 12 months ended

31 December 2016 £m

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.

B.1.8 Intra-group outsourcing arrangementsMaterial intra-group outsourcing arrangements for the period ended 31 December 2017 primarily comprise support services provided by the service companies, Just Retirement Services and Partnership Services Limited, both based in the UK.


30

B.2 Fit and proper requirementsAll 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 (“SIMF”) 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.

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 alters to reflect the changing needs of the business.

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

Skills, knowledge and expertise

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

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

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

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

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

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

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

commitments of the role


31

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• 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 (“SIF”)

Competency - To be competent to Level 4 of Just Group’s competencies (i.e. Executive level)

Chief Executive Officer See Executive director above

Chief Financial officer As for Executive director plus must be qualified Accountant/Actuary

Chief actuary As for Executive director plus must be qualified Actuary

Compliance function As for Executive director

Chief audit executive 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)


32

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.

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 Just Group’s competencies (i.e. Executive level).

B.2.2 Assessing fitness and propriety

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

regulatory history (including any investigations or revocations). This information is normally captured byusing 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 aninformed recruitment decision;

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

• Conduct background financial standing/credit checks using a recognised credit reference agency;• Conduct Disclosure and Barring Service (“DBS”) checks.

The appointment of individuals holding Executive Director, Non-executive Director or CEO positions within the Group requires Board approval and approval acting on recommendation from the Nominations Committee.

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

B.3 Risk management system including the own risk and solvencyassessment

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.


33

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.

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 and Business Change

Risk Management Effectiveness

Intra-group transactions and concentration risk

Risk Crisis Management


34

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 placemitigation actions to ensure that the Group operates within its solvency constraints

B.3.2 Integration of risk management into the decision making processesSolvency 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 needsFor 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 GovernanceThe Internal model used by JRL and the ex-Just Retirement holding companies is governed by the Internal Model Governance Forum (“IMGF”). The IMGF 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 Q3 of each calendar year.

Group ORSAs Updates (x3) - Timing: To be approved during Q1, Q2 and Q4 of each calendar year.

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


35

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.

Group ORSA Updates (x3) The Group ORSA Updates 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 GEC 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.


36

B.4 Internal control system

B.4.1 Internal control system descriptionThe 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 seniormanagement

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 regular risk processes in the risk management system.

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

weaknesses or failures, together with remedial action taken or planned.

Material controls failures and near-misses are analysed so the experience can be used to improve the Internal Control Framework going forward.


37

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 influencesthat 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, inorder 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 hasoversight who collectively are able to:

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

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

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


38

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 operational 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.

Structure

During 2017, the Group Regulatory and Audit Director (“GRAD”) was an Approved Person in respect of Compliance and Internal Audit and had no first line responsibilities. The GRAD reported into the Chief Executive Officer. On the 1 April 2018, the GRAD retired from the company. The Head of Group Internal Audit (“HoIA”) became the Approved Person for Internal Audit. The HoIA has no first line responsibilities. The HoIA reports directly to the Chairman of the Audit for Internal Audit matters and has a dotted line into the Group Chief Finance Officer (“CFO”) for key day to day operational 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 HoIA as well as input to the HoIA’s annual remuneration terms as set by the Remuneration Committee.


39

The Senior Group Internal Audit Manager reports to the HoIA and has a right of access and escalation to the CFO 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 HoIA will confirm to the GEC and AC at least annually, the organisational independence of the GIA work undertaken.

B.6 Actuarial function

The responsibility for the Actuarial Function for both JRL and PLACL was allocated to Andrew Chamberlain, Chief Actuary (SIMF 20) throughout the year. Paul Jolly was appointed Chief Actuary on 1 January 2018 and will report to the GCRO. 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 and reported 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


40

B.7 Outsourcing

B.7.1 Group Outsourcing PolicyThe 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 activitiesAs 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 byPLACL 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 theUK

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

B.8 Any other informationThe 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 2017

41

Chapter C contents

C. Risk Profile ............................................................................................................................................. 42 C.1 Underwriting risk .......................................................................................................................... 44

C.1.1 Nature of material underwriting risks .............................................................................. 44 C.1.2 Compliance with the 'Prudent Person Principle' for underwriting risk ..................... 44 C.1.3 Underwriting risk concentration ........................................................................................ 44 C.1.4 Underwriting risk mitigation ............................................................................................... 45 C.1.5 Sensitivity to underwriting risks ......................................................................................... 45

C.2 Market risk ..................................................................................................................................... 45 C.2.1 Nature of material market risks ......................................................................................... 45 C.2.2 Compliance with the 'Prudent Person Principle' for market risk ................................ 46 C.2.3 Market risk concentration .................................................................................................... 46 C.2.4 Market risk mitigation ........................................................................................................... 47 C.2.5 Sensitivities to market risk .................................................................................................. 47

C.3 Credit risk ....................................................................................................................................... 47 C.3.1 Nature of material credit risks ............................................................................................ 47 C.3.2 Compliance with the 'Prudent Person Principle' for credit risk ................................... 48 C.3.3 Credit risk concentration ...................................................................................................... 48 C.3.4 Credit risk mitigation ............................................................................................................ 48 C.3.5 Sensitivity to credit risks ...................................................................................................... 48

C.4 Liquidity risk .................................................................................................................................. 49 C.4.1 Nature of material liquidity risks ....................................................................................... 49 C.4.2 Compliance with the “Prudent Person Principle” for liquidity risk ............................. 49 C.4.3 Liquidity risk concentration ................................................................................................. 49 C.4.4 Liquidity risk mitigation ........................................................................................................ 49 C.4.5 Sensitivity to liquidity risks .................................................................................................. 50

C.5 Operational risk ............................................................................................................................ 50 C.5.1 Nature of material operational risks ................................................................................. 50 C.5.2 Compliance with the “Prudent Person Principle” for Operational risk ...................... 51 C.5.3 Operational risk concentration .......................................................................................... 51 C.5.4 Operational risk mitigation ................................................................................................. 51 C.5.5 Sensitivity to operational risks ........................................................................................... 52

C.6 Other material risks ..................................................................................................................... 53 C.7 Any other information ................................................................................................................ 55

C.7.1 Sensitivities ............................................................................................................................. 55 C.7.2 Stress and Scenario analysis ............................................................................................... 56


42

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 JRL PLACL

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 The Group and its regulated subsidiaries measure and monitor their capital resources on a Solvency II regulatory basis. The Group and its regulated subsidiaries are required to maintain eligible capital, or ‘Own Funds’ in excess of the value of their Solvency Capital Requirements (“SCR”). The SCR represents the risk capital required to be set aside to absorb 1 in 200 year stress tests of each risk type that the Just Group is exposed to including longevity risk, property risk, credit risk, and interest rate risk.


43

These risks are all aggregated with appropriate allowance for diversification benefits. Just Group plc calculated its SCR using a partial internal model, with JRL calculating capital requirements using a full internal model and PLACL using the standard formula. The Group intends to progress on internal model major change application for PLACL to use the Group’s internal model.

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 riskfactors

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

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

Reporting on risk mitigation techniques currently in place

Changes to risk profile From 30 September 2017, PLACL changed the treatment of its reinsurance deposit back (“RDB”) cash flows in it’s Solvency II balance sheet, and no longer treats these as a financial liability under IAS39. Instead, RDB cash flows in each future period are deducted from the Reinsurance Recoverable asset cash flows in the same period to generate the net Reinsurance Recoverable asset. The RDB cash flows are now discounted at the same discount rate as the underlying BEL, rather than a separate discount rate as was the case with the IAS39 treatment.

As a consequence of this treatment, it is no longer possible to retain all MA-eligible policies in the MAP, as their total BEL (net of a now much lower Reinsurance Recoverable asset) requires more MA-eligible assets be injected into the MAP than are currently available in the NMAP.

The loss of liquidity premium in the NMAP has increased the sensitivity of the PLACL balance sheet to interest rate movements. A dynamic hedging strategy has been developed to manage this increased sensitivity.

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.


44

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 riskC.1.1 Nature of material underwriting risksThe 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 riskUnderwriting 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 concentrationConcentration 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.


45

C.1.4 Underwriting risk mitigationUnderpinning the management of underwriting risk are:

the development and use of medical information including PrognoSys™ for both pricing andreserving 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 risksSee section C.7.1.

C.2 Market riskC.2.1 Nature of material market risksMarket 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.


46

(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 riskMarket 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 index-linked assets 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 concentrationJRL 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.


47

C.2.4 Market risk mitigationRetirement 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 loan advance represents a low proportion of the property’s value at outset and independent third party valuations are undertaken on each property before initial mortgages are advanced. Lifetime mortgage contracts are 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 riskSee section C.7.1.

C.3 Credit riskC.3.1 Nature of material credit risksCredit 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.


48

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

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 actively 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 actively 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.


49

C.4 Liquidity riskC.4.1 Nature of material liquidity risksThe 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.

Exposure to liquidity risk arises from:

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

realising assets to meet liabilities during stressed market conditions;

increasing cash flow volatility in the short term giving rise to mismatches between cash flowsfrom 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 offinancial 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 riskThe 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.

C.4.3 Liquidity risk concentrationWithin 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 Insight, BlackRock, Royal London, Standard Life, Morgan Stanley, Citibank, and Goldman Sachs. The liquidity funds diversify risk by investing in a portfolio of short dated bank deposits and short dated bonds across a wide range of counterparties. This reduces the concentration risk which would occur if Just Group invested directly with the banks. 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 mitigationLiquidity 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.

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


50

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 risksLiquidity 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 risksDuring the period of integration following the merger between Just Retirement and Partnership, there has been a heightened exposure to operational risk arising from the challenges of bringing two businesses together. Integration activity is largely completed and investment priorities for 2018 include the enhancement of business resilience.

The external threat of cyber-crime and increasing sophistication of attacks continues. Exposure to the threat is expected to increase with the expansion of our online presence through both 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 Just Group. We recognise that the speed of change in cyber-threats means that this risk exposure will persist.

Key man dependencies and reliance on key skills (particularly in relation to actuarial, core system developers and DB related roles) persists, putting pressure on delivery of both BAU and development activity. Recruitment of specialist skills outside of London and attracting talent to work on older technologies remains an issue. A core system modernisation programme has been established and this is anticipated to reduce risk exposure from the limited supply of experienced and knowledgeable developers.

The Just Group has a material exposure to underperformance of its third party administration relationships ("TPAs”). Administration by one material outsourcer was successfully insourced in the period. Activity is underway to strengthen risk management across all types of third party relationships, including reviews of contingency arrangements, in the event of sudden failure or market exit, currently in place. In addition internal and outsourced procedures have been more closely aligned over the period.

Programmes of work have been established to ensure compliance with GDPR legislation and Senior Managers and Certification Regime. The Just Group solution for Implementing Information Prompts in the Annuity Market (PS17/12) was implemented successfully in February 2018.

The Just Group is still operating a partial internal model pending application for a group full internal model. In the short term the complexity of assessing the Group’s solvency capital position will continue until the internal model application is approved.

Creation of a new distribution company, HUB Financial Solutions, through the merger of Just Retirement Solutions and The Open Market Annuity Service completed at the end of 2017. Advice risks in HUB continue to be well managed and controlled, but it should be noted there are significant


51

growth plans for existing lines of advised business through 2018 and onwards. HUB is also investigating how to best launch an individual defined benefit transfer advice service. This is one of the highest risk areas for regulatory advice and would therefore increase risk exposure in this area. 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 riskThe 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) andinternal 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 financial investments are currently only comprised of Lifetime mortgages, corporate bonds, CRE Lending, Infrastructure Loans, gilts and cash. A range of new investments are being investigated which, if utilised, is anticipated to increase exposure to outsourcing risk.

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 concentrationThe 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.

C.5.4 Operational risk mitigationJust 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.


52

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.

Core operational risk owners provide quarterly reports on the status of the core operational risk exposure which are reviewed and challenged in the Operational Risk Committee chaired by the Group Chief Risk Officer; any risk events that have occurred are also reviewed by the Committee to consider adequacy of remedial action and any trends that may be emerging. Top operational risk exposures are reported to the Group Risk and Compliance Committee every quarter.

Just Group policies and procedures define the mandatory standards for the mitigation of business disruption; financial crime; outsourcing; legal risk management; data protection; information security; inside information; disclosure protocol; data; conflicts of interest; training & competency; remuneration; and conduct risk; proposition development. 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.

Just Group purchases insurance cover to mitigate the impact of a number of its operational risks should they materialise. The includes employer’s 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 exploring 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.

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

C.5.5 Sensitivity to operational risksA 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).

Loss events experienced by the wider insurance industry.

Standard operational risk scenarios used across the insurance industry (published by ORICInternational, 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


53

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

C.6.1. Regulatory Risk and Uncertainties

The financial services industry continues to see a high level of prudential regulatory activity and intense regulatory supervision. This reflects in part an increasing concern about the effect of the economic environment on the ability of insurers to continue to be able to meet policyholder obligations.

Further to the implementation of Solvency II, the PRA has published and continues to publish supervisory statements that set out its expectations for certain aspects of prudential regulation as well as consultation papers proposing additional guidance in a number of areas. They include to date supervisory statements and consultation papers relating to illiquid assets, matching adjustments and transitional provisions. There is a risk that the implementation of one or more of the PRA consultation papers or supervisory statements could result in a material negative impact on the regulatory capital position of the Group, JRL, and PLACL.

The following supervisory statements issued by the PRA could require further adjustments by the Just Group in the future:

SS6/16 - Recalculation of the ‘transitional measure on technical provisions’ under Solvency II,

April 2017

SS3/17 - Solvency II: matching adjustment - illiquid unrated assets and equity release

mortgages, July 2017

SS6/16 describes the expectations of the PRA on all insurers regarding the recalculation of the TMTP. In particular, the update in April 2017 from the original supervisory statement in May 2016 includes a specific section covering the consistency of Solvency I and Solvency II best estimate assumptions. Therefore there is a risk that changes to the PRA’s views of appropriate assumptions, including SS3/17, may be backdated into Solvency I calculations for the purpose of the TMTP calculations.

SS3/17 sets out the PRA’s expectations in respect of firms that are subject to the Solvency II regime, and that invest in illiquid, unrated assets within their matching adjustment portfolios. Amongst other matters SS3/17 states that firms will have to explain how they will group assets in their Solvency II matching adjustment portfolios with respect to credit quality steps (“CQS”), asset class and duration for the purposes of determining the fundamental spread, and that where assessing internally-rated assets, greater judgment is involved and firms need to “have confidence that the risk management of these more complex credit exposures, in particular the CQS mapping process and the size of the MA benefit claimed on them, is fit for purpose.” (SS3/17, paragraph 4.1).

