Just Group (JUST) shareholders have been given a further boost after the life assurer reported consensus-beating sales for the first nine months of the year. That came shortly after the Prudential Regulation Authority (PRA) announced it would delay the implementation of proposals for tighter capital requirements for equity release mortgages – which allow people over 50 to borrow against the value of their property – by a year. Investors were clearly relieved. At the time of writing, shares in Just had risen almost a fifth since the PRA’s announcement on 25 October, but are still down 40 per cent in the past 12 months.
In a consultation paper released over the summer, the PRA proposed tougher rules for insurers assessing the risks associated with ‘no negative equity guarantees’ (NNEG), which mean that if the value of the property sold is less than the value of the loan plus accrued interest, the lender must accept the lower of the two sums. Those new regulations could push up the liabilities insurers must account for and force them to strengthen their balance sheets.
However, the rules will not be implemented before 31 December 2019. Analysts say that will give Just more time to strengthen its capital position, which could include reinsuring part of the annuity back-book or raising fresh equity.
Aviva (AV.) and Legal & General (LGEN) are the other two major UK-listed players in the equity release market, but Just is most exposed as more of its business is concentrated on writing annuities, and lifetime mortgages account for 37 per cent of its investment portfolio, which backs its annuity book.
RBC Capital analyst Gordon Aitken says the unexpected PRA announcement is a sign that the regulator is listening to the industry. He said: “The regulator appears to be reconsidering its most prudent scenario of removing transitional relief and requiring a 2 per cent deferment rate (the annual discount to the current property price for taking future ownership).”
New business sales at Just were up 17 per cent during the third quarter to £765m, continuing to be led by defined-benefit de-risking products. Lifetime mortgage advances also grew by a quarter to £170m, although individual annuity sales declined by 8 per cent.
