Just Group soars on favourable new Bank capital rules
Shares in pensions provider Just Group rose as much as 27 per cent this morning, following the release of the Bank of England’s final decision on equity release mortgages (ERMs), which the company welcomed as offering “greater clarity” for its future operations.
Both Just and Barclays analysts said new rules released by the Bank’s Prudential Regulatory Authority (PRA) were “considerably less onerous” for the company than those that had been suggested in the regulator’s consultation paper earlier this year.
Just chief executive Rodney Cook said: “We welcome the greater clarity provided by the Policy Statement, and the PRAs recognition of the important role played by ERMs for our customers as they plan their retirement finances.”
The firm has been under pressure since July, when it warned proposed changes to ERMs – also known as lifetime mortgages – would likely hurt its finances, potentially forcing it to raise fresh capital.
The PRA’s changes are intended to protect against the risks created for insurers through exposure to ERMs, which allow people to borrow against the value of their property, and only pay back the money owed upon their death.
Under the new rules, which are expected to take effect at the end of December next year, Numis estimates suggested the company will need to increase its capital requirements by £100m at the most – far below the estimates of £160m–£876m which had been floated in July.
Barclays analysts said: “In our view, this is a very favorable outcome for Just, which gives the company the flexibility to continue as a going concern in what we view as one of the most attractive insurance markets in Europe.”
“The company now has time to explore its capital options, and is under no pressure to do so. Any raise in capital will be used to finance new business sales at attractive returns, not to build its capital position for an unfavorable PRA ruling,” they added.