The Group and the lifetime mortgage industry continue to engage with the PRA around the

implementation of SS3/17, in particular: on the parameterisation of tests that may restrict the


54

effective value of LTMs on insurers’ balance sheets; whether the tests should be applied

retrospectively to Solvency 1; and therefore whether any transitional arrangement for the changes

will be available. There is a risk that a change in the regulatory treatment of lifetime mortgages will

result in a material negative impact on the Solvency II recognisable value of those products or the

capital which needs to be held in respect of them which could have a negative effect on the

business, results of operations, financial condition and prospects of the Just Group, JRL, and PLACL.

It is possible that there will be future changes in SS3/17 or in guidance from the PRA on its application. On 12 June 2018 the PRA published on their website that “following engagement with insurers about Supervisory Statement (SS) 3/17, the PRA is planning to consult on an update to the SS that would build on the four key principles currently set out by providing additional clarity about the PRA's expectations for valuation of the no-negative-equity guarantee for the purpose of the effective value test and on the applicability of Transitional Measures on Technical Provisions. We expect to publish the consultation around the end of June or first half of July.”

As at 31 December 2017, the Board considers the Matching Adjustment in the Group’s balance sheet in respect of LTM notes satisfies the principles of SS3/17 giving rise to an implied property volatility of 12% and a positive deferment rate of 0.5% on a risk neutral basis. As at 31 December 2017, the sensitivity of the Group’s Own Funds (post-tax) to a 0.5% increase in the implied property volatility is a reduction of c£30m; and to a 0.25% increase in the implied deferment rate is a reduction of c£80m. A 0.5% decrease to the implied property volatility and a 0.25% decrease in the implied deferment rate would result in an increase in the Group’s Own Funds (post-tax) of c£30m and c£80m respectively. The sensitivities quoted do not allow for any potential offset from a change in TMTP which, as at 31 December 2017, would offset c70% of the impact on own funds. However it should be noted that any change to TMTP would be subject to regulatory approval and the future applicability of transitional relief is subject to consideration in the consultation that has been proposed. The sensitivities also do not allow for any change in SCR or other management actions which may be expected as a consequence of the change.

The following consultation papers issued by the PRA could require further adjustments by the Just Group in the future:

CP21/17 - Solvency II: Matching adjustment, October 2017

CP24/17 - Solvency II: Internal models - modelling of the matching adjustment, November 2017

In CP21/17 the PRA proposes additional guidance in the following areas:

asset eligibility – demonstrating cash flow fixity;

criteria for assessing ‘sufficient compensation’;

restructuring asset cash flows using special purpose vehicles (SPVs);

trading in the MA portfolio;

consequences of breaches of MA requirements; and

changes to MA portfolio approval.

In this consultation paper there has been a shift from Firms and Boards applying their judgement regarding what assets are eligible for inclusion in the matching adjustment portfolio to a requirement for approval from the PRA. The risk is that insurers may be constrained from investing in certain types of assets which they may otherwise have selected.

CP24/17 includes new proposals on the calculation of the matching adjustment and matching adjustment under stress. It introduces a 5 step framework for the calculation of the matching adjustment and fundamental spread under stress. CP24/17 requires not only value stresses which underpin the SCR calculation, but also cash-flow tests of the matching adjustment portfolio. In addition CP24/17 requires firms to stress the fundamental spread. There is a risk to insurers that the implementation of the requirements of CP24/17 in the light of other supervisory statements and consultation papers could result in a reduction in their matching adjustments.


55

C.7 Any other informationC.7.1 Sensitivities

The Group Solvency II results at 31 December 2017 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 oneach asset. The sensitivity allows for the resulting change in asset value and the change inliability value that follows from the change in risk adjusted internal rate of return on theportfolio. In the -50bp sensitivity the reference rate has a floor of 0%.

10% fall in property values: this sensitivity allows for the change in lifetime mortgage andcommercial mortgage asset value arising from an immediate fall of 10% in property prices. Thesensitivity also allows for the corresponding change in liabilities as a result of the yield change.

Credit Risk

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

Underwriting Risk

10% proportionate change in lapses: this sensitivity is modelled as a change assumptions forboth covered business lapse rates and lifetime mortgage voluntary repayment rates. Thesensitivity is applied as a proportionate reduction in the rate of withdrawal (e.g. a withdrawalrate of 5.5% becomes 4.95% under the sensitivity). The best estimate liabilities are alsochanged 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 ismodelled as a change in the best estimate mortality level and the prudent margins remainunchanged.

Estimated Group Solvency II sensitivities: %

Solvency II capital surplus at 31 December 2017 139%

-50 bps fall in interest rates (no TMTP recalculation) -17%

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

+100 bps credit spreads -4%

+10% LTM early redemption +1%

-10% property values1 -13%

-5% mortality -14%

1 Represents a 10% permanent fall below the assumed long-term trend for property prices


56

Assumptions and limitations of the sensitivity analysis

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

For each of the sensitivities, all of the other assumptions are unchanged, unless otherwisestated. Except where explicitly noted, the best estimate basis is changed to reflect the revisedassumptions in each sensitivity.

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

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

C.7.2 Stress and Scenario analysisThe 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.


57

Chapter D contents

D. Valuation for Solvency Purposes ......................................................................................................... 58

D.1 Assets ...................................................................................................................................................... 60

D.1.1 Asset valuation as at 31 December 2017 ................................................................................. 60

D.1.2 Valuation for solvency purposes ................................................................................................. 61

D.2 Technical Provisions ............................................................................................................................. 65

D.2.1 Methodology used in the calculation of Technical Provisions ............................................... 65

D.2.2 Valuation as at 31 December 2017 ............................................................................................ 65

D.2.3 Differences to statutory IFRS reporting ..................................................................................... 67

D.2.4 Key assumptions used in calculation of Technical Provisions ............................................... 67

D.2.5 Level of uncertainty in valuation ................................................................................................ 69

D.2.6 Long-term guarantee measures ................................................................................................. 69

D.2.7 Transitional measures .................................................................................................................. 71

D.3 Other liabilities ...................................................................................................................................... 71

D.3.1 Other liabilities valuation as at 31 December 2017 ................................................................ 72

D.3.2 Valuation for solvency purposes ................................................................................................. 73

D.4 Alternative methods for valuation .................................................................................................... 75

D.5 Other information ................................................................................................................................. 77

D.5.1 Reconciliations to IFRS statutory accounts .............................................................................. 77


58

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 tables below show the valuation of reinsurance recoverables, other assets, technical provisions and other liabilities for the Group as well as JRL and PLACL on a legal entity basis as at 31 December 2017 and 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.

Partnership Life

Just Retirement Assurance Company


Solvency Statutory Solvency Statutory Solvency Statutory

2017 Basis Basis Basis Basis Basis Basis

£m £m £m £m £m £m

Reinsurance recoverables (D1) 2,583.3 5,285.3 2,006.5 2,055.3 576.8 3,229.9

Other assets (D1) 18,603.9 18,833.8 12,698.3 12,698.3 5,711.4 5,713.7

Total assets 21,187.2 24,119.1 14,704.8 14,753.6 6,288.2 8,943.6

Technical provisions (D2) 16,565.2 16,872.8 11,147.9 11,342.3 5,417.3 5,482.2

Other liabilities (D3) 2,875.1 5,505.8 2,625.5 2,568.6 273.4 2,911.8

Total liabilities 19,440.3 22,378.6 13,773.4 13,910.9 5,690.7 8,394.0

Excess of assets over liabilities 1,746.9 1,740.5 931.4 842.7 597.5 549.6

Partnership Life





£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


59

Key aspects of the preparation of the Solvency II balance sheet that apply to assets and liabilities are as follows:

Valuation Assets and liabilities under Solvency II are valued in accordance with the Group’s accounting policies under IFRS as adopted by the European Union (“EU”), unless stated otherwise in sections D.1 ‘Assets’, D.2 ‘Technical provisions’ and D.3 ‘Other liabilities’. The effects of these valuation differences at 31 December 2017 are at Just Group level positive £6.4m, in JRL positive £88.7m, and in PLACL positive £47.9m.

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 2017 financial statements.

Reclassification of PLACL reinsurance deposit back liability In this Report, the Directors have reclassified all of the reinsurance deposit back liability in PLACL’s IFRS accounts as a deduction to reinsurance recoverable. The financial liability is in respect of reinsurance premiums deposited back and accounted for in their entirety as a financial liability in the IFRS accounts. This is discussed further in the reinsurance recoverable section D.1.2

Restructured assets JRL has established two special purpose entities (SPEs), Just Re1 Ltd and Just Re2 Ltd, in order to restructure its lifetime mortgage and callable bond portfolios to enable these illiquid investments to comply with Matching Adjustment requirements. Given that the risks and rewards of ownership of the underlying investments continue to reside with JRL, the lifetime mortgages and bonds continue to be reported on JRL’s IFRS balance sheet. The Solvency II balance sheet is presented on a similar basis, with transactions with the SPE’s treated as ‘failed sale’ assets and liabilities.

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 regulatory risks and uncertainties facing the business as set out in Section C.6.1, 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


60

Entities have been deconsolidated and reported as participations where material, with the result that intra-group transactions with the equity-accounted participations of value £671m (2016: £402m) are recognised and investments totalling £671m (2016: £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 £4.5m as at 31 December 2017 (2016: £2.4m) have therefore been excluded from the scope of the Solvency II balance sheet and supporting analyses within this report.

D.1 Assets

D.1.1 Asset valuation as at 31 December 2017

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 2017 presented on the Solvency II reporting basis, with statutory reporting valuation bases presented alongside for comparison purposes. The IFRS statutory accounts values are presented after reclassification to the solvency reporting format, but before any valuation adjustments. Reconciliations of the IFRS statutory basis to the IFRS Report and accounts for each company are provided in Section D.5.

Partnership Life





£m £m £m £m £m £m

Goodwill - 33.1 - - - 1.3

Intangible assets - 160.4 - - - 1.0

Deferred tax assets - 13.0 - - - -

Property, plant & equipment 19.6 19.6 15.9 15.9 - -

Participations 5.3 0.3 - - - -

Bonds 9,014.6 9,015.2 5,763.3 5,763.3 3,212.3 3,212.3

Collective investment undertakings 882.0 894.4 277.7 277.7 525.3 525.3

Derivatives 100.2 100.2 58.1 58.1 18.5 18.5

Deposits other than cash equivalents 90.6 90.6 72.5 72.5 - -

Assets held for index-linked and unit-linked funds

73.9 73.9 73.9 73.9 - -

Loans & mortgages 7,474.5 7,493.0 5,710.9 5,710.9 1,768.1 1,768.1

Reinsurance recoverables 2,583.3 5,285.3 2,006.5 2,055.3 576.8 3,229.9

Insurance & intermediaries receivables 31.0 31.3 27.6 27.6 3.5 3.5

Reinsurance receivables 9.5 9.5 0.1 0.1 9.4 9.4

Receivables (trade, not insurance) 693.1 685.5 677.0 677.0 12.1 12.1

Own shares (held directly) 5.0 - - - - -

Cash and cash equivalents 204.6 213.8 21.3 21.3 162.2 162.2

Total assets 21,187.2 24,119.1 14,704.8 14,753.6 6,288.2 8,943.6


61

Partnership Life





£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). 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.


62

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

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

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

Property, Plant and equipment JRL holds only property assets acquired in 2015 and 2017 which are held for own use. The intention is that these properties 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 For Just Group, the Solvency II value consists of non-insurance subsidiary participations valued under either the adjusted equity method or sectoral rules, and the share of net assets of all associated undertakings.

For JRL, the Solvency II value represents non-insurance subsidiary participations valued under the adjusted equity method.

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

Financial investments - Bonds, Investment funds and Derivatives All financial investments are measured at fair value for both Solvency II and IFRS purposes. Consistent with IFRS reporting, Just 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 IFRSapplies a three month term beyond which balances are treated as deposits, unless that are immediately callable,in which case they are treated as cash.

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


63

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.

For IFRS reporting, PLACL reinsurance treaties with deposit back arrangements are unbundled into a reinsurance recoverable element (accounted for under IFRS 4) which is presented as an asset within Reinsurance assets on the face of the IFRS balance sheet, and a deposit back financial element (accounted for under IAS 39) which is presented as a liability within Other financial liabilities on the face of the IFRS balance sheet.

In the 2016 SII balance sheet, the majority of the PLACL reinsurance treaty deposit back arrangements were treated in a consistent manner with the IFRS balance sheet, with the reinsurance recoverable element presented as an asset within Reinsurance assets on the face of the SII balance sheet, and the deposit back financial element presented as a liability within Deposits from reinsurers on the face of the SII balance sheet. However, a minority of deposit back liabilities, relating to reinsurance arising during 2016, did not follow the unbundling approach and were accounted for in the SII balance sheet by netting off from the corresponding reinsurance asset. This netting off approach was applied to £83.4m of deposit back liabilities in 2016 in respect of business written post 1/1/16, with the remaining deposit back liabilities of £2,657.7m following the unbundling approach and presented as a liability within Deposits from reinsurers on the face of the SII balance sheet.

During 2017 the Group reviewed its SII treatment of these assets and liabilities and concluded that the netting off the deposit back liabilities against the reinsurance recoverable asset is most appropriate for this business including for business written pre 1/1/16. The resulting net contract cash flows are valued on a basis consistent with treating the whole contract as a technical provision, in line with Article 76 of the Solvency II Directive. Therefore the netting off approach has been adopted for 2017 SII reporting. The IFRS treatment for these arrangements is unchanged.

In the 2017 SII balance sheet, therefore, PLACL’s reinsurance treaty deposit back arrangements have not been unbundled and reinsurance deposit back liabilities are netted off from the corresponding reinsurance assets. The value of the reinsurance recoverable asset is determined from cash flows that are net of the fixed repayments due on the deposit back. This results in the presentation of a net reinsurance asset, and no deposit back liability, on the face of the 2017 SII balance sheet. The table below sets out PLACL’s 2016 reinsurance assets and deposit back liabilities on a SII and IFRS basis as reported in the 2016 SFCR, together with pro-forma SII balance sheet 2016 figures showing the impact that the netting off treatment would have had in 2016. 2017 SII and IFRS figures are also presented.


