medical underwriting in the db de-risking market david .../media/files/j/... · rbc – “bulk...

Strictly private and confidential

Defined Benefit Solutions

Medical Underwriting in the DB De-risking market

David Richardson

Deputy CEO & MD of UK Corporate Business

JRP Group plc

19 April 2017

Defined Benefit Solutions 2

RBC – “Bulk Annuities, one of the best structural growth opportunities”

PA completes first ever UW bulk

annuity

JR completes first UW bulk annuity

Taylor Wimpey completes £206m “top- slice” with Partnership

February 2013

December 2013

December 2014

Medically Underwritten Bulk Annuities timeline

November 2013

Morgan Ash collect medical data for inaugural “broked”

UW bulk annuity process

Age Partnership collect medical data on first

UW bulk annuity

October 2015

UW bulk annuities completed on approximately £1bn of

liability

November 2015

L&G complete their first and the largest UW bulk annuity £230m with Kingfisher

December 2015

Solvency II implemented

January 2016

Just Retirement & Partnership complete their

merger announced in August 2015

April 2016

December 2016

Land Securities £110m post-

transaction medical underwriting with

JUST.


How does Medical Underwriting (MU) work?

>300 Investigate

top-slice

Downward-only

<300

Post-transaction

Up or down

Pre-transaction

1 2 3 4 Triage Scheme specific

requirements, data collection etc

Quotation and selection

Bespoke transaction terms and receipt of premium

Longevity risk

Investment risk

Inflation risk

Pre

miu

m

Traditional bulk annuity

Medical underwriting of members


DB de-risking transactions (£bn)

3,044 3,191 4,852 6,097

7,753 7,021

0

2000

4000

6000

8000

10000

12000

14000

2011 2012 2013 2014 2015 2016

Excluding top 3 Top 3 deals combined

Medical underwriting is an option offered to the market, but is particularly attractive to SME schemes, and <£250m segment

No members No Schemes Total Buyout

Liabilities Split Total by liability type (£bn)

£bn Pen Def Act

<100 2,056 21 9 10 2

100-999 2,563 192 73 100 19

1000-4999 783 344 130 172 41

5000-9999 184 255 105 120 31

>10000 208 1,309 524 550 236

TOTAL 5,794 2,121 842 952 329

4

43% 28% 33%

57% 72% 67%

2013 2014 2015

<£250m >£250m

DB de-risking market by transaction size

c.40% of liabilities relate to pensions in payment (PPF)

Deferred, 36%

Pensioner, 40%

Active, 24%

Source: JRP analysis

8

211

10

167

11

165

94% of deals

Deal number

7.5

13.2 12.3

10.2

4.4 5.2

58% 71% 65% 46% 62% 76%

Excluding top 3 as % of overall DB market


18% CAGR


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0%

20%

40%

60%

80%

100%

120%

140%

199819992000200120022003200420052006200720082009201020112012201320142015

Nu

mb

er

of

De

ath

s

A/E

Actual Deaths Expected Deaths Actual / Expected

Actual = Expected Lower 95% CI Upper 95% CI

Note: (1) Includes all GIfL and Care products sold by the Group. (2) Expected deaths as determined by mortality assumptions used for the IFRS valuation at 31 December 2015.

5

IP is continually improving and driving accurate reserving

GIfL & Care product historic mortality experience (1) - IFRS basis (2)

Proprietary IP enables accurate longevity estimate at outset

Underwriting tables subject to regular review cycle and continually updated to reflect new mortality experience, thereby enhancing predictive capabilities

Shorter average duration results in quicker confirmation of actual mortality and a richer dataset

Review process includes expert input from medical officers, as well as technical and operational underwriters

Track record of consistent mortality experience against expectations


JRP 1 2 3 4 5 6 7 8 9 10 11

6

Funding the DB opportunity

£m Solvency II 1 Economic Capital

31 Dec 16 30 June 16 31 Dec 16 30 June 16

Own Funds 2,192 1,944 2,670 2,118

Required Capital 1,449 1,453 1,234 1,145

Surplus 743 491 1,436 973

Coverage 151% 134% 216% 185%

JRP Group Solvency II and Economic Capital position The underlying SCR ratio has been

resilient and rose 17pp compared to end June due to hybrid issuance

Economic capital of 216% is the Group’s own internal risk assessment of its capital requirement. EC does not include onerous provisions such as the SII risk margin


