PRELIMINARY RESULTS FOR 18 M PERIOD END 31/12/16

http://www.rns-pdf.londonstockexchange.com/rns/0861Z_-2017-3-9.pdf 

10 March 2017

JRP GROUP PLC

PRELIMINARY RESULTS FOR THE 18 MONTH PERIOD ENDED 31 DECEMBER 2016

SUSTAINABLE PROFIT GROWTH IN ATTRACTIVE MARKETS

Highlights

· Pro forma adjusted operating profit grew 58% in calendar year 2016 to £164m. The increase was driven by an 82% growth in new business profit to £124m. IFRS statutory profit before tax for the 18 months to December 2016 was £199m

· New business margin more than doubled. JRP focused on profit rather than volume in 2016, with Retirement Income sales falling 13%, but IFRS new business margins increasing from 3.3% to 6.8%. Margin expansion was driven by price improvements, enhanced risk selection, and unusually high mortgage spreads

· £30m run rate synergies achieved out of the £45m 2018 target. The merger integration delivered run rate savings of £30m by the end of 2016, one year ahead of schedule

· Capital resilient, dividend growth resumes. We estimate the Group Solvency II coverage ratio rose to 151% at year-end (H1 2016: 134%), helped by our Q4 £250m hybrid debt issue. The Board proposes a 2.4p final dividend, taking the calendar year total to 3.5p, a 6% increase. Embedded value 219p per share

Rodney Cook, Group Chief Executive, said:

"I am truly proud of what our team achieved in 2016. To deliver a step change in profit at the same time as our merger and Solvency II implementation is very special. Fortunately, there is more to come.

Our focus is on growing profits, but this will be helped by market growth. This is clearest in the DB de-risking and lifetime mortgage markets, where growth is already underway. Although GIfL market growth is more measured, our addressable market is growing as pensions companies put broking services in place to give their retiring customers access to the open market. It is easier for us to be selective with respect to the risks we take when markets are growing. The 2016 margins demonstrated this, and we remain selective in relation to new business.

We are now in the later stages of the merger integration process. There are significant further savings to make, but now in more complex areas such as systems and IT. Our staff have shown considerable adaptability over the last year, and we appreciate their commitment despite the additional pressures of the merger.

We also strengthened the merged Group's capital position during the year, particularly through the issuance of hybrid debt during Q4. Our approach to new business has reduced capital consumption, and in underlying terms our year end figure was little changed from the prior year level. Given our solid 151% Solvency II coverage ratio I am delighted the board has proposed a return to dividend growth.

In summary, our merger has catalysed a transformation of our earnings potential, and there are opportunities ahead of us. It is an exciting time to be serving JRP's shareholders and we will strive to deliver further positive momentum during 2017."

Note

The merger of Just Retirement and Partnership is required for accounting purposes to be treated as an acquisition by Just Retirement of Partnership with an effective date of the beginning of April 2016. Just Retirement Group plc (renamed JRP Group plc) changed its year end to 31 December and consequently the statutory information includes 18 months of Just Retirement and nine months results of Partnership. As a consequence pro forma calendarised data as though the merger took place at the beginning of January 2015 have been presented to give the market an understanding of the business of the merged Group.

A presentation for analysts will take place at 10.00am today at Numis Securities Limited, The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT. A live webcast will also be available on www.jrpgroup.com at 10.00am.

Due to security restrictions at the venue attendance is limited to those who have registered.

A copy of this announcement, presentation slides and transcript will be available on the Group's website www.jrpgroup.com

JRP GROUP PLC

GROUP COMMUNICATIONS

Vale House, Roebuck Close

Bancroft Road, Reigate

Surrey RH2 7RU

Forward-looking statements disclaimer:

This announcement in relation to JRP Group plc and its subsidiaries (the 'Group') contains, and we may make other statements (verbal or otherwise) containing, forward-looking statements about the Group's current plans, goals and expectations relating to future financial conditions, performance, results, strategy and/or objectives.

Statements containing the words: 'believes', 'intends', 'expects', 'plans', 'seeks', 'targets', 'continues' and 'anticipates' or other words of similar meaning are forward-looking (although their absence does not mean that a statement is not forward-looking). Forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that are beyond the Group's control. For example, certain insurance risk disclosures are dependent on the Group's choices about assumptions and models, which by their nature are estimates. As such, although the Group believes its expectations are based on reasonable assumptions, actual future gains and losses could differ materially from those that we have estimated.

Other factors which could cause actual results to differ materially from those estimated by forward-looking statements include but are not limited to: domestic and global economic and business conditions; asset prices; market-related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of governmental and/or regulatory authorities including, for example, new government initiatives related to the provision of retirement benefits or the costs of social care and the effect of the European Union's Solvency II requirements on the Group's capital maintenance requirements; the impact of inflation and deflation; market competition; changes in assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, gender pricing and lapse rates); risks associated with arrangements with third parties, including joint ventures and distribution partners; inability of reinsurers to meet obligations or unavailability of reinsurance coverage; the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which the Group operates.