64

The netting off approach has two steps: firstly to create reinsurance asset values which are net of the associated deposit back liability, and then to re-value these cash flows as a technical provision discounting at SII discount rates, in line with Article 76 of the Solvency II Directive:

Partnership Life Assurance Company Limited IFRS value Netting off adjustment

Revaluation of net cash flows for SII SII value

£m £m £m £m 2017 as reported Reinsurance assets 3,229.9 (2,654.1) 1.0 576.8 Deposits from reinsurers 2,654.1 (2,654.1) - -

2016 as reported Reinsurance assets 3,333.0 (83.4) 218.9 3,468.5 Deposits from reinsurers 2,741.1 (83.4)* - 2,657.7

2016 pro-forma following netting off approach for all reinsurance assets Reinsurance assets 3,333.0 (2,741.1) (5.9) 586.0 Deposits from reinsurers 2,741.1 (2,741.1) - -

* Note that this is the value assessed at the Matching Adjustment, therefore reflecting the value of the RDB liability included as an adjustment to reinsurance recoverable

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.


65

D.2 Technical ProvisionsThe calculation of Risk Margin (RM) in JRL and at Just Group level and Transitional Measures on Technical Provisions (TMTP) in JRL, PLACL and at Just Group level are unaudited.

D.2.1 Methodology used in the calculation of Technical Provisions

General Methodology Under Solvency II, the Technical Provisions gross of reinsurance are the sum of the Best Estimate Liability (BEL) and Risk Margin (RM). Transitional Measures can be used to reduce the calculated Solvency II Technical Provisions.

Best Estimate Liabilities Best Estimate Liabilities are calculated by projecting expected future benefit outgoings (e.g. annuity payments), premium income and the costs of maintaining the contracts. These cash flows are discounted to take into account the time value of money. The relevant discount rate is discussed further below.

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

Risk Margin The Risk Margin is calculated using the assumptions and methodology prescribed by the regulations.

The regulations require an SCR for each future year to be calculated for non-hedgeable risks. For some 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 2017A breakdown of Solvency II Technical Provisions is summarised in the table below.

Partnership Life





£m £m £m £m £m £m

Gross Best Estimate 17,699.5 11,675.3 6,024.2

Risk Margin 902.3 660.0 242.3

TMTP (2,110.4) (1,261.2) (849.2)

Technical provisions – Other life 16,491.4 16,799.0 11,074.1 11,268.5 5,417.3 5,482.2

Technical provisions – Index-linked and unit-linked

73.8 73.8 73.8 73.8 - -

Technical provisions – Total gross 16,565.2 16,872.8 11,147.9 11,342.3 5,417.3 5,482.2

Reinsurance recoverable 2,583.3 5,285.3 2,006.5 2,055.3 576.8 3,229.9

Technical provisions – Net of reinsurance 13,981.9 11,587.5 9,141.4 9,287.0 4,840.5 2,252.3


66

Partnership Life





£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 lessthan 0.7% of the total.

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 GIfL, except that each scheme contains a number of individual policyholders. There are two propositions, a “buy-in”, where in return for the payment of a single premium, pension scheme trustees buy a bulk purchase annuity insurance policy which provides pension benefit payments for identified scheme members and their qualifying beneficiaries. In the “bulk buy-out” proposition the scheme of trustees secure member benefits by purchasing, in bulk, many individual annuity policies in the names of the individual scheme members.

Care Plans This product is similar to GIfL, but will contribute to the costs of providing immediate nursing care for clients. In return for a single premium, the income payable directly to the care provider(s), for life in order to cover care costs. The product also includes a “payment protection” option whereby the income paid by the policy can be set to be no less than a guaranteed minimum amount.

Fixed Term Annuity (FTA) (discontinued) This is a non-profit single premium pension plan written under the capped drawdown rules. The plan provides a lump sum that is payable if the insured life survives to the end of the fixed term. An income selectable at outset is payable throughout the plan term while the insured life is alive. The life insured may elect to include additional death benefit at outset including a guaranteed period, dependant’s annuity or value protection on the annuity.


67

Term Assurance and Whole of Life Protection (discontinued) These are non-profit whole of life or fixed term assurances, written on a single life or joint life first death basis. The benefit is a single lump sum payable on death.

'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.

D.2.3 Differences to statutory IFRS reportingThe 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 andSolvency II.

There are certain regulatory restrictions over the assets that can be used to back liabilities discounted at ratesinclusive of the Matching Adjustment under Solvency II. Lifetime Mortgages and ineligible callable bonds arestructured into tranches of notes to be eligible for Matching Adjustment.

The PLACL reinsurance recoverable is calculated net of the fixed schedule of deposit repayments.

At Just Group level, the deconsolidation of JRSA.

D.2.4 Key assumptions used in calculation of Technical ProvisionsThe 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.


68

The standard tables which underpin the mortality assumptions are summarised in the table below.

Product Group 2017 2016

Individually underwritten Guaranteed Income for Life Solutions (JRL)

PCMA/PCFA00, with CMI 2014 model mortality improvements for both Merica & PrognoSysTM underwritten business

PCMA/PCFA00, with CMI 2014 model mortality improvements for Merica business and CMI 2012 model improvements for PrognoSysTM business

Individually underwritten Guaranteed Income for Life Solutions (PLACL)

Modified E&W Population mortality, with CMI 2014 model mortality improvements


Defined Benefit (JRL)

Modified E&W Population mortality, with CMI 2016 model mortality improvements (standard underwritten business) Reinsurer supplied tables underpinned by the Self-Administered Pension Scheme (SAPS) S1 tables, with CMI 2009 model mortality improvements (medically underwritten business)

Reinsurer supplied tables underpinned by the Self-Administered Pension Scheme (SAPS) S1 tables, with CMI 2009 model mortality improvements (for both standard underwritten and medically underwritten business)

Defined Benefit (PLACL) Modified E&W Population mortality, with CMI 2015 model mortality improvements


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

Modified PCMA/PCFA bespoke improvements

Term and whole of life products (PLACL)

TM/TF00 Select 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 4.2% derived from the expected retail price index implied by inflation swap rates and an additional allowance for earnings inflation.

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

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

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

Adjustment.

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

Matching Adjustment (MA) Volatility Adjustment (VA)

JRL Written notice 2201079 on 7 November 2015 n/a

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

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

Further explanation is given in section D.2.6 below.


69

D.2.5 Level of uncertainty in valuationSet 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.

Further to the implementation of Solvency II, the PRA has published and continues to publish supervisory

statements that set out its expectations for certain aspects of prudential regulation. This includes to date

statements relating to illiquid assets, matching adjustments and transitional provisions. There is a risk that the

implementation of one or more of these statements could result in a negative impact on the regulatory capital

position of the Group.

This has been covered in more detail in Section C.6.1.

D.2.6 Long-term guarantee measuresThe 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.


70

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

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

It is a single flat addition (spread), which can be applied to the basic risk-free interest rate term structure. 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. A smaller volume of corporate bonds denominated in foreign currencies are held alongside derivatives (cross currency swaps) which transform the cash flows back to GBP. Inflation swaps are held in conjunction with inflation linked bonds to hedge the cash flows of insurance obligations that are linked to inflation.

Lifetime Mortgages Notes are structured assets that are issued by a wholly owned SPE, Just Re1 Ltd. Just Re1 Ltd holds two pools of lifetime mortgages, each of which provides the collateral for issuance of senior and mezzanine notes to JRL, eligible for inclusion in its matching portfolio. For the purposes of assessing the Just Retirement Limited Matching Adjustment, it is assumed that the securitisation structure does not collapse when preparing the Group consolidated Best Estimate Liabilities.

The key assumptions in determining the Matching Adjustment on LTM notes, are the spread and the credit rating which is used to evaluate the risk of default and downgrade. The rating is set using an internal rating methodology and depends upon the fixed note cash flows and the security provided by the underlying lifetime mortgages, as collateral, with additional security provided by a reserve fund held by Just Re1 Ltd. The spread on the notes that have been included in the matching portfolio has been set having taken into consideration the relevant requirements of the SII regulations and guidance. The resulting spreads on these notes are lower than the IFRS spread on the underlying lifetime mortgage notes. The rating of the LTM notes in the Matching Adjustment Portfolio in JRL has been set equivalent to an external rating of A as at 31 December 2017 (AA, 31 December 2016).

A similar structure is used to convert callable bonds, issued by a wholly owned SPE, Just Re2 Ltd, into structured notes for inclusion in the matching portfolio, but with the credit rating based upon the external ratings of the underlying bonds.

PLACL does not include structured callable bonds and lifetime mortgages in its Matching Adjustment.

The following table sets out further information on the Matching Adjustment in JRL and PLACL (PLACL net of reinsurance).

31 December 2017 31 December 2016

JRL PLACL JRL PLACL

Matching Adjustment in bps 132 89 176 124

Value of Matching Adjustment (£'m) 1,878 276 2,155 373

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

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

PLACL has approval to use the VA for certain insurance and reinsurance obligations. As at 31 December 2017, this has been used for policies that are in the Non Matching adjustment portfolio with a Best estimate liabilities value of £2.7 bn.


71

D.2.7 Transitional measures

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

Risk-free interest rate term-structure transitional measure

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

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

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

The TMTP was calculated in line with these Regulations as at 31 December 2015. The TMTP has been recalculated as at 31 December 2017 in-line with the requirement to recalculate every two years. The 31 December 2017 position reflects this recalculation.

The TMTP reported at 31 December 2017 has been reduced to reflect the amortisation required by condition 1 of Regulation 54. This condition requires the TMTP to be reduced by 1/16th of its original 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 2017, 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”.

On the 6 April 2018, the PRA approved JRL’s application to phase in a revision to Individual Capital Guidance via a requirement pursuant to section 55m(5)(a) of the Financial Services and Markets Act 2000. The requirement will result in an accelerated amortisation for a portion of TMTP over a period of three years up to 31 December 2020. This requirement does not impact the TMTP as at 31 December 2017 but will result in the TMTP as at 31 December 2020 being £150m lower than would be expected by the 1/16 per annum amortisation.


72

D.3 Other liabilities

D.3.1 Other liabilities valuation as at 31 December 2017 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 2017. 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.

Partnership Life





£m £m £m £m £m £m

Provisions other than technical provisions 2.1 2.1 0.5 0.5 - -

Deposits from reinsurers 2,089.4 4,743.5 2,089.4 2,089.4 - 2,654.1

Deferred tax liabilities 29.9 39.3 27.5 11.1 10.3 -

Derivatives 152.4 152.4 69.9 69.9 43.0 43.0

Debts owed to credit institutions 103.6 103.6 19.8 19.8 83.8 83.8

Insurance & intermediaries payables 6.4 7.1 3.8 3.8 2.8 2.8

Reinsurance payables 7.9 7.9 4.9 4.9 3.0 3.0

Payables (trade, not insurance) 89.7 94.5 65.1 65.2 17.8 17.8

Subordinated liabilities 393.7 355.4 344.6 304.0 112.7 107.3

Total liabilities (excluding Technical Provisions)

2,875.1 5,505.8 2,625.5 2,568.6 273.4 2,911.8

Total liabilities (including Technical Provisions)

19,440.3 22,378.6 13,773.4 13,910.9 5,690.7 8,394.0

Partnership Life





£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


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


73

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 2017 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.

The IFRS and SII balance sheet treatments for reinsurance treaties with deposit back arrangements are described in Section D.1.2 “Reinsurance recoverables.”

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

• PLACL has an agreement with two reinsurers whereby financial assets arising from the payment of reinsurance premiums, less the repayment of claims, in relation to specific treaties, are legally and physically deposited back. Although the funds are managed by PLACL (as it controls the investment of the asset), no future benefits accrue to PLACL as any returns on the deposits are paid to reinsurers. Consequently the deposits are not recognised as assets of PLACL and the investment income they produce does not accrue to PLACL. The value at 31 December 2017 was £221.3m.

• 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 2017 was £292.9m.

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.


74

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 £11.9m (2016: £22.7m) of which £2.1m (2016: £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.


75

D.4 Alternative methods for valuation

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

Residential and commercial loans secured by mortgages

Infrastructure private placement bonds and other loans

Derivative assets and liabilities

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

Subordinated debt liabilities

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

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

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

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

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

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

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

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

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

It is Just Group’s policy that if the market for a financial investment or liability is not active, the fair value must be determined using alternative valuation techniques. The Group’s over the counter derivatives and residential and commercial mortgage portfolios are not quoted on active markets, and consequently fall into this category. 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 2017. 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.


76

Total financial investments at 31 December analysed into the hierarchy of valuation methods explained above, are as follows:

Partnership Life





£m £m £m £m £m £m

Level 1 1,231.2 1,232.4 440.0 440.0 698.6 698.6

Level 2 8,115.7 8,138.4 4,995.7 4,995.7 3,057.5 3,057.5

Level 3 8,288.9 8,296.5 6,520.7 6,520.7 1,768.1 1,768.1

Total financial investments 17,635.8 17,667.3 11,956.4 11,956.4 5,524.2 5,524.2

Partnership Life





£m £m £m £m £m £m

Level 1 1,005.5 1,008.6 500.5 500.5 303.7 303.7

Level 2 8,922.4 8,928.4 5,425.2 5,425.2 3,446.1 3,446.1

Level 3 6,991.7 6,991.7 5,017.9 5,017.9 1,971.0 1,971.0

Total financial investments 16,919.6 16,928.7 10,943.6 10,943.6 5,720.8 5,720.8


77

D.5 Other information

D.5.1 Reconciliations to IFRS statutory accounts

Just Group plc

Statement of financial position At 31 December 2017

R&A ref.

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 14 193.5 - - - - 193.5 -

Property, plant and equipment 15 19.6 - - - - 19.6 19.6

Investment in joint ventures and associates 0.3 - - - - 0.3

5.3

Financial investments 16 18,287.1 3.6 1.6 - (625.0) 17,667.3 17,635.8

Reinsurance assets 1 22 5,285.3 - - - - 5,285.3 2,583.3

Deferred tax assets 17 13.0 - - - - 13.0 -

Current tax assets 29 3.7 (3.7) - - - - - Prepayments and accrued income 18 56.5 (56.5) - - - -

-

Insurance and other receivables 19 44.5 60.6 - (49.8) 671.0 726.3 733.6

Cash and cash equivalents 20 261.4 - (1.6) - (46.0) 213.8 204.6

Own shares directly held - - - - - - 5.0

Total assets 24,164.9 4.0 - (49.8) - 24,119.1 21,187.2

Insurance liabilities* 22 16,633.0 49.3 220.7 (30.2) - 16,872.8 16,565.2

Deposits from reinsurers 1 - 4,743.5 - - - 4,743.5 2,089.4

Investment contract liabilities 23 220.7 - (220.7) - - - -

Loans and borrowings 24 343.9 11.5 - - - 355.4 393.7

Other financial liabilities 1 25 5,045.4 (4,941.8) - - - 103.6 103.6

Derivatives - 152.4 - - - 152.4 152.4

Deferred tax liabilities 17 39.2 0.1 - - - 39.3 29.9

Other provisions 28 2.1 - - - - 2.1 2.1

Current tax liabilities 29 9.2 (9.2) - - - - -

Accruals and deferred income 30 45.4 (25.8) - (19.6) - - -

Insurance and other payables 31 85.5 24.0 - - - 109.5 104.0

Total liabilities 22,424.4 4.0 - (49.8) - 22,378.6 19,440.3

Excess of assets over liabilities 1,740.5 - - - - 1,740.5 1,746.9

* The risk margin and transitional measure in technical provisions included in Insurance liabilities are unaudited 1 As explained in Sections D 1.2 and D 3.2, the PLACL SII balance sheet follows a netting off approach for the treatment of reinsurance contracts with deposit back arrangements.


