July 24, 2018 / 8:36 AM / 9 months ago

UPDATE 1-Just Group warns of capital hit from proposed mortgage rules

* Regulator mulls tougher rules around lifetime mortgages

* Takes shine off strong H1 sales

* Shares down 7.1 pct, among top mid-cap fallers (Recasts, adds analyst comment, shares, background)

By Simon Jessop and Carolyn Cohn

LONDON, July 24 (Reuters) - British specialist pensions provider Just Group warned on Tuesday that proposed changes to rules around lifetime mortgages could hit its capital position, taking the shine off forecast-beating sales.

The rules put out for consultation this month from the Bank of England’s Prudential Regulation Authority would require Just and its rivals to set aside more capital to protect against the potential risks posed by the mortgages, chiefly that house prices could fall. Lifetime, or equity release, mortgages enable home-owners to borrow against the value of their property, a loan which is paid back when they die.

Just Group Chief Executive Rodney Cook said the PRA’s proposed changes, if implemented, would result in a reduction in the company’s capital position, but it was not a done deal.

“We, together with the industry, continue to work constructively with the PRA as part of the consultation and will update the market when appropriate,” Cook said.

Shares in Just were trading down 7.1 percent at 0749 GMT, among the top fallers on the FTSE mid-cap index.

Barclays analysts said in a note that the proposals could reduce Just’s capital ratio to 121 percent from 154 percent.

A ratio of 100 percent means insurers have set aside enough capital under the solvency rules to cover underwriting and other risks, but analysts prefer to see a buffer of at least 130 percent for life insurers.

“Just has various options in this hypothetical case to improve capital, including increased use of reinsurance, increased debt leverage, slower new business sales or an equity raise, although all of which come with an earnings impact,” Barclays wrote in a note, flagging an “overweight rating”.


Just’s capital warning overshadowed strong first-half revenues, which included a forecast-beating 62 percent increase in sales of retirement products, driven by demand from companies seeking to offload pension liabilities.

Just said “defined benefit de-risking” sales, which involve taking on the risk of company final salary pension schemes, were up 143 percent to 718 million pounds ($939.14 million) in the six months to the end of June, beating a company supplied consensus forecast of 487 million pounds.

That in turn helped total retirement sales to hit 1.2 billion pounds, beating a consensus forecast for 930 million pounds.

Sales of Guaranteed Income for Life (GIfL) - individual annuity - products to retail customers, meanwhile, rose 9 percent to 426 million pounds, while lifetime mortgage sales climbed 36 percent to 313 million pounds.

$1 = 0.7645 pounds Reporting by Simon Jessop; Editing by Kirsten Donovan and Jane Merriman

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