As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set out in the forward-looking statements within this announcement. The forward-looking statements only speak as at the date of this document and the Group undertakes no obligation to update or change any of the forward-looking statements contained within this announcement or any other forward-looking statements it may make. Nothing in this announcement should be construed as a profit forecast.

Group Chief Executive Officer's Operating Review

"We are focusing on profits and in 2016 have delivered increasing new business margins and increasing new business profits"

I am delighted to present the first CEO's Operating Review for the new JRP Group plc. This has been a challenging period for the two predecessor businesses and for the new Group. I am very pleased to be able to report a very strong performance that has been achieved while making significant progress in transforming and integrating our businesses and delivering our merger synergies.

The backdrop to these results is the unprecedented upheaval in our markets following the introduction of the Pension Freedoms in 2015, the implementation of Solvency II capital requirements in 2016 and the interest rate volatility both before and after the Brexit Referendum result. We took decisive action and responded to the changes in the external environment by innovating and using our intellectual property to penetrate new markets and grow our profits in existing ones. Our results for 2016 demonstrate that we have successfully done that.

The competitive landscape in the GIfL market is changing because of prudential regulatory interventions on capital through Solvency II and conduct intervention by the FCA, the combination of which has resulted in a number of major companies changing their business models and introducing open market GIfL broking services to replace their internal only manufacturing arrangements. Political and regulatory risks continue to exist within the pension environment as government and regulatory policies continue to evolve. At present we judge that these factors, coupled with the structural growth drivers for defined contribution pension savings will result in our addressable market increasing.

Combining the IP of Just Retirement and Partnership on GIfL policyholder mortality means that we have a significant competitive advantage in underwriting and pricing new business. We are using this advantage to better select risks and, given our addressable markets are expected to grow, we will only target business that meets our stringent profit and capital objectives.

The results in 2016 demonstrate our ability to use our strengths to improve profitability and grow new business profits without increasing sales. We have increased pro forma new business margins from 3.3% to pre-Pension Freedom levels of 6.8% in the last year. Despite lower pro forma new business sales, we are still a high-growth business, with new business far outstripping maturing business.

Our capital position has proved resilient over a period of significant market turbulence in the run-up to, and aftermath of, the EU Referendum vote. We have achieved this by focussing on pricing discipline on new business and prudent management of the balance sheet. The Group Solvency Capital Requirement ("SCR") coverage ratio increased from a pro forma 136% at 1 January 2016 to 151% at 31 December 2016. This ratio was boosted by the £250m of Tier 2 debt issued in October. Ignoring the impact of this debt issuance, the capital ratio was unchanged over the second half of 2016 despite writing £1.2bn of new business.

Looking forward, our current expectation is that the Solvency II new business capital strain will be a mid-single digit percentage of premium fully loaded for post-synergy expenses. We expect shareholder capital deployed on new business to earn a mid-teen return. These views are dependent on a number of factors. These include customer rates on DB, GIfL and LTM business, financial market conditions (for example, credit spreads and risk-free rates), reinsurance terms and any changes to the Solvency II regime as applied to our business.

There has been increased competition in the LTM market in 2016. This may in due course lead to pricing pressure, however, the developments in the lifetime mortgage market in 2016 have been very supportive to our business model. We use LTM to back our GIfL and DB De-risking business as these mortgage assets are a very good match for the long-term nature of our liabilities. This is currently a supply constrained market and we see new entrants as beneficial to customers and market growth.

Our multi-channel distribution and strategic funding relationships with other providers positions us well to maintain our position as a leader in the LTM market.

The LTM market has grown by c.30% in 2016 as new entrants provide more mortgage supply and increasing numbers of customers are disposed to using their housing wealth to support their needs in later life. We do not set LTM market share targets. We select the risks that deliver our profit targets and in 2016 we have been able to originate more than sufficient new mortgage business to support the GIfL and DB new business sales.

We are ahead of schedule in capturing the synergy benefits from the merger and have increased our target from £40m to £45m by the end of 2018. Integration of the two businesses is a complex process that may ultimately take longer or cost more than anticipated. However so far we have delivered annualised run rate cost savings of £30m to date and are on track to deliver our revised target of £45m of annualised savings. As these benefits are realised, they will contribute further to our new business profitability.

We have made great progress over the last year in positioning ourselves to deliver value to our shareholders. However, we are not complacent and we will remain focussed on capturing the remaining expense benefits of the merger and expanding access to our addressable markets such that we may deploy our IP to select only those risks that enable us to grow our profits, and use our capital wisely.