78



R&A ref.

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 9 15.9 - - - 15.9 15.9 Investment in joint ventures and associates 31 370.3 (370.3) - - -

-

Financial investments 10 11,946.7 8.1 1.6 - 11,956.4 11,956.4

Reinsurance assets 21 2,055.3 - - - 2,055.3 2,006.5

Prepayments and accrued income 12 49.8 (49.8) - - - -

Insurance and other receivables 13 337.9 416.6 - (49.8) 704.7 704.7

Cash and cash equivalents 14 23.0 (0.1) (1.6) - 21.3 21.3

Total assets 14,798.9 4.5 - (49.8) 14,753.6 14,704.8

Insurance liabilities* 16 11,102.5 49.3 220.7 (30.2) 11,342.3 11,147.9

Deposits from reinsurers - 2,089.4 - - 2,089.4 2,089.4

Investment contract liabilities 17 220.7 - (220.7) - - -

Loans and borrowings 18 300.0 4.0 - - 304.0 344.6

Other financial liabilities 19 2,224.9 (2,205.1) - - 19.8 19.8

Derivatives - 69.9 - - 69.9 69.9

Deferred tax liabilities 11 11.1 - - - 11.1 27.5

Other provisions 22 0.5 - - - 0.5 0.5

Current tax liabilities 23 9.6 (9.6) - - - -

Insurance and other payables 25 86.9 6.6 - (19.6) 73.9 73.8

Total liabilities 13,956.2 4.5 - (49.8) 13,910.9 13,773.4

Excess of assets over liabilities 842.7 - - - 842.7 931.4



R&A ref. R&A IFRS value Reclassifications

IFRS value in SII format

SII basis

£m £m £m £m

Intangible assets 10 2.3 - 2.3 -

Financial investments 12 5,524.2 - 5,524.2 5,524.2

Reinsurance assets 1 16 3,229.9 - 3,229.9 576.8

Current tax assets 21 3.7 (3.7) - -

Insurance and other receivables 13 21.6 3.4 25.0 25.0

Cash and cash equivalents 14 162.3 (0.1) 162.2 162.2

Total assets 8,944.0 (0.4) 8,943.6 6,288.2

Insurance liabilities* 16 5,482.2 - 5,482.2 5,417.3

Deposits from reinsurers 1

- 2,654.1 2,654.1 -

Derivatives - 43.0 43.0 43.0

Loans and borrowings 17 99.9 7.4 107.3 112.7

Other financial liabilities 1 18 2,781.0 (2,697.2) 83.8 83.8

Deferred tax liabilities

- - - 10.3

Insurance and other payables 22 31.3 (7.7) 23.6 23.6

Total liabilities 8,394.4 (0.4) 8,394.0 5,690.7

Excess of assets over liabilities 549.6 - 549.6 597.5

* The Risk Margin in JRL and transitional measures in JRL and PLACL within technical provisions included in Insurance liabilities are unaudited 1 As explained in Sections D 1.2 and D 3.2, the PLACL SII balance sheet follows a netting off approach for the treatment of reinsurance contracts with deposit back arrangements.


79

Chapter E Contents

E. Capital Management ........................................................................................................................................... 80 E.1 Basic Own funds .................................................................................................................................................. 80

E.1.1 Management of Own Funds ..................................................................................................................... 80 E.1.2 Own funds structure .................................................................................................................................. 81 E.1.3 Eligible own funds to meet SCR and MCR .............................................................................................. 82 E.1.4 Equity reconciliation between statutory and Solvency II valuations ............................................ 83

E.2 Solvency Capital Requirement and Minimum Capital Requirement ...................................................... 84 E.2.1 Solvency Capital Coverage ratios ............................................................................................................ 84 E.2.2 Solvency Capital Requirement ................................................................................................................. 85 E.2.3 Minimum Consolidated Group Solvency Capital Requirement ........................................................ 86 E.2.4 Change in MCR and SCR over the reporting period ............................................................................. 86

E.3 Use of the duration-based equity risk sub-module in the calculation of the Solvency Capital Requirement ....................................................................................................................................................... 86

E.4 Differences between the standard formula and any internal model used .......................................... 87 E.4.1 Scope and purpose of Internal Model .................................................................................................... 87 E.4.2 Internal Model Methodology .................................................................................................................... 87 E.4.3 Internal Model data appropriateness .................................................................................................... 87 E.4.4 Differences between the standard formula and internal model used .......................................... 88

E.5 Non-compliance with the Minimum Capital Requirement and non-compliance with the Solvency Capital Requirement ......................................................................................................................................... 89


80

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 2017.

Partnership Life



2017 2016 2017 2016 2017 2016

£m £m £m £m £m £m

Ordinary share capital 93.8 93.3 19.9 19.9 147.2 147.2

Share premium account 94.2 91.7 179.1 179.1 - -

Reconciliation reserve 1,553.9 1,556.0 732.4 873.0 450.3 238.8

Own shares (held directly) 5.0 1.6 - - - -

Solvency balance sheet 1,746.9 1,742.6 931.4 1,072.0 597.5 386.0

Own funds not eligible (0.5) (1.5) - - - -

Participations in other financial undertakings

(2.8) (2.4) - - - -

Own shares (held directly and indirectly)

(5.0) (1.6) - - - -

Total Tier 1 1,738.6 1,737.1 931.4 1,072.0 597.5 386.0


Total Tier 2 393.7 360.6 344.6 322.0 112.7 105.4

Deferred tax assets - - - - - 14.7

Total Tier 3 - - - - - 14.7

Total Basic Own Funds 2,132.3 2,097.7 1,276.0 1,394.0 710.2 506.1

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).


81

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.

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 £282.3m

JRL 9% £250m notes Internal Oct 2016 / Oct 2026 £282.3m

JRL 10% £50m notes Internal Oct 2012 and May 2013 / Oct 2022 £62.3m

PLACL 9.5% £100m notes External March 2015 / March 2025 £112.7m

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 24 months of amortisation on transitional measures applied to technical provisions in both JRL and PLACL.


82

Consolidation of Own Funds Consolidation of Own funds is in accordance with Method 1 ‘Accounting consolidation-based method’ as described in Article 230 of the Solvency II Directive. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are excluded from the date of disposal. Entities included in scope of consolidation are those entities in which the Group, directly or indirectly, has power to exercise control over the financial and operating policies in order to gain economic benefits.

Just Group has approval from the Prudential Regulation Authority (PRA) to exclude Just Retirement South Africa (JRSA) from its regulatory scope. As a result, adjustment is made to remove JRSA when comparing IFRS basis results with Solvency II basis.

Availability and transferability of own funds JRL’s and PLACL’s balance sheets include matching portfolios of assets and liabilities. Under the regulatory capital rules, there is a restriction on the transferability of assets out of the matching portfolio and into the non-matching portfolio. There are no restrictions other than meeting the eligibility criteria on transfers into the matching asset portfolio.

The matching portfolio of assets is carefully managed to ensure that liabilities are 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 2.55 pence per ordinary share (2016: 2.4 pence) was approved by Just Group’s shareholders at its AGM on 17 May 2018, equating to a total of £23.9m (2016: £22.4m). This dividend was approved after 31 December 2017 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 2017. Ancillary Own funds

There are no ancillary Own funds in Just Group, JRL or PLACL at 31 December 2017.

E.1.3 Eligible own funds to meet SCR and MCR

Partnership Life



2017 2016 2017 2016 2017 2016

Available own funds £m £m £m £m £m £m

Total available own funds excluding other financial sectors

2,132.3 2,097.7 1,276.0 1,394.0 710.2 506.1

Total available own funds including other financial sectors

2,135.1 2,100.1

Eligible own funds

Total eligible own funds to cover SCR 2,135.1 2,100.1 1,276.0 1,394.0 710.2 506.1

Total eligible own funds to cover minimum Group SCR

1,815.0 1,806.6

Total eligible own funds to cover MCR 980.4 1,119.6 625.0 407.9

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 2017, and hence the analysis by tier is as presented in section E.1.


83

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.

For JRL, Tier 2 capital of £49.0m (2016: £47.6m) (20% of MCR) of the total £344.6m (2016: £322.0m) available was eligible to meet the MCR. When combined with Tier 1 capital of £931.3m (2016: £1,072.0m), total eligible own funds to cover MCR totalled £980.3m (2016: £1,119.6m).

For PLACL, Tier 2 capital of £27.5m (2016: £22.0m) (20% of MCR) of the total £112.7m (2016: £105.4m) available was eligible to meet the MCR. When combined with Tier 1 capital of £597.5m (2016: £386.0m), total eligible own funds to cover MCR totalled £625.0m (2016: £407.9m). The Tier 3 capital in 2016 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.

Partnership Life



2017 2016 2017 2016 2017 2016

£m £m £m £m £m £m

Statutory accounts - Shareholder funds 1,740.5 1,610.6 842.7 718.5 549.6 474.7

Deconsolidation of JRSA (4.5) (2.4) - - - -

Goodwill (33.1) (33.1) - - (1.3) (1.3)

Intangible assets (160.5) (183.9) - - (1.0) (1.0)

Risk margin (902.3) (951.0) (660.0) (685.0) (242.3) (266.0)

TMTP 2,110.4 1,336.6 1,261.2 1,073.4 849.2 263.2

Other valuation differences and impact on deferred tax

(1,008.6) (35.8) (512.5) (34.9) (556.7) (68.9)

Adjustment for own shares 5.0 1.6 - - - -

Solvency balance sheet - Excess Assets over Liabilities

1,746.9 1,742.6 931.4 1,072.0 597.5 400.7

Ineligible items (5.5) (3.1) - - -

Subordinated debt 393.7 360.6 344.6 322.0 112.7 105.4

Own funds 2,135.1 2,100.1 1,276.0 1,394.0 710.2 506.1

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.


84

TMTP The TMTP is a feature of the Solvency II balance sheet and not the statutory balance sheet. It is described further in section D.2.

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

Other valuation differences and impact on deferred taxes

This represents the other differences in Technical Provisions and other liabilities between the Statutory and Solvency II balance sheets. 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 D.3.2 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 2017. The Group consolidated minimum SCR for Just Group, and the Minimum Capital Requirement (MCR) for JRL and PLACL are also shown below:

Partnership Life



Minimum

2017 SCR Group SCR SCR MCR SCR MCR

£m £m £m £m £m £m

Eligible Own funds 2,135.1 1,815.0 1,276.0 980.4 710.2 625.0

Capital Requirement 1,539.2 382.2 979.8 245.0 549.1 137.3

Excess Own funds 595.9 1,432.8 296.2 735.4 161.1 487.7

Coverage ratio % 139% 475% 130% 400% 129% 455%

Partnership Life



Minimum

2016 SCR Group SCR SCR MCR SCR MCR

£m £m £m £m £m £m

Eligible Own funds 2,100.1 1,806.6 1,394.0 1,119.6 506.1 407.9

Capital Requirement 1,393.8 347.7 951.5 237.9 439.1 109.8

Excess Own funds 706.3 1,458.9 442.5 881.7 67.0 298.1

Coverage ratio % 151% 520% 147% 471% 115% 372%


85

E.2.2 Solvency Capital Requirement

Just Group uses a Partial Internal Model to calculate its Solvency Capital Requirement (SCR), approved following the merger between JRG and PAG.

The Partial Internal Model comprises:

i) an approved internal model for the ex-Just Retirement Group of companies (JRG), where Just Retirement Limited is the sole insurance entity, and

ii) a Standard Formula result for the ex-Partnership Assurance Group of companies (PAG), where Partnership Life Assurance Company Limited is the sole insurance entity.

The Group intends to progress an internal model major change application for the ex-Partnership Assurance Group companies to use the Group’s internal model.

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 2017 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 1,403 954 446

Counterparty Default 20 - 20

Life underwriting 831 606 224

Operational 64 33 24

Other risks - - -

Other adjustments 19 20 -

Sub-total pre-diversification 2,337 1,613 714

Diversification (572) (437) (135)

Sub-total post-diversification 1,765 1,176 579

Loss absorbing capacity of Deferred Tax & Non-insurance capital requirements

(226) (196) (30)

Solvency Capital Requirement 1,539 980 549

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 2017 there are four identified risks which are included in the Internal Model but for which no capital is held: concentration risk, currency risk, counterparty default risk and equity risk. These risks have been quantified as not exceeding the defined threshold.


86

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. The table below sets out the calculation and inputs:

Partnership Life



2017 2016 2017 2016 2017 2016

£m £m £m £m £m £m

Linear MCR - - 188.6 149.6 101.7 52.6

SCR - - 979.8 951.5 549.1 439.1

MCR cap (45% of SCR) - - 440.9 428.2 247.1 197.6

MCR floor (25% of SCR) - - 245.0 237.9 137.3 109.8

Minimum Capital Requirement - - 245.0 237.9 137.3 109.8

Group Consolidated Minimum SCR 382.2 347.7

For both JRL and PLACL, the floor of the corridor is the biting measure and therefore the MCR is equal to 25% of their respective SCRs.

E.2.4 Change in MCR and SCR over the reporting period For PLACL, the increase in SCR and MCR since the previous year primarily reflect the modification to the treatment of deposit back liabilities on the SII balance sheet. The removal of IAS39 treatment for the deposit back liabilities has increased both Technical Provisions and SCR. For JRL, the increase in MCR and SCR is mainly due to new business written over the period. This is partially offset by reduction attributed to the unwind of inforce business and change in assumptions.

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.