Leverage = Debt / Debt + Equity

21% 24%

30%

21% 18%

30% 31% 31%

21%

30%

Notes: Peer 11: data as of 30/06/2016, peer 4 and 6 are pro-forma to take account of issuance after reporting date

Comparative leverage as of 31 December 2016 1

Note 1: Estimated

21%

1449

Own Funds SCR

Surplus

743

Tier 1: 84%

Solvency II capital tiering (£m) – 31 Dec 2016

151% 2,192

Tier 2: 16%

Tier 1 127%

of SCR

23%

Robust capital position

Reinsurance Asset portfolio


491

743

250

51

(42) (18) (12) (19)

43

Surplus at30/6/16

Hybridissuance

In forcesurplus(Note 1)

NB strain &expenses

Cost v 2018ecost base

Dividends &Interest

Integrationcosts

Other Surplus at31/12/16

7

An ambition of capital self-sufficiency by end 2018 30 June – 31 December 2016 (£m)

134%

151%

SII

Note 1 – includes effect of TMTP amortisation.

All figures net of tax




NBS w/outreinsurance

NBS withreinsurance

Premium

2016 % use of longevity reinsurance

25%

45%

75%

55%

DB - standard DB - U/written

Retained Reinsured

2016 DB new business - £943m

Reinsurance reduces the capital strain

Best estimate

liabilities

(“BEL”)

Risk

margin

SCR

Effect of reinsurance on new business strain (“NBS”)

Notes:

(1) Illustrative and not drawn to scale

NB volumes Risk margin & NB strain

Reduction in NBS

Mid-single digit NBS after reinsurance

8



JRP Group plc

Investment strategy

Loans secured by mortgages, 38.1%

AAA , 7.9%

AA and gilts, 9.3%

A, 20.0%

BBB, 21.7%

BB or below, 0.9% Unrated, 2.2% Total asset portfolio -

£17,320m

9

Asset portfolio by rating 1 Asset portfolio by sector 1

Note1: Percentages relate to total portfolio, totals subject to rounding Note 2: AAA and unrated includes units in liquidity funds

Loans secured by mortgages

38%

Cash and equivalents 4%

Banks 14%

Utilities 9%

Financial - other 6%

Communications 5%

Consumer 5%

Government 5%

Insurance 5%

Industrials 3%

Auto manufacturers 2%

Energy 2%

Basic materials 1%

Other 1%


Reinsurance Asset portfolio – bonds & LTM


- of which Lifetime mortgages are a key part

Total outstanding of £4.7bn is made up of over 67k loans,

average balance £60k

Average LTV at inception is c.20%, only 1% of loans with

LTV greater than 75%

The conservative underwriting criteria taking into account

customers’ ages ensure minimal exposure to 50%+ LTV

loans, especially in the lower age bands

Average LTV across portfolio remains low at 28%

LTV breakdown by geography (£’m / %) December 2016

Self origination and funding to 3rd parties LTV breakdown by customer age bands (£’m) December 2016

A low risk LTM portfolio

507 595 320

155 90

352

674

547

268 130

3

61

96

106

68

0

200

400

600

800

1000

1200

1400

Below 70 70-75 75-80 80-85 85+

<30% 30% ~ 50% 50%+

372 240

1,326

259

627

251 379

168 316

446

132 197 36

0%

10%

20%

30%

40%

0

500

1,000

1,500

Lo

nd

on

Ou

ter

Me

tro

po

lita

n

Ou

ter

So

uth

Ea

st

Ea

st A

ng

lia

So

uth

We

st

Ea

st M

idla

nd

s

We

st M

idla

nd

s

Wa

les

Yo

rksh

ire

No

rth

We

st

No

rth

Sco

tla

nd

No

rth

ern

Ire

lan

d

LT

V

Ou

tsta

nd

ing

Total outstanding (LHS) Average of LTV based on total outstanding (RHS)