Performance review - pro forma

The merger of Just Retirement and Partnership is required for accounting purposes to be treated as an acquisition by Just Retirement of Partnership with an effective date of the beginning of April 2016. As a consequence, pro forma financial performance measures on a calendar year basis, as though the merger took place at the beginning of January 2015, have been presented to give a better understanding of the business of the merged Group. Pro forma financial information is shown in this CEO Operating Review. The underlying assumptions have been aligned to be consistent across both Group companies. Pro forma information is unaudited. A reconciliation of pro forma financial information to statutory financial information is given after the CEO review.

New business sales - pro forma basis (unaudited)

New business sales represent sales for the year ended 31 December 2016 for both Just Retirement and Partnership, together with comparative information on a pro forma basis representing sales for the year ended 31 December 2015 for both Just Retirement and Partnership.

Total new business sales for the Group decreased by 11%, from £2,712.0m for the year ended 31 December 2015, to £2,407.9m for the year ended 31 December 2016. The drivers for this decrease are explained below.

Defined Benefit De-risking sales

DB sales for the year ended 31 December 2016 were down 24% compared to the same period in the prior year, falling from £1,233.3m to £943.4m. This result is as expected, given exceptionally high sales in the second half of 2015 as a result of sales being brought forward before the introduction of Solvency II on 1 January 2016. Underlying growth is better considered by looking at 2016 sales compared to 2014 sales, which were up 37%.

Following the Solvency II disruption, sales momentum grew through 2016 with sales in the second half of the year of £779m, which was approaching five times the £164m sales in the first half.

Prospects for growth for this proposition remain strong. The total market DB liabilities are anticipated to be some £2 trillion, but our primary focus is on the 'Buy-in' sub-sector which de-risks pensions already in payment. This category makes up 39% of the DB market liabilities, so our addressable market of pensions in payment may be around £600bn. Our proposition works for every DB scheme in the market, including those with billions of pounds of liabilities, but we focus our participations on transactions below the £250m level. Over the last few years the market value of DB de-risking transactions has been in a corridor of £8bn-£15bn per year which, given the size of the market liabilities, illustrates there is significant headroom for growth during the next decade.

It is also worth noting the emergence of a further £100bn of life company annuity back book transfers in 2016, which has created competition for already scarce de- risking capital. Altogether we expect the DB de-risking market will continue to grow, and the demand dynamics appear sustainable.

GIfL sales

GIfL sales for the year ended 31 December 2016 have increased by 2% compared to the same period in the prior year (2016: £778.1m; 2015: £762.8m) confirming the stabilisation of the market after the introduction of Pension Freedom and Choice. It is our expectation that our addressable share of this market will grow in 2017, with increasing proportions of people buying this product on the open market.

In the short term, growth is more likely to be driven by changing distribution patterns. This should benefit us, given our focus on the products bought by customers who shop around for guaranteed income for life products on the open market where we are now the leading provider. The open market accounted for approaching 50% of sales in the first three quarters of 2016, up from 41% in 2015, which means more than a 20% increase in our addressable market. There is still plenty of room for improvement before we get back to open market sales that were around 60% of the total market prior to the Pension Reforms.

Care sales

Sales of Care Plans were up 5%, from £92.2m in 2015 to £97.2m in 2016. This remains an attractive market with longer-term structural growth prospects.

Drawdown sales

Drawdown sales, which include Flexible Pension Plan ("FPP") and Capped Drawdown ("CD") sales, increased from £20.6m in 2015 to £25.2m in 2016, growth of 22%. This is in line with our expectations and reflects growth in sales of the FPP product which allows customers to take advantage of the new Pensions Freedoms. The product is no longer available to new customers.

Protection sales

Protection sales remained stable at £5m.

Lifetime mortgage loans

LTM sales have decreased by 6% from £598.0m in 2015 to £559.3m in 2016. We took full advantage of favourable economic conditions in the first nine months of the year for lifetime mortgages and then intentionally managed back sales in the final quarter towards our target ratio of LTM to new Retirement Income liabilities. These assets provide a good match for the Group's long-term liabilities, including DB De-risking solutions where the profile of liabilities can be of a longer duration than for GIfL contracts due to benefit indexation. The LTM market grew by more than 30% in 2016, and it remains attractive with favourable underlying dynamics.

Financial highlights - pro forma basis

Adjusted operating profit - pro forma basis (unaudited)

Adjusted operating profit for the year ended 31 December 2016 and comparatives for 2015 are for both Just Retirement and Partnership.