87

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, the Group intends to progress an internal model major change application for the ex-Partnership Assurance Group companies to use the Group’s internal model. The internal model is applied to all relevant areas of the companies within its scope where capital considerations are part of the decision making process. The Internal Model is used across the following categories:

Capital and risk reporting/monitoring/management

ORSA

Business planning/strategy formulation/short term forecasting

Strategic decisions

Pricing

New product development

Risk mitigation assessment

Investment strategy assessment A register is maintained recording the specific occasions where the Internal Model is used across these categories.

E.4.2 Internal Model Methodology The Solvency Capital Requirement (SCR) is defined as the Value at Risk (VaR) of the change in Basic Own Funds (BOF) over 1 year at the 99.5th confidence level. The SCR is derived 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.


88

Aggregation involves deriving a multivariate distribution of all the risks being modelled using a dependency structure consisting of a correlation matrix and a copula. The correlation matrix is derived using the same data sources as those used in the Risk Quantification process. Where expert judgement is used in this part, it is also used in setting the dependency between that risk and the others.

E.4.4 Differences between the standard formula and internal model used The ex-JRG Internal model represents a specific assessment of the risks faced by the ex-JRG business. A successful application to the PRA was made to use this model for regulatory reporting purposes, rather than use the generic Standard Formula model used by entities without approved Internal models. The key comparisons between the Internal model used for the ex-JRG business and the Standard Formula methodology are as follows: Modelling methodology

The Standard Formula (SF) SCR is calculated as the Value at Risk (VaR) of the change in Basic Own Funds (BOF) over 1 year at the 99.5% confidence level. The SCR under the Internal Model (IM) is calculated under the same definition.

The SF calculates individual SCR’s for each risk sub-module based on prescribed deterministic stresses. These individual sub-module SCR’s are aggregated to give the risk module SCR using defined correlation matrices. The risk module SCR’s are then aggregated to give the final SCR using another defined correlation matrix.

The Internal Model produces a full probability distribution forecast of the change in basic own funds (BOF) over 1 year. This is derived by calibrating risk distributions for the individual risk drivers. These are then combined using a copula to produce a number of scenarios. Changes in BOF with respect to the base balance sheet are calculated in each scenario which are then ranked to produce the probability distribution forecast. The change in BOF that relates to 99.5% point of the distribution is the SCR.

Risk Quantification:

Longevity Risk

The Internal Model Longevity Risk calibration uses a stochastic model to capture trend (mortality improvement) and level (current assumptions) risk allowing for the age distribution of JRL’s policyholders and the concentrations in its risk e.g. relating to enhanced annuities.

This is considered more appropriate to the insurance business within JRL than the Standard Formula which uses a single deterministic stress across the whole portfolio of business.

Credit Risk

The credit risk calibrations in both SF and IM apply a stress across the whole spread curve, with a different stress for each issuer rating. The IM calibration also allows for sector (financial / non-financial).

This is considered more appropriate than the Standard Formula's approach of a single factor. The SF stress is deterministic, whereas the IM stress is defined by a distribution.

Property Risk

JRL is exposed to property risk via the No Negative Equity Guarantee on its lifetime mortgage products rather than being exposed to property values directly. The IM models property price volatility and house price inflation in addition to changes in property prices. This calculation is considered to be more appropriate than the Standard Formula approach.

Interest Rate Risk

The SF stresses define a shift up and down respectively, with the stress based on term.

The IM models interest rate shocks use Principal Component Analysis (PCA). This allows for more complex yield interactions across the whole yield curve by allowing for changes in the shape as well as level. SF prescribes a “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.


89

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.

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 2017.

F.1.1 Just Group plc

31 December 2017

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

90

F.1.1 Just Group plcS.02.01.02Balance sheet£000 Solvency II value

Assets C0010Intangible assets R0030 -Deferred tax assets R0040 -Pension benefit surplus R0050 -Property, plant & equipment held for own use R0060 19,514Investments (other than assets held for index-linked and unit-linked contracts) R0070 10,092,796

Property (other than for own use) R0080 -Holdings in related undertakings, including participations R0090 5,346Equities R0100 -

Equities - listed R0120 -Equities - unlisted R0120 -

Bonds R0130 9,014,647Government Bonds R0140 807,135Corporate Bonds R0150 8,081,631Structured notes R0160 -Collateralised securities R0170 125,881

Collective Investments Undertakings R0180 882,012Derivatives R0190 100,203Deposits other than cash equivalents R0200 90,588Other investments R0210 -

Assets held for index-linked and unit-linked contracts R0220 73,892Loans and mortgages R0230 7,474,479

Loans on policies R0240 - Loans and mortgages to individuals R0250 6,567,999 Other loans and mortgages R0260 906,481Reinsurance recoverables from: R0270 2,583,270Non-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 2,583,270Health similar to life R0320 -Life excluding health and index-linked and unit-linked R0330 2,583,270

Life index-linked and unit-linked R0340 -Deposits to cedants R0350 -Insurance and intermediaries receivables R0360 31,048Reinsurance receivables R0370 9,516Receivables (trade, not insurance) R0380 693,038Own shares (held directly) R0390 5,000Amounts due in respect of own fund items or initial fund called up but not yet R0400 -Cash and cash equivalents R0410 204,636Any other assets, not elsewhere shown R0420 -Total assets R0500 21,187,188

91

F.1.1 Just Group plcS.02.01.02Balance sheet (continued)£000 Solvency II value

C0010Technical provisions – non-life R0510 -

Technical provisions – non-life (excluding health) R0520 -TP calculated as a whole R0530 -Best Estimate R0540 -Risk margin R0550 -

Technical provisions - health (similar to non-life) R0560 -TP calculated as a whole R0570 -Best Estimate R0580 -Risk margin R0590 -

Technical provisions - life (excluding index-linked and unit-linked) R0600 16,491,395Technical provisions - health (similar to life) R0610 -

TP calculated as a whole R0620 -Best Estimate R0630 -Risk margin R0640 -

Technical provisions – life (excluding health and index-linked and unit-linked) R0650 16,491,395TP calculated as a whole R0660 -Best Estimate R0670 16,368,809Risk margin R0680 122,586

Technical provisions – index-linked and unit-linked R0690 73,766TP calculated as a whole R0700 -Best Estimate R0710 73,766Risk margin R0720 -

Contingent liabilities R0740 -Provisions other than technical provisions R0750 2,145Pension benefit obligations R0760 -Deposits from reinsurers R0770 2,089,419Deferred tax liabilities R0780 29,846Derivatives R0790 152,426Debts owed to credit institutions R0800 103,604Financial liabilities other than debts owed to credit institutions R0810 -Insurance & intermediaries payables R0820 6,384Reinsurance payables R0830 7,855Payables (trade, not insurance) R0840 89,774Subordinated liabilities R0850 393,657

Subordinated liabilities not in BOF R0860 -Subordinated liabilities in BOF R0870 393,657

Any other liabilities, not elsewhere shown R0880 -Total liabilities R0900 19,440,269Excess of assets over liabilities R1000 1,746,919

92

F.1.1 Just Group plcS.05.01.02Premiums, claims and expenses by line of business(Unaudited)£000

Total

Health insurance

Insurance with profit

participation

Index-linked and unit-linked insurance

Other life insurance

Annuities stemming from

non-life insurance contracts and

relating to health insurance

obligations



relating to insurance

obligations other than health insurance

obligations

Health reinsurance

Life reinsurance

C0210 C0220 C0230 C0240 C0250 C0260 C0270 C0280 C0300Premiums written Gross R1410 - 48,421 1,883,278 - - - - 1,931,699 Reinsurers' share R1420 - - - (450,413) - - - - (450,413) Net R1500 - - 48,421 2,333,691 - - - - 2,382,111Premiums earned Gross R1510 - - 48,421 1,883,278 - - - - 1,931,699 Reinsurers' share R1520 - - - (450,413) - - - - (450,413) Net R1600 - - 48,421 2,333,691 - - - - 2,382,111Claims incurred Gross R1610 - - 6,957 1,149,805 - - - - 1,156,762 Reinsurers' share R1620 - - - 460,663 - - - - 460,663 Net R1700 - - 6,957 689,141 - - - - 696,098Changes in other technical provisions Gross R1710 - - (44,205) (827,362) - - - - (871,566) Reinsurers' share R1720 - - - 771,832 - - - - 771,832 Net R1800 - - (44,205) (1,599,193) - - - - (1,643,398)Expenses incurred R1900 - - 611 112,929 - - - - 113,541Other expenses R2500 100,157Total expenses R2600 213,698

Line of Business for: life insurance obligationsLife reinsurance

obligations

93

F.1.1 Just Group plcS.22.01.22Impact of long term guarantees and transitional measures£000

Amount with Long Term Guarantee measures and transitionals

Impact of transitional on technical provisions

Impact of transitional on interest rate

Impact of volatility adjustment set to zero

Impact of matching adjustment set to zero

C0010 C0030 C0050 C0070 C0090

Technical provisions R0010 16,565,161 2,110,333 - 54,779 2,189,397Basic own funds R0020 2,132,279 (1,759,958) - (42,291) (1,790,001)

Eligible own funds to meet Solvency Capital Requirement

R00502,135,042 (1,811,185) - (50,076) (2,000,304)

Solvency Capital Requirement R0090 1,539,138 213,668 - 5,849 1,042,159

94

F.1.1 Just Group plcS.23.01.22Own funds£000

TotalTier 1 -

unrestricted Tier 1 -

restricted Tier 2 Tier 3

C0010 C0020 C0030 C0040 C0050

Basic own funds before deduction for participations in other financial sector

Ordinary share capital (gross of own shares) R0010 93,831 93,831 -Non-available called but not paid in ordinary share capital at group level R0020 - - -Share premium account related to ordinary share capital R0030 94,187 94,187 -Iinitial funds, members' contributions or the equivalent basic own - fund item for mutual and mutual-type undertakin 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 1,553,901 1,553,901Subordinated liabilities R0140 393,657 - 393,657 -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 funds


R0220534

DeductionsDeductions for participations in other financial undertakings, including non-regulated undertakings carrying out financial activities

R02302,763 2,763 - -

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 2,763 2,763 - - -Total basic own funds after deductions R0290 2,132,279 1,738,622 - 393,657 -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 demand

R0310- -

Unpaid and uncalled preference shares callable on demand R0320 - -Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC R0350 - -Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC R0340 - -

- - - - -Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0360 - -Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0370 - - -Non available ancillary own funds at group level R0380 - - -Other ancillary own funds R0390 - - -

Total ancillary own funds R0400 - - -Own funds of other financial sectorsReconciliation reserve R0410 2,763 2,763 - -

Institutions for occupational retirement provision R0420 - - - - -Non regulated entities carrying out financial activities R0430 - - - -Total own funds of other financial sectors R0440 2,763 2,763 - -

Own funds when using the D&A, exclusively or in combination of method 1Own funds aggregated when using the D&A and combination of method R0450 - - - - -Own funds aggregated when using the D&A and a combination of method net of IGT R0460 - - - - -

Total available own funds to meet the consolidated group SCR (excluding own funds from other financial sector and from the undertakings included via D&A )

R05202,132,279 1,738,622 - 393,657 -

Total available own funds to meet the minimum consolidated group SCR R0530 2,132,279 1,738,622 - 393,657 -Total eligible own funds to meet the consolidated group SCR (excluding own funds from other financial sector and from the undertakings included via D&A )

R05602,132,279 1,738,622 - 393,657 -

Total eligible own funds to meet the minimum consolidated group SCR R0570 1,815,067 1,738,622 - 76,445Minimum consolidated Group SCR R0610 382,227Ratio of Eligible own funds to Minimum Consolidated Group SCR R0650 474.9%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 2,135,042 1,741,385 - 393,657 -Group SCR R0680 1,539,138Ratio of Eligible own funds to group SCR including other financial sectors and the undertakings included via D&A R0690 138.7%

C0060Reconciliation reserve

Excess of assets over liabilities R0700 1,746,919Own shares (included as assets on the balance sheet) R0710 5,000Forseeable dividends, distributions and charges R0720 -Other basic own fund items R0730 188,018Adjustment 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 1,553,901Expected profitsExpected profits included in future premiums (EPIFP) - Life business R0770 -Expected profits included in future premiums (EPIFP) - Non- life business R0780 -Total EPIFP R0790 -

95

F.1.1 Just Group plcS.25.02.22Solvency Capital Requirement - for groups using the standard formula and partial internal model(Unaudited)£000

Unique number of component Components descriptionCalculation of the Solvency Capital

Requirement

Amount modelled

USP Simplifications

C0010 C0020 C0030 C0070 C0080 C00901***** Market Risk 1,403,407 1,403,407 - -2***** Counterparty Risk 20,185 20,185 - -3***** Life underwriting risk 830,483 830,483 - -7***** Operational Risk 62,734 62,734 - -801*** Other risks - - - -803*** LACoDT (227,037) (227,037) - -804*** Other adjustments 20,000 20,000 - -

Calculation of Solvency Capital Requirement C0100Total undiversified components R0110 2,109,772Diversification R0060 (571,614)Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC R0160 -Solvency capital requirement excluding capital add-on R0200 1,538,158Capital add-ons already set R0210 -Solvency capital requirement for undertakings under consolidated method R0220 1,539,138Other information on SCRAmount/estimate of the overall loss-absorbing capacity of technical provisions R0300 -Amount/estimate of the overall loss-absorbing capacity ot deferred taxes R0310 (227,037)Capital requirement for duration-based equity risk sub-module R0400 -Total amount of Notional Solvency Capital Requirements for remaining part R0410 659,912Total 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 1,622,055Diversification effects due to RFF nSCR aggregation for article 304 R0440 (742,050)Minimum consolidated group solvency capital requirement R0470 382,227Information on other entitiesCapital requirement for other financial sectors (Non-insurance capital requirements) R0500 980Capital requirement for other financial sectors (Non-insurance capital requirements) - Credit institutions, investment firms and financial institutions, alternative investment funds managers, UCITS management companies

R0510980

Capital requirement for other financial sectors (Non-insurance capital requirements) - Institutions for occupational retirement provisions

R0520 -Capital requirement for other financial sectors (Non-insurance capital requirements) - Capital requirement for non- regulated entities carrying out financial activities

R0530 -Capital requirement for non-controlled participation requirements R0540 -Capital requirement for residual undertakings R0550 -

C0100Overall SCRSCR for undertakings included via D and A R0560 -Solvency capital requirement R0570 1,539,138

96

F.1.1 Just Group plcS.32.01.22Undertakings in the scope of the group

CountryIdentification code of the

undertakingType of code of the

ID of the undertakingLegal name of the undertaking Type of undertaking Legal form

Category (mutual/non mutual)

