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Just Group shares surge after PRA equity release mortgages policy statement proves benign

The FTSE 250-listed retirement specialist said it has already aligned its new business pricing with the expected capital requirements from the regulator's consultation paper

Retirement specialist
Just Group, in particular, said it "welcomes" the confirmation that transitional relief will remain available for pre-2016 business

Just Group PLC (LON:JUST) saw its shares surge over 20% on Monday after the firm said the Prudential Regulation Authority's (PRA) policy statement on equity release mortgages being held to back annuity liabilities will not affect its business pricing.

The FTSE 250-listed retirement specialist said it has already aligned its new business pricing with the expected capital requirements from the PRA's consultation paper.

READ: Just Group sees new business sales rise as it prepares for new capital requirements

Monday's PRA policy statement comes after a three-month consultation following the release of the regulator's initial paper on equity release mortgages.

Just Group, in particular, said it "welcomes" the confirmation that transitional relief will remain available for pre-2016 business.

Just Group’s chief executive officer Rodney Cook. "We welcome the greater clarity provided by the policy statement, and the PRA's recognition of the important role played by equity release mortgages for our customers as they plan their retirement finances.

“The regime envisaged is considerably less onerous for Just than set out in the consultation paper, particularly in respect of pre Solvency II business, and the outcome is well within the range of what we have been planning for.”

Lower-end of range

Just Group said, following the release of the policy statement, the minimum deferment rate for allowing no negative equity risks will be 1% with a 13% property volatility rate - which is towards the lower end of the range considered in the consultation paper.

The financial services regulator confirmed it has no plans to apply effective value tests to other assets.

Just Group’s boss added: "The changes prescribed by the policy statement do not take effect until December 31. This means the board can evaluate the optimal capital structure to support our new business franchise in a considered manner."

The firm also said it is "establishing an appropriate" dividend policy for shareholders following the implementation date. The company said it has a "range of capital options from which to choose".

Compelling buying opportunity

In a note to clients, analysts at RBC Capital pointed out that Just Group’s share price has fallen by 40% since the PRA’s first announcement even though its business results were 30% ahead of consensus for the nine months to 30 September.

They said: “The business is flying, in our view, and the removal of uncertainty around the ERM consultation allows management to focus on key areas of growth, including, bulk annuities which we see as the best structural growth opportunity in Europe and a market where we believe £30bn is the new norm.”

Repeating a ‘Top Pick’ rating on Just Group shares, the RBC analysts said: “This creates a compelling buying opportunity in our view.”

In early afternoon trading, Just Group shares were 21.8% higher at 100p.

Quick facts: Just Group PLC

Price: 61.55 GBX

LSE:JUST
Market: LSE
Market Cap: £637.09 m
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