New business operating profit

New business operating profit has increased to £123.9m (2015: £68.0m), due to the increase in new business margins. Margins have grown due to pricing changes following implementation of Solvency II, favourable mortgage yields, initial benefits from delivering the post-merger cost synergies and our focus on profits over volumes using our IP to select higher margin new business.

In-force operating profit

In-force operating profit has increased to £75.3m (2015: £70.9m). This is as a result of growth in the size of the in-force business offset by the impact of lower interest rates on the returns earnt on surplus assets and the effect of narrowing bond spreads which have reduced the corporate bond default margin emerging.

Underlying operating profit

Underlying operating profit grew by 43% to £199.2m (2015: £138.9m) primarily reflecting the growth in new business profits. Underlying operating profit is the sum of the new business operating profit and in-force operating profit. This measure excludes the impact of one- off assumption changes and investment variances.

Operating experience and assumption changes

Operating experience and assumption changes, which include expense and mortality experience variances, amounted to £2.6m for 2016 (2015: £(5.6)m).

Other Group companies' operating results

This includes the results of our professional services companies and Group holding companies. The increase in the loss to £12.4m (2015: £10.4m) mainly reflects investment in our distribution companies.

Reinsurance and finance costs

Reinsurance and bank finance costs increased to £25.7m (2015: £19.4m), primarily driven by the increase in interest payable on Tier 2 financing including the Partnership £100m bond which was issued in March 2015 and the JRP £250m bond issued in October 2016.

Financial investments

Financial investments have increased to £17.3bn (2015: £14.4bn). Of these, £10.7bn is invested in corporate bonds, gilts and liquidity funds, and £6.6bn in residential and commercial mortgages. Of the corporate bonds, gilt and liquidity fund portfolio, 13% is invested in AAA grade investments and 62% is invested in investments rated A grade or higher.

LTM advances continue to provide the Group with a high-quality source of enhanced investment return and an appropriate match for the Group's long-duration liabilities. The loan to value ("LTV") ratio of the LTM portfolio is 28% at 31 December 2016.

European embedded value ("EEV") amounted to £2,047.0m at 31 December 2016 (31 December 2015: £1,772.6m). New business value generated during the year after tax was £141.7m (2015: £98.1m).

Capital and dividends

The Group's capital position remains strong. The Group economic capital ratio at 31 December 2016 was 216% (30 June 2016: 185%). The estimated Solvency II capital ratio was 151% at 31 December 2016.

In October 2015 we raised equity capital through a placing and open offer amounting to £97m. We issued shares in connection with the acquisition of Partnership amounting to £570m in April 2016.

Additionally, in October 2016 we raised £250m of Solvency II qualifying Tier 2 debt capital. After this issuance, the Group's gearing remains comfortably within the range of other listed insurance companies.

The Board has proposed a final dividend of 2.4p per share, making a total dividend 3.5p for 2016. This represents an increase of 6% over the prior calendar year.

HUB Financial Solutions, the Group's division that provides services to UK businesses and their customers, has continued to win new mandates, including deals with Prudential UK and Phoenix Life. This is an exciting business that enables the Group to expand access to and grow our addressable markets and we have a healthy pipeline of prospects. The Group has continued to develop its DB business and now transacts with all the major employee benefit consultants.

We continue to explore further opportunities for geographical diversification and our South African subsidiary is building out its distribution reach and our American joint venture is beginning to gain traction with advisers and care facilities.

We have successfully implemented our Solvency II internal model for Just Retirement Limited and are progressing our work with the regulators to attain approval for Partnership Life Assurance Company Limited.

Current trading and outlook

There has been and continues to be considerable uncertainty in the external environment as a result of exceptional geopolitical upheavals which drove risk free rates to historic lows. Our new business margin expansion in 2016 was boosted by unusually high mortgage spreads. The combination of more normal mortgage spreads in 2017, partially offset by cost synergies, should allow us to maintain the new business margin at above 6%. We remain focused on margins rather than volumes.

And finally…

In the last three years we have successfully completed our Initial Public Offering, addressed the 2014 Budget changes, launched and achieved a leading position for our DB business in the market, transformed our Retirement Income offering from an old style annuity into a diversified proposition offering guaranteed income for life and flexible drawdown, completed the merger with Partnership and made great progress in integrating the two businesses. None of this would have been possible without the hard work of my outstanding management team and Group colleagues. The merger with Partnership has further accelerated the rate of change and it is only right for me to recognise the huge efforts the JRP team has already made and continues to make as the integration progresses.

In this context I am particularly proud that the quality of our service has not suffered, and that we were awarded the Financial Adviser 5 Star Service award for the twelfth consecutive year for our Guaranteed Income for Life service and the ninth consecutive year for Lifetime Mortgages. This is a fantastic achievement.

The values of the Group remain unchanged, and I am confident they will help drive the business forward and continue to create benefits for our shareholders, colleagues and customers.