Supervisory Authority

C0010 C0020 C0030 C0040 C0050 C0060 C0070 C0080

GB 5493006456YEZEELRR90 LEI Just Group plcInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Public Limited Company Non-mutual 0

GB 549300O2RJG4POJCT414 LEI Just Retirement Group Holdings LimitedInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Limited Company Non-mutual 0

GB CL37F72IHHVQKFJYQU50 LEI Just Retirement (Holdings) LimitedInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Limited Company Non-mutual 0

GB P5SP0XPUO3I6PBITKC96 LEI Just Retirement Limited Life insurance undertaking Limited Company Non-mutual Prudential Regulation AuthorityGB 5493003W8JS1XYTM0O22 LEI HUB Financial Solutions Limited Other Limited Company Non-mutual Financial Conduct Authority

GB 549300PFCWHQEKP3RX50 LEI Just Retirement Management Services LimitedAncillary services undertaking as defined in Article 1 (53) of Delegated Regulation (EU) 2015/35 Limited Company Non-mutual 0

GB 5493005H4ZZ8SSBXAQ56 LEI TOMAS Acquisitions Limited Other Limited Company Non-mutual 0GB 549300XOY061F28LXY46 LEI The Open Market Annuity Service Limited Other Limited Company Non-mutual 0GB 549300YNECUYY4YCB995 LEI TOMAS Online Development Limited Other Limited Company Non-mutual 0

GB JREB Specific code Just Retirement Employee Benefit TrustAncillary services undertaking as defined in Article 1 (53) of Delegated Regulation (EU) 2015/35 Trust Non-mutual 0

GB 549300YC1K6V4K44NH40 LEI Just Re 1 Limited Other Limited Company Non-mutual 0GB 549300ESHO4MEK1F1Q39 LEI Just Re 2 Limited Other Limited Company Non-mutual 0

GB 549300GCBOHKFJJAPE23 LEI Just Retirement Money LimitedCredit institution, investment firm and financial institution Limited Company Non-mutual Financial Conduct Authority

GB 549300IAERQ88IEB7Q62 LEI Just Retirement Finance plc Other Public Limited Company Non-mutual 0GB 549300Q6T12B1QQXPW72 LEI Just Retirement Nominees Limited Other Limited Company Non-mutual 0GB 549300T2SSXODFKX3O83 LEI Just Equity Release Limited Other Limited Company Non-mutual 0GB 549300ZQKFZQWUVTPX41 LEI Just Annuities Limited Other Limited Company Non-mutual 0GB 549300D198Z4OWXF4P82 LEI Just Protection Limited Other Limited Company Non-mutual 0GB 5493000WL98XFIGVUI18 LEI Enhanced Retirement Limited Other Limited Company Non-mutual 0

GB 2138006K6GMGKWPFO418 LEI Partnership Assurance Group LimitedInsurance holding company as defined in Article 212(1) (f) of Directive 2009/138/EC Limited Company Non-mutual 0

GB 213800CBWLV4ZIFSL551 LEI Partnership Life Assurance Company Limited Life insurance undertaking Limited Company Non-mutual Prudential Regulation Authority

GB 549300HSTP9B7NWRYX93 LEI Partnership Home Loans Limited Credit institution, investment firm and financial institution Limited Company Non-mutual Financial Conduct Authority

GB 549300KI18CEVNU8JU80 LEI Partnership Services LimitedAncillary services undertaking as defined in Article 1 (53) of Delegated Regulation (EU) 2015/35 Limited Company Non-mutual 0

GB 549300KM5KU04ID09S69 LEI Partnership Holdings LimitedInsurance holding company as defined in Art. 212§ [f] of Directive 2009/138/EC Limited Company Non-mutual 0

GB 549300R20XQ1RR0MNC23 LEI Partnership Group Holdings LimitedInsurance holding company as defined in Art. 212§ [f] of Directive 2009/138/EC Limited Company Non-mutual 0

GB 2138006K6GMGKWPFO418GB00007 Specific code Eldercare Group Limited Other Limited Company Non-mutual 0

US 2138006K6GMGKWPFO418US00008 Specific code Partnership Life US CompanyAncillary services undertaking as defined in Article 1 (53) of Delegated Regulation (EU) 2015/35 Limited Company Non-mutual 0

GB 549300LMRJMK7XLKDQ49 LEI PASPV Limited Other Limited Company Non-mutual 0

JE 549300DOYZUFZS0VRK64 LEI PAG Holdings LimitedInsurance holding company as defined in Art. 212§ [f] of Directive 2009/138/EC Limited Company Non-mutual 0

JE 5493000EXZL6KSS4SC88 LEI PAG Finance LimitedInsurance holding company as defined in Art. 212§ [f] of Directive 2009/138/EC Limited Company Non-mutual 0

GB JRS Specific code Just Retirement Solutions Limited Other Limited Company Non-mutual 0GB JRPNom Specific code JRP Nominees Limited Other Limited Company Non-mutual 0GB JustInc Specific code Just Incorporated Limited Other Limited Company Non-mutual 0GB Pay4care Specific code Payingforcare Limited Other Limited Company Non-mutual 0GB ElderSolns Specific code Eldercare Solutions Ltd Other Limited Company Non-mutual 0GB ElderPropPtnr Specific code Eldercare Property Partners Limited Other Limited Company Non-mutual 0GB CARE Specific code Care Fees Investment Limited Other Limited Company Non-mutual 0GB HUBDev Specific code HUB Online Development Limited Other Limited Company Non-mutual 0GB HUBTfr Specific code HUB Transfer Solutions Limited Other Limited Company Non-mutual 0GB 549300KGKT9MJVUVDI55 Specific code PLACL RE 1 Limited Other Limited Company Non-mutual 0GB 549300RC7UEKHC6ES538 Specific code PLACL RE 2 Limited Other Limited Company Non-mutual 0GB JRPLtd Specific code JRP Group Limited Other Limited Company Non-mutual 0

97

F.1.1 Just Group plcS.32.01.22Undertakings in the scope of the group (continued)

Group solvency calculation

Legal name of the undertaking % capital share

% used for the establishment of

consolidated accounts

% voting rights Other criteria Level of influenceProportional share used

for group solvency calculation

YES/NODate of decision

if art. 214 is applied

Method used and under method 1, treatment of the undertaking

C0040 C0180 C0190 C0200 C0210 C0220 C0230 C0240 C0250 C0260

Just Group plc 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

Just Retirement Group Holdings Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

Just Retirement (Holdings) Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

Just Retirement Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

HUB Financial Solutions Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Just Retirement Management Services Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

TOMAS Acquisitions Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

The Open Market Annuity Service Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

TOMAS Online Development Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Just Retirement Employee Benefit Trust 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

Just Re 1 Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Just Re 2 Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Just Retirement Money Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Just Retirement Finance plc 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Just Retirement Nominees Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Just Equity Release Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Just Annuities Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Just Protection Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Enhanced Retirement Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Partnership Assurance Group Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

Partnership Life Assurance Company Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

Partnership Home Loans Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Partnership Services Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

Partnership Holdings Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

Partnership Group Holdings Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

Eldercare Group Limited 33% 33% 33% 0% Significant 33% Included in the scope 0 Method 1: Adjusted equity method

Partnership Life US Company 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

PASPV Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

PAG Holdings Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

PAG Finance Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Full consolidation

Just Retirement Solutions Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

JRP Nominees Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Just Incorporated Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Payingforcare Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Eldercare Solutions Ltd 33% 33% 33% 0% Significant 33% Included in the scope 0 Method 1: Adjusted equity method

Eldercare Property Partners Limited 33% 33% 33% 0% Significant 33% Included in the scope 0 Method 1: Adjusted equity method

Care Fees Investment Limited 33% 33% 33% 0% Significant 33% Included in the scope 0 Method 1: Adjusted equity method

HUB Online Development Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

HUB Transfer Solutions Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

PLACL RE 1 Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

PLACL RE 2 Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

JRP Group Limited 100% 100% 100% 0% Dominant 100% Included in the scope 0 Method 1: Adjusted equity method

Criteria of influence Inclusion in the scope of group supervision

98

F.1.2 Just Retirement Limited

31 December 2017




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

99

Just Retirement LimitedS.02.01.02Balance sheet£000 Solvency II value

Assets C0010Intangible assets R0030 -Deferred tax assets R0040 -Pension benefit surplus R0050 -Property, plant & equipment held for own use R0060 15,930Investments (other than assets held for index-linked and unit-linked contracts) R0070 6,171,594

Property (other than for own use) R0080 -Holdings in related undertakings, including participations R0090 13Equities R0100 -

Equities - listed R0110 -Equities - unlisted R0120 -

Bonds R0130 5,763,282Government Bonds R0140 255,685Corporate Bonds R0150 5,492,192Structured notes R0160 -Collateralised securities R0170 15,405

Collective Investments Undertakings R0180 277,692Derivatives R0190 58,126Deposits other than cash equivalents R0200 72,481Other investments R0210 -

Assets held for index-linked and unit-linked contracts R0220 73,892Loans and mortgages R0230 5,710,889

Loans on policies R0240 - Loans and mortgages to individuals R0250 5,195,080 Other loans and mortgages R0260 515,809Reinsurance recoverables from: R0270 2,006,487

Non-life and health similar to non-life R0280 -Non-life excluding health R0290 -Health similar to non-life R0300 -

Life and health similar to life, excluding health and index-linked and unit-linked R0310 2,006,487Health similar to life R0320 -Life excluding health and index-linked and unit-linked R0330 2,006,487

Life index-linked and unit-linked R0340 -Deposits to cedants R0350 -Insurance and intermediaries receivables R0360 27,560Reinsurance receivables R0370 90Receivables (trade, not insurance) R0380 677,062Own shares (held directly) R0390 -Amounts due in respect of own fund items or initial fund called up but not yet paid in R0400 -Cash and cash equivalents R0410 21,334Any other assets, not elsewhere shown R0420 -Total assets R0500 14,704,838

100

Just Retirement LimitedS.02.01.02Balance sheet (continued)£000 Solvency II value

Liabilities C0010Technical provisions – non-life R0510 -

Technical provisions – non-life (excluding health) R0520 -TP calculated as a whole R0530 -Best Estimate R0540 -Risk margin R0550 -

Technical provisions - health (similar to non-life) R0560 -TP calculated as a whole R0570 -Best Estimate R0580 -Risk margin R0590 -

Technical provisions - life (excluding index-linked and unit-linked) R0600 11,074,109Technical provisions - health (similar to life) R0610 -

TP calculated as a whole R0620 -Best Estimate R0630 -Risk margin R0640 -Technical provisions – life (excluding health and index-linked and unit-linked) R0650 11,074,109TP calculated as a whole R0660 -Best Estimate R0670 10,963,070Risk margin R0680 111,039

Technical provisions – index-linked and unit-linked R0690 73,766TP calculated as a whole R0700 -Best Estimate R0710 73,766Risk margin R0720 -

Contingent liabilities R0740 -Provisions other than technical provisions R0750 500Pension benefit obligations R0760 -Deposits from reinsurers R0770 2,089,419Deferred tax liabilities R0780 27,508Derivatives R0790 69,929Debts owed to credit institutions R0800 19,766Financial liabilities other than debts owed to credit institutions R0810 -Insurance & intermediaries payables R0820 3,754Reinsurance payables R0830 4,886Payables (trade, not insurance) R0840 65,165Subordinated liabilities R0850 344,621

Subordinated liabilities not in BOF R0860 -Subordinated liabilities in BOF R0870 344,621

Any other liabilities, not elsewhere shown R0880 -Total liabilities R0900 13,773,423Excess of assets over liabilities R1000 931,415

101

Just Retirement LimitedS.05.01.02Premiums, claims and expenses by line of business(Unaudited)£000

Total

Health insurance

Insurance with profit

participation

Index-linked and unit-linked

insurance

Other life insurance

Annuities stemming from non-life

insurance contracts and relating to

health insurance obligations



relating to insurance

obligations other than health insurance

obligations

Health reinsurance

Life reinsurance

C0210 C0220 C0230 C0240 C0250 C0260 C0270 C0280 C0300Premiums written Gross R1410 - - 48,421 1,803,357 - - - - 1,851,777 Reinsurers' share R1420 - - - (481,496) - - - - (481,496) Net R1500 - - 48,421 2,284,853 - - - - 2,333,273Premiums earned Gross R1510 - - 48,421 1,803,357 - - - - 1,851,777 Reinsurers' share R1520 - - - (481,496) - - - - (481,496) Net R1600 - - 48,421 2,284,853 - - - - 2,333,273Claims incurred Gross R1610 - - 6,957 721,890 - - - - 728,847 Reinsurers' share R1620 - - - 193,141 - - - - 193,141 Net R1700 - - 6,957 528,749 - - - - 535,706

Changes in other technical provisions

Gross R1710 - - (44,205) (1,010,405) - - - - (1,054,609) Reinsurers' share R1720 - - - 668,741 - - - - 668,741 Net R1800 - - (44,205) (1,679,145) - - - - (1,723,350)Expenses incurred R1900 - - 611 90,409 - - - - 91,020Other expenses R2500 82,877Total expenses R2600 173,897

Line of Business for: life insurance obligations Life reinsurance

102

Just Retirement LimitedS.12.01.02Life and Health SLT Technical Provisions£000

Contracts without options

and guarante

es

Contracts with options

or guarantees

Contracts without options

and guarantees

Contracts with

options or guarantees

C0020 C0030 C0040 C0050 C0060 C0070 C0080 C0090 C0100 C0150Technical provisions calculated as a whole R0010 - - - - - -Total Recoverables from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default associated to TP as a whole

R0020

- - - - - -Technical provisions calculated as a sum of BE and RMBest EstimateGross Best Estimate R0030 - 73,766 - 9,396,740 2,278,490 - - 11,748,996Total Recoverables from reinsurance/SPV and Finite Re after the adjustment for expected losses due to counterparty default

R0080- - - 2,038,423 (31,936) - - 2,006,487

Best estimate minus recoverables from reinsurance/SPV and Finite Re - total

R0090- 73,766 - 7,358,316 2,310,426 - - 9,742,508

Risk Margin R0100 - - 660,010 - - 660,010Amount of the transitional on Technical Provisions

Technical Provisions calculated as a whole R0110- - - - - -

Best estimate R0120 - - - (712,160) - - - (712,160)Risk margin R0130 - - (548,971) - - (548,971)

Technical provisions - total R0200 - 73,766 11,074,109 - - 11,147,875

Total (Life other than

health insurance, incl. Unit-

Linked)

Insurance with profit participatio

n

Index-linked and unit-linked insurance

Other life insuranceAnnuities

stemming from non-life

insurance contracts and

relating to insurance obligation other than

health insurance

Accepted reinsuranc

e

103

Just Retirement LimitedS.22.01.21Impact of long term guarantees and transitional measures£000

