Thursday 14 May 2020 9:26 am

House price decline hurts Just Group's solvency ratio

Specialist pension provider Just Group posted a drop in its solvency ratio today after interest rates plunged around the world over the economic fallout of coronavirus.

The insurer told investors its Solvency II coverage ratio has dropped three points to 138 per cent at the end of April 2020.

Read more: Government urged to help property market recover amid UK house price slump

European Solvency II rules stipulate how much capital an insurer must hold to reduce the risk of insolvency. 

A lower ratio means a company is more likely to default on its obligations. But a level above 100 per cent suggests the insurer has sufficient capital.

Just Group blamed collapsing interest rates for the fall, after the Bank of England reduced rates to a historic low of 0.1 per cent to combat coronavirus.

Listen to our daily City View podcast as we chart the economic fallout and business impact of the coronavirus pandemic.

Other central banks have taken similar measures, though the US Federal Reserve has ruled out negative rates.

“There has been a three point fall in the Solvency II coverage ratio to 138 per cent at the end of April 2020 due to our Solvency Capital Requirements increasing as interest rates fall,” Just Group said.

A one per cent year-to-date decline in UK house prices also contributed to the solvency ratio’s decline. So did a fall of under one per cent from corporate bond downgrades and a one per cent drop in six-monthly debt coupons paid in April.

That saw Just Group’s share price fall 1.7 per cent to 48.6p in early trading.

The pension provider offered the update in a trading statement ahead of its annual general meeting later today. It said it has grown excess capital by £60m between January and April despite the year’s economic turmoil.

Just Group added that its £11.5bn corporate and government credit portfolio is also performing well.

It has seen just £350m of that portfolio downgraded by one rating level since the start of 2020, and of this £110m has been deemed sub-investment grade credit.

“Since the start of the Covid-19 lockdown we have continued to work towards capital self-sufficiency whilst supporting our customers by making changes to our products, and managing our credit portfolio, which is performing well, to reduce the risk of downgrades,” chief executive David Richardson said. “Our total retirement income sales in the first quarter are in line with expectations and we continue to maintain pricing discipline.

Read more: Lloyd’s of London expects to pay up to $4.3bn in coronavirus insurance claims

“Finally, I remain committed to ensuring the well-being of our colleagues and would like to thank them all for their continued hard work and how well they have adapted to the changes we have had to embrace.”

Richardson also noted the huge increase in deaths in England and Wales during the coronavirus pandemic. Double the number of people have died compared to last year in the four weeks to 1 May, and older people and those in care homes are particularly vulnerable.

“It is still too early to accurately estimate the financial impact of these developments and we will continue to monitor it closely,” Richardson said.

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