Rodney Cook

Group Chief Executive Officer

9 March 2017

Reconciliation of pro forma information to IFRS results

The financial performance figures are based on pro forma financial results for the calendar year 2016 compared to calendar year 2015 assuming that the merger of Just Retirement and Partnership had taken place on 1 January 2015. This information is presented as, in the opinion of the Directors, it provides a more meaningful view of the performance of the JRP Group in 2016 compared to 2015.

Below are reconciliations between pro forma adjusted operating profits and pro forma sales to the adjusted operating profit, KPIs and sales. Reconciliations between the sales KPI and gross written premiums and the adjusted operating profit KPI and IFRS profit before tax, are set out in note 7 to the financial statements. The Board believes that adjusted operating profit, which excludes effects of short-term economic and investment changes, provides a better view of the longer-term performance and development of the business and aligns with the longer-term nature of the products.

Reconciliation of pro forma new business sales to new business sales KPI

Reconciliation of pro forma adjusted operating profit to adjusted operating profit KPI

Financial review

"We have a sound financial position and are well-placed to make the most of our opportunities and are uniquely placed to grow profits and economic value"

The results discussed in the Financial Review are for the 18 month period ended 31 December 2016, which incorporate the results of the acquired Partnership Group from 1 April 2016. The comparative results are for the Just Retirement Group for the year ended 30 June 2015.

Our financial results demonstrate the robustness of our business model, having worked through the significant challenges of the last three years. The financial benefits of the merger are seen in the results for the period, with very strong growth in new business margins and profitability. We have been able to write business at attractive margins by using our IP to select the most attractive risks and using the strong returns on lifetime mortgages. We have conserved capital through our selective approach to writing new business and strengthened our capital base during the period with additional debt financing.

We have a sound financial position and are well-placed to make the most of the opportunities in front of us, where we are able to write new business at good rates of return.

The financial review describes the Group's financial performance in terms of its business segments and highlights the key factors driving movements in the Group's Consolidated statement of comprehensive income and Consolidated statement of financial position.

The Insurance segment writes insurance products for the retirement market - which include Guaranteed Income for Life Solutions and Defined Benefit De-risking Solutions, Care Plans, Flexible Pension Plan and Protection − and invests the premiums received from these contracts in debt securities, gilts, liquidity funds and lifetime mortgage advances. From a management reporting perspective, these are managed together, with LTM being an integral part of the insurance business model.

The professional services business is included with other corporate companies in the Other segment. This business is not currently sufficiently significant to separate from other companies' results and the CODM does not separately consider its results at present. The Other segment also includes the Group's corporate activities that are primarily involved in managing the Group's liquidity, capital and investment activities.

The table below aggregates the financial performance of the Group's segments.

Group performance

Insurance segment performance

Insurance segment

The Group's insurance segment reported an adjusted operating profit before tax of £210.4m (2015: £59.3m), and a profit before tax of £287.7m (2015: loss before tax of £31.7m).

New business operating profit was £171.7m, compared with £36.8m in the prior year. The increase of £134.9m primarily reflects the longer financial reporting period with increased sales and improved margins. The new business operating margin for the 18 month period ended 31 December 2016 was 6.3%, up from 3.3% in the prior year.

Profits emerging from the in-force portfolio continue to grow. After allowing for the longer reporting period, these are broadly in line with the continuing increase in the size of the in -force book of business, together with the contribution, post-acquisition, from Partnership and amounted to £88.2m (2015: £48.8m), an increase of £39.4m compared to the previous period.

Underlying profit for the insurance segment increased by £174.3m from £85.6m for the year to 30 June 2015 to £259.9m for the 18 months to 31 December 2016 as a result of the factors described above.

Total adjusted operating profit amounted to £210.4m for the period, an increase of £151.1m compared to the prior year. Total adjusted operating profit includes underlying operating profit described above, as well as changes in operating experience and assumptions, and reinsurance and finance costs.

Operating experience and assumption changes, which include expense, mortgage and mortality items, amounted to a small positive result of £2.5m for the 18 months to 31 December 2016 (2015: £2.4m).

Reinsurance and bank finance costs increased by £23.3m to £52.0m for the 18 months to 31 December 2016 (2015: £28.7m), primarily driven by the longer accounting period, increased interest payable on Tier 2 financing from Group corporate companies, including interest on the Partnership, and JRL Tier 2 debt issuances, which amounted to £40.0m (2015: £18.3m).

The insurance segment reported a profit before tax for the 18 months to 31 December 2016 of £287.7m (2015: loss before tax of £31.7m). After the £151.1m increase in adjusted operating profit described above, the profit before tax includes the impact of non-recurring and project expenditure and investment and economic variances.

