U.K.-based Just Group PLC will issue new shares and debt and cancel its 2018 dividend to strengthen its balance sheet in response to the U.K. Prudential Regulation Authority's proposed changes to rules for so-called lifetime mortgages.
Lifetime, or equity release, mortgages are structured to make payments to homeowners from the equity held in their home, with the loan repaid with the proceeds of the sale of the property following the owner's death or move into long-term care. The loans are an attractive investment for U.K. life insurers active in the bulk annuities market because of capital benefits under the European Solvency II regime, but the PRA had flagged concerns about no negative equity guarantees that ensure that the amount repaid does not exceed the sale price of the house.
Just Group has a particularly high share of equity release mortgages in its overall asset portfolio, meaning that it was sharply affected by the PRA's recommendations. It had already scrapped its interim dividend ahead of the release of the PRA's review, although its shares rose almost 20% the day the changes were announced, reflecting a lighter-than-expected approach by the PRA.
The company plans to sell to institutional investors 94,012,782 new ordinary shares of 10 pence apiece through an accelerated bookbuilding process, representing approximately 9.99% of its existing issued share capital. CEO Rodney Cook intends to participate in the placing up to 9.99% of his existing holding.
Just Group has also launched an underwritten Restricted Tier 1 debt offering of at least £300 million. The offering will take the form of fixed-rate reset perpetual noncall 5.1-year restricted Tier 1 contingent convertible notes.
These actions would result in an increase in the company's solvency ratio to 160% from 136% on a pro forma basis as of Dec. 31, 2018, assuming a debt offering size of £300 million and proceeds from the placing of £80 million.
Barclays Bank PLC and Numis Securities Ltd. are the joint global coordinators for placing, while Barclays is the underwriter for the debt offering.
Just Group further said it would not pay a dividend for 2018. For 2019, dividend payments will start at a rebased level, which is expected to be approximately one-third of the 3.72 pence total dividend paid during the 2017 financial year.
For full year 2018, the insurer reported underlying operating profit of £315.4 million, up 31% from £241.1 million. Adjusted operating profit before tax declined 5% year over year to £210.3 million.
On an IFRS basis, Just recorded a net loss of £64.3 million for the year, compared to a profit of £155.1 million in 2017, and a pretax loss of £86 million, compared to a profit of £181 million in 2017. The loss was "driven by changes to property assumptions in light of the economic and financial uncertainty caused by Brexit," the company said.
Shares in Just Group were down more than 14% to 83.8 pence apiece as of just before 10 a.m. London time March 14.