Amount with Long Term Guarantee

measures and transitionals

Impact of transitional on technical provisions

Impact of transitional on interest rate

Impact of volatility adjustment set to zero

Impact of matching adjustment set to zero

C0010 C0030 C0050 C0070 C0090

Technical provisions R0010 11,147,875 1,261,131 - - 1,878,128Basic own funds R0020 1,276,036 (1,055,120) - - (1,558,846)Eligible own funds to meet Solvency Capital Requirement

R00501,276,036 (1,056,549) - - (1,740,016)

Solvency Capital Requirement R0090 979,810 200,684 - - 920,748Eligible own funds to meet Minimum Capital Requirement

R0100980,406 (1,223,589) - - (1,832,091)

Minimum Capital Requirement R0110 244,953 50,171 - - 230,187

104

Just Retirement LimitedS.23.01.01Own funds£000

TotalTier 1 -

unrestricted Tier 1 -


C0010 C0020 C0030 C0040 C0050Basic own funds before deduction for participations in other financial sector as foreseen in article 68 ofDelegated Regulation (EU) 2015/35

Ordinary share capital (gross of own shares) R0010 19,900 19,900 -Share premium account related to ordinary share capital R0030 179,100 179,100 -Iinitial funds, members' contributions or the equivalent basic own - fund item for mutual and mutual-type undertakin R0040 - - -Subordinated mutual member accounts R0050 - - - -Surplus funds R0070 - -Preference shares R0090 - - - -Share premium account related to preference shares R0110 - - - -

Reconciliation reserve R0130 732,415 732,415Subordinated liabilities R0140 344,621 - 344,621 -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 - - - - -



R0220 -Deductions

Deductions for participations in financial and credit institutions R0230 - - - -Total basic own funds after deductions R0290 1,276,036 931,415 - 344,621 -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 demand

R0310 - -Unpaid and uncalled preference shares callable on demand R0320 - - -A legally binding commitment to subscribe and pay for subordinated liabilities on demand R0330 - - -Letters of credit and guarantees under Article 96(2) of the Directive 2009/138/EC R0340 - -Letters of credit and guarantees other than under Article 96(2) of the Directive 2009/138/EC R0350 - - - Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0360 - -Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0370 - - -Other ancillary own funds R0390 - - -

Total ancillary own funds R0400 - - -Available and eligible own funds

Total available own funds to meet the SCR R0500 1,276,036 931,415 - 344,621 -Total available own funds to meet the MCR R0510 1,276,036 931,415 - 344,621Total eligible own funds to meet the SCR R0540 1,276,036 931,415 - 344,621 -Total eligible own funds to meet the MCR R0550 980,406 931,415 - 48,991

SCR R0580 979,810.MCR R0600 244,953.Ratio of Eligible own funds to SCR R0620 130%Ratio of Eligible own funds to MCR R0640 400%

C0060Reconciliation reserve

Excess of assets over liabilities R0700 931,415Own shares (held directly and indirectly) R0710 -Foreseeable dividends, distributions and charges R0720 -Other basic own fund items R0730 199,000Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced funds R0740 -

Reconciliation reserve R0760 732,415Expected profits

Expected profits included in future premiums (EPIFP) - Life business R0770 -Expected profits included in future premiums (EPIFP) - Non- life business R0780 -

Total Expected profits included in future premiums (EPIFP) R0790 -

105

Just Retirement LimitedS.25.03.21Solvency Capital Requirement - for undertakings on Full Internal Models(Unaudited)£000

Unique number of component Components descriptionCalculation of the Solvency Capital

Requirement

C0010 C0020 C00301***** Market Risk 953,7492***** Counterparty Risk -3***** Life underwriting risk 606,2347***** Operational Risk 33,080801*** Other risks -803*** LACoDT (196,588)804*** Other adjustments 20,000

Calculation of Solvency Capital Requirement C0100Total undiversified components R0110 1,416,475Diversification R0060 (436,665)

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 979,810Capital add-ons already set R0210 -Solvency capital requirement R0220 979,810Other information on SCRAmount/estimate of the overall loss-absorbing capacity of technical provisions R0300 -Amount/estimate of the overall loss-absorbing capacity ot deferred taxes R0310 (196,588)Total amount of Notional Solvency Capital Requirements for remaining part R0410 339,014Total 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 1,383,726Diversification effects due to RFF nSCR aggregation for article 304 R0440 (742,930)

106

Just Retirement LimitedS.28.01.01Minimum Capital Requirement - Only life or only non-life insurance or reinsurance activity £000

Linear formula component for life insurance and reinsurance obligationsC0040

MCRL Result R0200 188,605Net (of

reinsurance/SPV) best

estimate and TP calculated

as a whole

Net (of reinsurance/SPV) total capital at

risk

C0050 C0060Obligations with profit participation - guaranteed benefits R0210 -Obligations with profit participation - future discretionary benefits R0220 -Index-linked and unit-linked insurance obligations R0230 73,766Other life (re)insurance and health (re)insurance obligations R0240 8,956,582Total capital at risk for all life (re)insurance obligations R0250 549

Overall MCR calculationC0070

Linear MCR R0300 188,605SCR R0310 979,810MCR cap R0320 440,915MCR floor R0330 244,953Combined MCR R0340 244,953Absolute floor of the MCR R0350 3,251

C0070Minimum Capital Requirement R0400 244,953

107

F.1.3 Partnership Life Assurance Company Limited

31 December 2017




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

108


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 -

Investments (other than assets held for index-linked and unit-linked contracts) R0070 3,756,098

Property (other than for own use) R0080 -

Holdings in related undertakings, including participations R0090 -

Equities R0100 -

Equities - listed R0110 -

Equities - unlisted R0120 -

Bonds R0130 3,212,285

Government Bonds R0140 551,449

Corporate Bonds R0150 2,550,359

Structured notes R0160 -

Collateralised securities R0170 110,476

Collective Investments Undertakings R0180 525,271

Derivatives R0190 18,542

Deposits other than cash equivalents R0200 -

Other investments R0210 -

Assets held for index-linked and unit-linked contracts R0220 -

Loans and mortgages R0230 1,768,134

Loans on policies R0240 -

Loans and mortgages to individuals R0250 1,372,919

Other loans and mortgages R0260 395,215

Reinsurance recoverables from: R0270 576,783

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 576,783

Health similar to life R0320 -

Life excluding health and index-linked and unit-linked R0330 576,783

Life index-linked and unit-linked R0340 -

Deposits to cedants R0350 -

Insurance and intermediaries receivables R0360 3,488

Reinsurance receivables R0370 9,425

Receivables (trade, not insurance) R0380 12,083

Own shares (held directly) R0390 -

Amounts due in respect of own fund items or initial fund called up but not yet R0400 -

Cash and cash equivalents R0410 162,210

Any other assets, not elsewhere shown R0420 -

Total assets R0500 6,288,220

109


S.02.01.02

Balance sheet (continued)

£000 Solvency II value

Liabilities 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 5,417,286

Technical provisions - health (similar to life) R0610 -



Risk margin R0640 -

Technical provisions – life (excluding health and index-linked and unit-linked) R0650 5,417,286


Best Estimate R0670 5,405,739

Risk margin R0680 11,547

Technical provisions – index-linked and unit-linked R0690 -



Risk margin R0720 -

Contingent liabilities R0740 -

Provisions other than technical provisions R0750 -

Pension benefit obligations R0760 -

Deposits from reinsurers R0770 -

Deferred tax liabilities R0780 10,278

Derivatives R0790 43,028

Debts owed to credit institutions R0800 83,838

Financial liabilities other than debts owed to credit institutions R0810 -

Insurance & intermediaries payables R0820 2,837

Reinsurance payables R0830 2,969

Payables (trade, not insurance) R0840 17,792

Subordinated liabilities R0850 112,706

Subordinated liabilities not in BOF R0860 -

Subordinated liabilities in BOF R0870 112,706

Any other liabilities, not elsewhere shown R0880 -

Total liabilities R0900 5,690,734

Excess of assets over liabilities R1000 597,486

110


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 - - - 79,921 - - - - 79,921

Reinsurers' share R1420 - - - 31,083 - - - - 31,083

Net R1500 - - - 48,838 - - - - 48,838

Premiums earned

Gross R1510 - - - 79,921 - - - - 79,921


Net R1600 - - - 48,838 - - - - 48,838

Claims incurred

Gross R1610 - - - 427,914 - - - - 427,914


Net R1700 - - - 160,392 - - - - 160,392

Changes in other technical provisions

Gross R1710 - - - 183,043 - - - - 183,043


Net R1800 - - - 79,952 - - - - 79,952

Expenses incurred R1900 - - - 22,520 - - - - 22,520

Other expenses R2500 17,280

Total expenses R2600 39,801

Line of Business for: life insurance obligations Life reinsurance

111


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 - - - 5,347,452 676,782 - - 6,024,234

Total Recoverables from reinsurance/SPV and

Finite Re after the adjustment for expected

losses due to counterparty default

R0080

- - - 429,846 146,937 - - 576,783 Best estimate minus recoverables from

reinsurance/SPV and Finite Re - totalR0090

- - - 4,917,606 529,845 - - 5,447,451

Risk Margin R0100 - - 242,254 - - 242,254

Amount of the transitional on Technical

ProvisionsTechnical Provisions calculated as a whole

R0110- - - - - -

Best estimate R0120 - - - (618,495) - - - (618,495)

Risk margin R0130 - - (230,707) - - (230,707)

Technical provisions - total R0200 - - 5,417,286 - - 5,417,286

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

112


S.22.01.21

Impact of long term guarantees and transitional measures

£000Amount with Long

Term Guarantee

measures and

transitionals

Impact of transitional on

technical provisions

Impact of

transitional on

interest rate

Impact of volatility

adjustment set to zero

Impact of matching

adjustment set to zero

C0010 C0030 C0050 C0070 C0090

Technical provisions R0010 5,417,286 849,202 - 54,779 311,269

Basic own funds R0020 710,192 (704,837) - (42,291) (231,155)

Eligible own funds to meet Solvency

Capital RequirementR0050

710,192 (754,637) - (50,076) (260,288)

Solvency Capital Requirement R0090 549,098 12,984 - 5,849 121,411

Eligible own funds to meet Minimum

Capital RequirementR0100

624,941 (838,300) - (50,661) (272,429)

Minimum Capital Requirement R0110 137,274 3,246 - 1,462 30,353

113


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 - - -

Iinitial funds, members' contributions or the equivalent basic own - fund item for mutual and mutual-type undertakingsR0040 - - -

Subordinated mutual member accounts R0050 - - - -

Surplus funds R0070 - -

Preference shares R0090 - - - -

Share premium account related to preference shares R0110 - - - -

Reconciliation reserve R0130 450,297 450,297

Subordinated liabilities R0140 112,706 - 112,706 -

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

-Deductions

Deductions for participations in financial and credit institutions R0230 - - - -Total basic own funds after deductions R0290 710,192 597,486 - 112,706 -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 - - -

Supplementary members calls under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0360 - -

Supplementary members calls - other than under first subparagraph of Article 96(3) of the Directive 2009/138/EC R0370 - - -

Other ancillary own funds R0390 - - -Total ancillary own funds R0400 - - -Available and eligible own funds

Total available own funds to meet the SCR R0500 710,192 597,486 - 112,706 -

Total available own funds to meet the MCR R0510 710,192 597,486 - 112,706

Total eligible own funds to meet the SCR R0540 710,192 597,486 - 112,706 -

Total eligible own funds to meet the MCR R0550 624,941 597,486 - 27,455 SCR R0580 549,098 MCR R0600 137,274 Ratio of Eligible own funds to SCR R0620 129%Ratio of Eligible own funds to MCR R0640 455%

C0060

Reconciliation reserve

Excess of assets over liabilities R0700 597,486

Own shares (held directly and indirectly) R0710 -

Foreseeable dividends, distributions and charges R0720 -

Other basic own fund items R0730 147,190

Adjustment for restricted own fund items in respect of matching adjustment portfolios and ring fenced fundsR0740

-

Reconciliation reserve R0760 450,297

Expected profits

Expected profits included in future premiums (EPIFP) - Life business R0770 -

Expected profits included in future premiums (EPIFP) - Non- life business R0780 -

Total Expected profits included in future premiums (EPIFP) R0790 -

114


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 445,677 - -

Counterparty default risk R0020 20,185 - -

Life underwriting risk R0030 224,249 - -

Health underwriting risk R0040 - - -

Non-life underwriting risk R0050 - - -

Diversification R0060 (134,941)

Intangible asset risk R0070 -

Basic Solvency Capital Requirement R0100 555,170

Calculation of Solvency Capital Requirement C0100

Operational risk R0130 24,378

Loss-absorbing capacity of technical provisions R0140 -

Loss-absorbing capacity of deferred taxes R0150 (30,449)

Capital requirement for business operated in accordance with Art. 4 of Directive 2003/41/EC R0160 -

Solvency Capital Requirement excluding capital add-on R0200 549,098

Capital add-ons already set R0210 -

Solvency capital requirement R0220 549,098

Other information on SCR

Capital requirement for duration-based equity risk sub-module R0400 -

Total amount of Notional Solvency Capital Requirements for remaining part R0410 310,769

Total amount of Notional Solvency Capital Requirements for ring fenced funds R0420 -

Total amount of Notional Solvency Capital Requirements for matching adjustment portfolios R0430 238,329

Diversification effects due to RFF nSCR aggregation for article 304 R0440 -

115


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 101,736

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 4,840,504

Total capital at risk for all life (re)insurance obligations R0250 121,659

Overall MCR calculation

C0070

Linear MCR R0300 101,736

SCR R0310 549,098

MCR cap R0320 247,094

MCR floor R0330 137,274

Combined MCR R0340 137,274

Absolute floor of the MCR R0350 3,251

C0070

Minimum Capital Requirement R0400 137,274

116

117

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 2017 in all material respects in accordance with the PRA Rules and Solvency II Regulations, and the approvals, determinations and

modifications in Section F.3 in each case as applicable to the Companies as at 31 December 2017.

We draw your attention to each of the Regulatory Risks & Uncertainties described on Page 53 and in

particular those relating to Supervisory Statement 3/17 and how they might impact the Companies.