Non-recurring and project expenditure amounted to £18.4m (2015: £16.8m) and includes any one- off regulatory, project and development costs. This line item does not include acquisition integration or acquisition transaction costs, which are shown as separate line items and are explained further below.

Changes in economic and investment conditions over the period led to a profit of £95.7m, compared to a loss of £74.2m in the prior year, mainly reflecting the impact of the significant reduction of risk-free rates during the period, and the positive impact from the difference between actual and expected investment returns earned, together with a narrowing of credit spreads, offset by property valuation movements, and by changes in future property assumptions.

Other segment performance

Results from other activities included adjusted operating profit before tax of £ 5.3m (2015: £8.3m). The decrease in adjusted operating profit mainly reflects higher losses in the distribution companies, partly due to the longer reporting period.

Non-recurring expenditure of £2.7m (2015: £2.6m) relates to one-off costs incurred by the Group including regulatory, project and development costs.

Acquisition integration costs of £40.7m relate to the cost arising from the post-merger integration of the Just Retirement and Partnership businesses and operations. The restructuring changes made to date have already delivered approximately £30m of synergies on an annualised basis.

Acquisition transaction costs of £23.4m reflect the one-off costs incurred during the period in relation to the acquisition of Partnership Assurance Group plc. These costs include advisory, legal and stamp duty costs.

Amortisation costs relate to the amortisation of the Group's intangible assets, including the amortisation of intangible assets newly recognised in relation to the acquisition of Partnership Assurance Group plc by Just Retirement Group plc. Acquired in-force business and other intangibles of £169.6m were recognised on acquisition of Partnership Assurance Group plc. The acquired in-force business asset of £142.7m is being amortised in line with the run-off of the in-force business. Amortisation of the acquired in-force business relating to Partnership Assurance Group plc during the period to 31 December 2016 totalled £10.7m and impairment of brand and Partnership related property lease intangible assets totalled £3.8m.

Highlights from Consolidated statement of comprehensive income

The table below presents the Consolidated statement of comprehensive income for the Group, with key line explanations.

Gross premiums written

Gross premiums written are the total premiums received by the Group in relation to its GIfL, DB and Care Plan contracts in the period, gross of commission paid.

Gross premiums written for the period to 31 December 2016 were £2,693.5m (2015: £1,099.0m). The increase reflects the longer accounting period and the growth in sales in our Defined Benefit De-risking business compared to the prior period, together with the post-acquisition sales of the Partnership business.

Net premium revenue

Net premium revenue represents the sum of gross premiums written and reinsurance recapture, less reinsurance premium ceded.

Net premium revenue increased from £1,927.0m in 2015 to £2,307.0m in the period to 31 December 2016. This increase reflected the growth in gross premiums offset by higher reinsurance ceded. In the period prior to the commencement of Solvency II, the Group restructured its reinsurance financing arrangements, exercising its option to recapture £1,166.9m of premiums and entered into new treaties providing more extensive cover. As a result, reinsurance premiums ceded increased substantially, from £122.9m in the year ended 30 June 2015 to £1,553.4m in the period to 31 December 2016.

Net investment income

Net investment income comprises interest received on financial assets, and the net gains and losses on financial assets designated at fair value through profit or loss upon initial recognition and on financial derivatives.

Net investment income increased by £981.6m, from £635.2m for the year ended 30 June 2015 to £1,616.8m for the period ended 31 December 2016. The increase in net investment income reflected higher interest income of £683.1m (year to 30 June 2015: £196.4m) reflecting the longer reporting period and acquisition of Partnership, and a more favourable movement in fair value of financial assets of £998.7m (year to 30 June 2015: £568.1m) driven by the falling long-term interest rate environment over the period. Reduction in the value of derivative financial instruments was lower at £65.2m (year to 30 June 2015: £129.3m); the derivatives portfolio was restructured during the period following the implementation of Solvency II.

Net claims paid

Net claims paid represents the total payments due to policyholders during the accounting period, less the reinsurers' share of such claims which are payable back to the Group under the terms of the reinsurance treaties.

Net claims paid increased by £441.6m from £250.5m for the year ended 30 June 2015 to £692.1m at 31 December 2016, reflecting the continuing growth of the in-force book, the longer accounting period and the acquisition of the Partnership business offset by the reinsurers' share of claims paid.

Change in insurance liabilities

Change in insurance liabilities represents the difference between the year-on-year change in the carrying value of the Group's insurance liabilities and the year-on-year change in the carrying value of the Group's reinsurance assets.

Change in insurance liabilities increased by £310.8m from £2,095.9m for the year to 30 June 2015, to £2,406.7m for the period to 31 December 2016. The gross change in liabilities was £2,687.1m in the period to 31 December 2016 compared with £956.7m in the year ended 30 June 2015, reflecting a similar increase as that seen in gross premiums. The change in insurance liabilities net of reinsurance reflected the recapture and implementation of new reinsurance financing arrangements as noted above.

