In February this year, crisis management experts visited Just Retirement’s Surrey head office to give senior executives a crash course in coping with the unexpected.
Managers didn’t have to wait long to put that advice to use. When George Osborne announced sweeping changes to pension arrangements within the March Budget, allowing retirees to withdraw their pension pot aged 55 without the need for annuities, Just Retirement’s shares fell off a cliff.
The annuity and mortgage provider’s stock, which floated at a price of 225p in November 2013, plummeted to a low of 125p. Annuity sales halved.
Chief executive Rodney Cook, an insurance industry stalwart with a CV taking in AMP New Zealand, Pearl, Zurich, Prudential and LV=, still looks stunned as he recounts the fallout.
“We had to trigger our crisis management policy immediately. We had to contact stakeholders – the chairman, senior directors, sponsor banks, regulators and the London Stock Exchange. We had to prepare scripts for customer services teams.
“Our shares were suspended for a short time. From 1 January to the time of the Budget we had been the fastest-growing insurance stock in Europe. Then our share price halved.”
Six months later, with shares still loitering around the 140p mark, Cook might easily have strong words about chancellor George Osborne’s bold move.
But a surprising robust set of full-year results – aided by much-needed product diversification – appears to have been enough to dilute the bile.
“Yes, it was certainly a surprise. We had not expected it. But we understood that the government and the regulators were very frustrated with some of the poor value from large insurers to their customers.
“We’re very supportive of the greater freedoms the changes have bought to the industry. At the time we would have preferred he didn’t say ‘No one ever needs to buy an annuity’. I know he was talking about some of the poor returns on offer, but we didn’t feel that applied to us. We were a bit sorry we got caught in the melee.
“The good news is we’re a new company and we can innovate. That’s precisely what we’re going to do.”
Figures showing an £80m profit, up two per cent on the previous year, and profit before tax of £92.8m, up 19 per cent on the previous year, impressed analysts. The firm made £14m in cost savings and was forced to cut staff numbers by 108. New business sales were £1.75bn, up six per cent, with headline figures from the company’s two new ventures.
Just Retirement wrote £92m of premiums for new products, designed to de-risk final salary pension schemes and increased its lifetime mortgages by 43 per cent to £476m. The mortgages pay pensioners a fixed income against the value of their property, with payment handed over when the retiree dies.
Tellingly, the company’s board has also put aside £5m to spend on “additional development”.
Yesterday, shares rose 1.2 per cent to 140.50p and Panmure Gordon issued a “buy” rating, saying that “the medium long-term outlook remains positive”.
But what analysts really wanted was a glimpse of what Just Retirement will offer from next April, when the new pension rules come into force.
Cook talks of offering a “wide range of new propositions”, starting with just a few options, then launching more as the year progresses. “Otherwise, the advisers just won’t cope with being bombarded with 50 new things.”
Already, he says, a large number of people have deferred making decisions until they see what comes on offer.
Whatever the new products, he suggests the government’s punishing tax regime should continue driving customers towards insurance firms’ various long-term schemes – and stall the much-hyped demand for luxury cars.
“There had been this talk of people going out and buying Lamborghinis,” he says. “People might have considered that sort of thing, but we’ve found, from surveying customers, that they stop thinking ‘I can get all my money back’ when they understand the tax.
“If I were to say to you, ‘You did a great job saving £100,000 over your lifetime. Would you like to give George 40 per cent?’ what would you say? And would you want to take out £200,000 from your pension pot for a Lamborghini and pay high rate tax on that?” He’s got a point.