1 6

11

16

21

26

31

36

41

46

Ca

sh f

low

s p

er

an

nu

m (

£m

)

Year

Corporate Bonds & Gilts

Lifetime Mortgages

GIfL Liabilities

DB Liabilities

Asset and GIfL / DB liability projections



- LTM


Conclusion

In-force business, reinsurance, and medical underwriting

help to reduce new business strain

4

DB de-risking market is growing strongly, even after

removing the “mega-deals”

1

Lifetime mortgages help to match long-tailed DB liabilities

6

Medical underwriting represents a different pricing

approach in this market and is also growing

2

Capital position is protected and improved by

diversified investment in matching assets

5

DB business does cause a capital strain,

so a robust starting point is needed

3 In summary…


Questions


Disclaimer For the purposes of this notice, "document" means this document, any oral presentation, any question and answer session and any written or oral material discussed or distributed

by JRP Group plc (“JRP”) during the presentation. This document has been prepared and issued by and is the sole responsibility of JRP.

This document does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities of JRP or any

related company nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contractual commitment or investment decision

in relation thereto nor does it constitute a recommendation regarding any securities. This document, which speaks as of the date hereof only, is intended to present background

information on JRP, its business and the industry in which it operates and is not intended to provide complete disclosure upon which an investment decision could be made. The

merit and suitability of an investment in JRP should be independently evaluated and any person considering such an investment in JRP is advised to obtain independent advice as to

the legal, tax, accounting, financial, credit and other related advice prior to making an investment.

This document and any materials distributed in connection with this document may include certain “forward-looking statements”, beliefs or opinions, including statements with

respect to the business, financial condition and results of operations of JRP. These statements, which may contain the words “anticipate”, “believe”, “intend”, “estimate”, “expect”

and words of similar meaning, reflect the beliefs and expectations of the directors of JRP and involve risk and uncertainty because they relate to events and depend on

circumstances that will occur in the future. No representation is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. There

are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these statements and forecasts. Past performance

of JRP cannot be relied on as a guide to future performance. Forward-looking statements speak only as at the date of this document and JRP expressly disclaim any obligations or

undertaking to release any update of, or revisions to, any forward-looking statements in this document. No statement in this document is intended to be a profit forecast. As a result,

you are cautioned not to place any undue reliance on such forward-looking statements.

To the extent available, the industry, market and competitive position data contained in this document has come from official or third party sources. Third party industry

publications, studies and surveys generally state that the data contained therein have been obtained from sources believed to be reliable, but that there is no guarantee of the

accuracy or completeness of such data. While JRP believe that each of these publications, studies and surveys has been prepared by a reputable source, JRP has not independently

verified the data contained therein. In addition, certain of the industry, market and competitive position data contained in this document come from the internal research and

estimates of JRP based on the knowledge and experience of JRP’s management in the markets in which JRP operates. While JRP believe that such research and estimates are

reasonable and reliable, they, and their underlying methodology and assumptions, have not been verified by any independent source for accuracy or completeness and are subject

to change without notice. Accordingly, undue reliance should not be placed on any of the industry, market or competitive position data contained in this document. All projections,

valuations and statistical analyses are provided to assist the recipient in the evaluation of the matters described herein. They may be based on subjective assessments and

assumptions and may use one among alternative methodologies that produce different results and to the extent that they are based on historical information, they should not be

relied upon as an accurate prediction of future performance.

The document has not been independently verified and no representation or warranty, express or implied, is made or given by or on behalf of JRP, or its directors, officers, advisers or

any person acting on its behalf, as to, and no reliance should be placed for any purposes on, the accuracy, completeness or fairness of the information or opinions contained in this

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assumed by any such persons for any such information or opinions or for any errors or omissions. JRP is not under any obligation to update or keep current information contained in

this document, to correct any inaccuracies which may become apparent, or to publicly announce the result of any revision to the statements made herein except where they would

be required to do so under applicable law, and any opinions expressed in them are subject to change without notice.

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