Acquisition costs

Acquisition costs comprise the direct costs (such as commissions) and indirect costs of obtaining new business.

Acquisition costs increased by £35.1m, from £18.5m for the year to 30 June 2015 to £53.6m for the period to 31 December 2016. This reflects primarily the longer accounting period and increased sales of LTM and GIfL business.

Other operating expenses

Other operating expenses represent the Group's operational overheads, including personnel expenses, investment expenses and charges, depreciation of equipment, reinsurance fees, operating leases, amortisation of intangibles and other expenses incurred in running the Group's operations.

Other operating expenses increased by £213.9m, from £127.6m for the year to 30 June 2015 to £341.5m for the period ended 31 December 2016. The increase includes the effect of a longer accounting period, acquisition-related transaction and integration costs, increased amortisation of acquired intangible assets and the acquisition of Partnership. Within this figure are merger-related costs of £64.1m.

Finance costs

Finance costs represent interest payable on the deposits received from reinsurers, interest payable on subordinated debt, interest on reinsurance financing and bank finance costs.

Finance costs increased by £131.8m from £100.9m for the year to 30 June 2015 to £232.7m for the period to 31 December 2016. The increase is due to the longer period of account, the subordinated debt interest costs for both the Partnership and JRP debt together with additional reinsurance finance costs following the acquisition of Partnership.

Income tax

There is an income tax charge of £51.3m for the period to 31 December 2016 (2015: credit of £4.8m). The effective tax rate has increased due to non-tax-deductible expenses incurred in connection with the acquisition of Partnership, with some offset due to reductions in the UK rate of corporation tax. The tax credit also includes the impact of certain transitional rules regarding life company taxation.

Highlights from Consolidated statement of financial position

The following table presents selected items from the Consolidated statement of financial position, with key line item explanations below.

Financial investments

The table below provides a breakdown by credit rating of financial investments where applicable as at 31 December 2016 compared with the position at 30 June 2015. Financial investments increased by £8.8bn from £8.5bn at 30 June 2015 to £17.3bn at 31 December 2016 due to the acquisition of Partnership together with the continued investment of new business premiums into gilts, corporate bonds and LTM contracts. The quality of the corporate bond portfolio remains high with 63% (2015: 62%) of our bond and gilt portfolio rated 'A' or above. There were no corporate bond defaults during the period (2015: £nil). The loan-to-value ratio of the mortgage portfolio at 31 December 2016 was 28% (30 June 2015: 25%).

Credit rating analysis

* Includes units held in liquidity funds

Other balances

Reinsurance assets increased by £3.6bn from £2.5bn at 30 June 2015 to £6.1bn at 31 December 2016 as a result of the acquisition of Partnership and reinsured new business in the period.

Insurance liabilities increased from £7.4bn at 30 June 2015 to £15.7bn at 31 December 2016 due to the Partnership acquisition and liabilities arising on new insurance business written less claims paid in the period.

Other financial liabilities increased by £3.1bn from £2.6bn at 30 June 2015 to £5.7bn at 31 December 2016. These liabilities relate mainly to deposits received from reinsurers, with the increase largely due to the acquired Partnership business. Insurance and other payables increased by £90.4m from £22.7m at 30 June 2015 to £113.1m at 31 December 2016.

The increase is due to the acquired Partnership business as well as an unsettled investment transaction balance.

Other liability balances have increased by £353.6m from £328.4m at 30 June 2015 to £682.0m at 31 December 2016. The increase has largely been driven by the issuance of Tier 2 debt by JRP Group in 2016 and the acquired Partnership debt.

Total equity increased by £796.6m from £814.0m at 30 June 2015 to £1,610.6m at 31 December 2016, reflecting the issuance of shares to acquire the Partnership business and the retained profits for the period after dividend payments.

European embedded value

The statement of change in embedded value represents the change for the 18 months ended 31 December 2016 for the JRP Group, together with the comparative figures for the year ended 30 June 2015. The solvency regime changed to a Solvency II basis from 1 January 2016. As results up to 31 December 2015 have been prepared under the previous Solvency I regime, the analysis of movement for the 18 months ended 31 December 2016 has been split into two periods to reflect the different reporting bases in place for the two periods. Material economic assumptions have been aligned to be consistent across both Group companies at 31 December 2015, and, for JRL, are included within the methodology change as at December 2015.

Statement of change in European embedded value

Group EEV increased by £1,027.7m from £1,019.3m at 30 June 2015 to £2,047.0m at 31 December 2016, due primarily to EEV earnings of £308.2m for the period, £635.6m from the acquisition of Partnership and £96.9m from net capital raised.