The Directors of each of the Companies are satisfied that to the best of their knowledge and belief:

a) throughout the financial year to 31 December 2017, the Companies have complied in allmaterial respects with the requirements of the PRA Rules and Solvency II Regulations and with

the approvals, determinations and modifications set out in Section F.3 in each case asapplicable to the Companies throughout such period; and

b) subject to the Regulatory Risks & Uncertainties referred to above, it is reasonable to believethat in respect of the period from 31 December 2017 to the date of the publication of the SFCRand for the remainder of the financial year to 31 December 2018, the Companies have

continued to comply and that they will continue to comply with the PRA Rules and Solvency IIRegulations and with the approvals, determinations and modifications referred to inparagraph (a), in each case as applicable to the Companies throughout the relevant period.

S Thomas

Director Just Group plc Just Retirement Limited Partnership Life Assurance Company Limited

17 June 2018

118

F.3 Approvals, determinations and modifications

The following approvals apply for Just Group, JRL and PLACL at 31 December 2017

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


119

F.4 Audit opinion

Report of the external independent auditor to the Directors of Just Group plc (‘the Group’), Just

Retirement Limited (‘JRL’) and Partnership Life Assurance Company Limited (‘PLACL’) pursuant to

Rule 4.1 (2) of the External Audit Chapter of the PRA Rulebook applicable to Solvency II firms

Report on the Audit of the Relevant Elements of the Group Solvency and Financial Condition Report

Opinion

Except as stated below, we have audited the following documents prepared by the Group, JRL and PLACL as at 31 December 2017:

The ‘Valuation for solvency purposes’ and ‘Capital Management’ sections of the Group

Solvency and Financial Condition Report as at 31 December 2017 (‘the Narrative Disclosures

subject to audit’); and

Group templates S02.01.02, S22.01.22, S23.01.22, S32.01.22 for the Group, Solo templates

S02.01.02, S12.01.02, S22.01.21, S23.01.01, S28.01.01 for JRL and Solo templates S02.01.02,

S12.01.02, S22.01.21, S23.01.01, S25.01.21, S28.01.01 for PLACL (‘the Templates subject to

audit’).

The Narrative Disclosures subject to audit and the Templates subject to audit are collectively

referred to as the ‘Relevant Elements of the Group Solvency and Financial Condition Report’.

We are not required to audit, nor have we audited, and as a consequence do not express an opinion

on the Other Information which comprises:

information contained within the Relevant Elements of the Group Solvency and Financial Condition Report set out about above which are, or derive from the Solvency Capital Requirement, as identified in the Appendix to this report;

The ‘Business and performance’, ‘System of governance’ and ‘Risk profile’ sections of the Group Solvency and Financial Condition Report;

Group templates S.05.01.02, S.25.02.22

Company templates S.05.01.02, S.25.03.21 for JRL and Company templates S.05.01.02 for PLACL;

information calculated in accordance with the previous regime used in the calculation of the transitional measure on technical provisions, and as a consequence all information relating to the transitional measures on technical provisions as set out in the Appendix to this report;

the written acknowledgement by the Directors of their responsibilities, including for the preparation of the Group Solvency and Financial Condition Report (‘the Responsibility Statement’);

Information which pertains to an undertaking that is not a Solvency II undertaking and has been prepared in accordance with the PRA rules other than those implementing the Solvency II Directive or in accordance with an EU instrument other than the Solvency II regulations (‘the sectoral information’).

In our opinion, the information subject to audit in the Relevant Elements of the Group Solvency and

Financial Condition Report of the Group, JRL and PLACL as at 31st December 2017 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.

120

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) including ISA (UK) 800 and ISA (UK) 805, and applicable law. Our responsibilities under those

standards are further described in the Auditor’s Responsibilities for the Audit of the Relevant Elements of the Group Solvency and Financial Condition Report section of our report. We are

independent of the Group in accordance with the ethical requirements that are relevant to our audit of the Group Solvency and Financial Condition Report in the UK, including the FRC’s Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical responsibilities in

accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter – special purpose basis of accounting and determination of matching

adjustment

We draw attention to the Valuation for solvency purposes and Capital Management sections of the

Group Solvency and Financial Condition Report, which describe the basis of accounting. The Group Solvency and Financial Condition Report is prepared in compliance with the financial reporting provisions of the PRA Rules and Solvency II regulations, and therefore in accordance with a special

purpose financial reporting framework.

In particular, JRL has applied a matching adjustment to the relevant risk-free interest rate term

structure in the calculation of the best estimate liability of certain life insurance obligations in the preparation of the Group Solvency and Financial Condition Report. JRL is required to, and has

received approval from the Prudential Regulation Authority to calculate the matching adjustment (the ‘MA Approval’). The matching adjustment includes an adjustment calculated by reference to the value of loan notes issued by Just Re 1 Limited and Just Re 2 Limited, both subsidiaries of JRL. The

MA Approval was granted on the basis of the information set out in JRL’s applications to the Prudential Regulation Authority and that the conditions set out in regulation 42 of The Solvency II Regulations 2015 and any directly applicable regulations made under Directive 2009/138/EC of the

European Parliament and of the Council of 25 November 2009 have been met.

As set out in Section C.6.1 Regulatory Risk and Uncertainties of the Group Solvency and Financial

Condition Report, the PRA continues to consult on the application of Supervisory Statement SS3/17 “Solvency II: Matching adjustment - illiquid unrated assets and equity release mortgages” issued by the PRA in July 2017. In particular, there is a risk that a change in the regulatory treatment of lifetime

mortgages will result in a material negative impact on the Solvency II recognisable value of those products or the capital which needs to be held in respect of them which could have a negative effect on the business, results of operations, financial condition and prospects of the Group, JRL and PLACL.

The Group Solvency and Financial Condition Report is required to be published, and intended users

include but are not limited to the Prudential Regulation Authority. As a result, the Group Solvency and Financial Condition Report may not be suitable for another purpose. Our opinion is not modified in respect of this matter.

121

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you if:

the Directors’ use of the going concern basis of accounting in the preparation of the Group SFCR is not appropriate; or

the Directors have not disclosed in the Group SFCR any identified material uncertainties that

may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the

SFCR is authorised for issue.

Other Information

The Directors are responsible for the Other Information.

Our opinion on the Relevant Elements of the Group Solvency and Financial Condition Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon.

In connection with our audit of the Group Solvency and Financial Condition Report, our responsibility is to read the Other Information and, in doing so, consider whether the Other Information is materially

inconsistent with the Relevant Elements of the Group Solvency and Financial Condition Report, or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify such

material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the Relevant Elements of the Group Solvency and Financial Condition Report or a material misstatement of the Other Information. If, based on the work we have

performed, we conclude that there is a material misstatement of the Other Information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Directors for the Group Solvency and Financial Condition Report

The Directors are responsible for the preparation of the Group Solvency and Financial Condition Report

in accordance with the financial reporting provisions of the PRA rules and Solvency II regulations which have been modified by the approval(s) and modifications granted by the PRA under The Solvency 2 Regulations 2015 and section 138A of FSMA respectively.

The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of a Group Solvency and Financial Condition Report that is free from material

misstatement, whether due to fraud or error; assessing the group and company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the group or the companies or to

cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Relevant Elements of the Group Solvency and

Financial Condition Report

It is our responsibility to form an independent opinion as to whether the Relevant Elements of the Group Solvency and Financial Condition Report are prepared, in all material respects, with financial

122

reporting provisions of the PRA Rules and Solvency II regulations on which it they based, as modified by relevant supervisory modifications, and as supplemented by supervisory approvals and

determinations.

Our objectives are to obtain reasonable assurance about whether the Relevant Elements of the Group

Solvency and Financial Condition Report are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but it is not a guarantee that an audit conducted in accordance with ISAs (UK) will

always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to

influence the decision making or the judgement of the users taken on the basis of the Group Solvency and Financial Condition Report.

A further description of our responsibilities for the audit of the financial statements is located on the

Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities.

Other Matter

The Group has authority to calculate its Group Solvency Capital Requirement using a partial internal model and JRL has the authority to calculate its Company Solvency Capital Requirement using an internal model approved by the Prudential Regulation Authority in accordance with the Solvency II

Regulations. In forming our opinion (and in accordance with PRA Rules), we are not required to audit the inputs to, design of, operating effectiveness of and outputs from the Model, or whether the Model is being applied in accordance with the Company's application or approval order obtained by

the Group, JRL and PLACL.

JRL has the authority to apply a matching adjustment to the relevant risk-free interest rate term

structure in the calculation of the best estimate liability of certain life insurance obligations following an approval from the Prudential Regulation Authority dated 7 November 2015. In forming our opinion (and in accordance with PRA guidance set out in Supervisory Statement 11/16: Solvency II: external

audit of the public disclosure requirement), we have not sought to audit the validity of the valuation methodology and assumptions applied to the loan notes issued by Just Re 1 Limited and Just Re 2 Limited as set out in the Company’s application or MA Approval order obtained by JRL.

Report on Other Legal and Regulatory Requirements.

Sectoral Information

In our opinion, in accordance with Rule 4.2 of the External Audit Chapter of the PRA Rulebook, the sectoral information has been properly compiled in accordance with the PRA rules and EU

instruments relating to that undertaking from information provided by members of the group and the relevant insurance group undertaking.

Other Information

In accordance with Rule 4.1 (3) of the External Audit Chapter of the PRA Rulebook we are also required to consider whether the Other Information is materially inconsistent with our knowledge obtained in

the audit of Group, PLACL and JRL statutory financial statements. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

http://www.frc.org.uk/auditorsresponsibilities

123

The purpose of our audit work and to whom we owe our responsibilities

This report of the external auditor is made solely to the Directors of the Group, JRL and PLACL as their governing body, in accordance with the requirement in Rule 4.1(2) of the External Audit Part of the

PRA Rulebook and the terms of our engagement. We acknowledge that the directors are required to submit the report to the PRA, to enable the PRA to verify that an auditor’s report has been commissioned by the Directors and issued in accordance with the requirement set out in Rule 4.1(2) of

the External Audit Part of the PRA Rulebook and to facilitate the discharge by the PRA of its regulatory functions in respect of the company, conferred on the PRA by or under the Financial Services and Markets Act 2000.

Our audit has been undertaken so that we might state to the Directors those matters we are required to state to them in an auditor’s report issued pursuant to Rule 4.1(2) and for no other purpose. To the

fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group, JRL and PLACL through their governing body, for our audit, for this report, or for the opinions we have formed.

Daniel Cazeaux for and on behalf of KPMG LLP

Chartered Accountants

15 Canada Square London E14 5GL

17 June 2018

The maintenance and integrity of the Group website is the responsibility of the directors; thework carried out by the auditors does not involve consideration of these matters and,accordingly, the auditors accept no responsibility for any changes that may have occurred

to the Group Solvency and Financial Condition Report since it was initially presented on thewebsite.

Legislation in the United Kingdom governing the preparation and dissemination of GroupSolvency and Financial Condition Reports may differ from legislation in other jurisdictions.

124

Appendix – relevant elements of the Group Solvency and Financial Condition Report that are not subject to audit Group - partial internal model

The relevant elements of the Group Solvency and Financial Condition Report that are not subject to audit comprise:

The following elements of Group template S.02.01.02:

• Row R0550: Technical provisions - non-life (excluding health) - risk margin • Row R0590: Technical provisions - health (similar to non-life) - risk margin • Row R0640: Technical provisions - health (similar to life) - risk margin • Row R0680: Technical provisions - life (excluding health and index-linked and unit-

linked) - risk margin • Row R0720: Technical provisions - Index-linked and unit-linked - risk margin

The following elements of Group template S.22.01.22

• Column C0030 – Impact of transitional on technical provisions • Row R0010 – Technical provisions • Row R0090 – Solvency Capital Requirement

The following elements of Group template S.23.01.22

• Row R0020: Non-available called but not paid in ordinary share capital at group level • Row R0060: Non-available subordinated mutual member accounts at group level • Row R0080: Non-available surplus at group level • Row R0100: Non-available preference shares at group level • Row R0120: Non-available share premium account related to preference shares at

group level • Row R0150: Non-available subordinated liabilities at group level • Row R0170: The amount equal to the value of net deferred tax assets not available at

the group level • Row R0190: Non-available own funds related to other own funds items approved by

supervisory authority • Row R0210: Non-available minority interests at group level • Row R0380: Non-available ancillary own funds at group level • Rows R0410 to R0440 – Own funds of other financial sectors • Row R0680: Group SCR • Row R0740: Adjustment for restricted own fund items in respect of matching

adjustment portfolios and ring fenced funds

• Row R0750: Other non-available own funds

Elements of the Narrative Disclosures subject to audit identified as ‘unaudited’.

125

JRL - Solo internal model

The relevant elements of the Group Solvency and Financial Condition Report that are not subject to

audit comprise:

The following elements of template S.02.01.02:

• Row R0550: Technical provisions - non-life (excluding health) - risk margin • Row R0590: Technical provisions - health (similar to non-life) - risk margin • Row R0640: Technical provisions - health (similar to life) - risk margin • Row R0680: Technical provisions - life (excluding health and index-linked and unit-

linked) - risk margin • Row R0720: Technical provisions - Index-linked and unit-linked - risk margin

The following elements of template S.12.01.02

• Row R0100: Technical provisions calculated as a sum of BE and RM - Risk margin • Rows R0110 to R0130 – Amount of transitional measure on technical provisions


• Column C0030 – Impact of transitional measure on technical provisions • Row R0010 – Technical provisions • Row R0090 – Solvency Capital Requirement


• Row R0580: SCR • Row R0740: Adjustment for restricted own fund items in respect of matching

adjustment portfolios and ring fenced funds

The following elements of template S.28.01.01 • Row R0310: SCR


PLACL – Solo standard formula

The Relevant Elements of the Group Solvency and Financial Condition Report that are not subject

to audit comprise:


• Rows R0110 to R0130 – Amount of transitional measure on technical provisions


• Column C0030 – Impact of transitional measure on technical provisions


126

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.

Deferment rate – defined in SS3/17 to mean a discount rate that applies to the spot price of an

asset resulting in the deferment price. The deferment price is the price that would be agreed and

settled today to take ownership of the asset at some point in the future; it differs from the forward

price of an asset in that the forward price is also agreed today, but is settled in the future.

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.

ECAI – External Credit Assessment Institution

Employee benefits 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 (on the next page).

Just Group – formed on the merger of Just Retirement Group with Partnership Assurance Group, and formally known as JRP Group plc, represents Just Group plc and each of its consolidated subsidiaries and subsidiary undertakings.

127

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 Just 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.

Documents

Just Group plc Just Retirement Limited Partnership …/media/Files/J/JRMS-IR...2017/12/31 · Just Group plc SFCR 31 December 2017 1 Summary Introduction This is the Solvency and