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Just Group, the UK life insurer, said it would “substantially exceed” its full-year profit target following a surge in corporate pension deals, in the latest sign of thriving conditions in the market.
In half-year results on Tuesday, Just said its underlying operating profit had risen 44 per cent year on year to £249mn. That was driven by rising sales in its de-risking business, where companies pay it a premium to take over their pension obligations.
Analysts expect hundreds of billions of pounds of pension liabilities, and the assets backing them, to be transferred in the coming years from company balance sheets to insurers, as part of a reshaping of the UK’s retirement sector.
“What we are seeing in terms of not just market activity, but the conversation we have with trustees, backs [those forecasts] up. All the building blocks are there to support that,” chief executive David Richardson told the Financial Times.
Just, which specialises in deals with smaller defined-benefit pension schemes, grew sales in this business by almost a third to £1.9bn, a record, as transactions jumped from 35 in the first half of last year to 55.
The rise in corporate pension deals has created a key growth market for UK life insurers, which has been catalysed by a rise in interest rates closing the funding gaps for a swath of pension schemes — and making it possible for them to do a deal with an insurance company.
The threat to the market is a substantial fall in long-term bond yields from here. But Richardson said many schemes had entered into transactions that had “locked in some or all” of their funding gains from higher long-term yields, adding that a fall in yields big enough to change the funding situation dramatically would be a “tail event”.
Due to strong first-half performance, market conditions and a busy deal pipeline, Just now expects to “substantially exceed” previous guidance for the current financial year of doubling the £211mn operating profit it made in 2021.
The company’s shares jumped 17 per cent by early afternoon trading in London.
The Bank of England, which regulates the sector, called last year for insurers to “exercise moderation” in terms of their deal growth, and to bolster their risk management.
The surge in activity has attracted some firms such as Royal London to enter the bulk annuity market. “I think you’ll see more people trying to come in . . . but there’s space for them,” said Richardson.
Just’s performance was further boosted by its sale of individual annuities, which have also benefited from higher interest rates — which increase the income retirees can expect from such retirement products — and from the UK’s new consumer duty regulations, which it said were encouraging advisers to suggest products with financial guarantees.
In the first half, the business sold £600mn of these guaranteed income products, up more than a quarter on the prior comparable period.
Analysts at JPMorgan Cazenove said Just’s “earnings are set to grow at strong rates over the next few years, and likely above current consensus levels”.
Panmure Liberum increased its target price for the stock on the back of what it called an “excellent set of interim results, well above expectations that blows its previous guidance out of the water”.