Capital management

Both Just Retirement and Partnership managed their businesses on a basis of both economic and regulatory capital, and the combined JRP Group will continue to do so.

Solvency II

The Solvency II regime came into effect on 1 January 2016. The Group has approval to apply the matching adjustment and transitional measures in its calculation of technical provisions and uses a combination of an Internal Model and the Standard Formula to calculate its Group Solvency Capital Requirement.

Transitional measures ("TMTP") provide a bridge between the previous capital regime and Solvency II for business written prior to 1 January 2016.

The Group received approval to recalculate the TMTP as at 30 June 2016 in light of the significant decrease in interest rates that were experienced in the period after 1 January 2016.

Further recalculations, if agreed with the regulator, may be made if there are significant changes in the risk profile of the insurance companies.

Our capital position has proved resilient during the period by focussing on pricing discipline on new business and prudent management of the balance sheet. Our underlying capital ratio was practically unchanged over the year. The Group SCR coverage ratio increased from a pro forma 136% at 1 January 2016 to an estimated 151% at 31 December 2016, including 12 months' amortisation of transitional relief. This ratio was boosted by the £250m of Tier 2 debt issued in October.

The Group's estimated Solvency II position was as follows:

Economic capital

The Group's economic capital surplus position at 31 December 2016 was as follows:

The period end economic capital reflects the acquisition of Partnership, the Tier 2 debt raised in 2016 and harmonisation of economic capital models.

The Group paid two interim dividends of 1.1 pence per share in respect of the 18 months to 31 December 2016. The Board has recommended a final dividend of 2.4 pence per share, bringing the total dividend for the 18 months to 31 December 2016 to 4.6 pence per share (year ended 30 June 2015: 3.3 pence per share).

Risk management

"Through our strong risk culture, we are confident of making better decisions to achieve business success"

Purpose

We use risk management to make better informed business decisions that generate value for shareholders while delivering appropriate outcomes for our customers and providing confidence to other stakeholders. Our risk management processes are designed to ensure that our understanding of risk underpins how we run the business.

Risk framework

Our risk management framework is developed in line with our risk environment and best practice. The framework, owned by the Group Board, covers all aspects of risk management including risk governance, reporting and policies. Our appetite for different types of risk is embedded across the business to create a culture of confident risk taking.

Risk evaluation and reporting

We evaluate risks in our operating environment and decide how best to manage them within our risk appetite. Management regularly review their risks and produce reports to provide assurance that material risks in the business are being mitigated. The Risk function, led by the Chief Risk Officer ("CRO"), challenges the management team on the effectiveness of its risk evaluation and mitigation. The CRO provides the Group Board's Risk and Compliance Committee with his independent assessment of the principal risks to the business and emerging risk themes.

Financial risk modelling is used to assess the amount of each risk type against our risk appetite. This modelling is aligned to both our economic capital and regulatory capital metrics to allow the Board to understand the capital requirements for our principal risks. By applying stress and scenario testing, we gain insights into how risks might impact the Group in different circumstances.

Own Risk and Solvency Assessment

The Group's Own Risk and Solvency Assessment ("ORSA") further embeds comprehensive risk reviews into our Group management structure. Our annual ORSA report is a key part of our business cycle and informs strategic decision making. ORSA updates are prepared each quarter to keep the Board apprised of the Group's evolving risk profile.

Principal risks and uncertainties

"The Group's enterprise-wide risk management strategy is to enable all colleagues to take more effective business decisions through a better understanding of risk"

Directors' responsibility statement

We confirm to the best of our knowledge that:

· The financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

· The Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

· The Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the performance, strategy and business model of the Company.

The Strategic Report contains certain forward-looking statements providing additional information to shareholders to assess the potential for the Company's strategies to succeed. Such statements are made by the Directors in good faith, based on the information available to them up to the date of their approval of this report, and should be treated with caution due to the inherent uncertainties underlying forward-looking information.

Neither the Company nor the Directors accept any liability to any person in relation to the Annual Report and Accounts except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.

By order of the Board:

Consolidated statement of comprehensive income

For the 18 months ended 31 December 2016

The notes are an integral part of these financial statements.

Consolidated statement of changes in equity

For the 18 months ended 31 December 2016

1 Share issue costs recognised directly in equity were £4.1m.

2 Includes Currency translation reserve

Consolidated statement of financial position

As at 31 December 2016

1 The fair value of debt securities includes accrued interest previously classified as prepayments and accrued income on the statement of financial position. As a result of this change in presentation, £83.0m of accrued interest has been reclassified from prepayments and accrued income at 30 June 2015.

The notes are an integral part of these financial statements.

The financial statements were approved by the Board of Directors on 9 March 2017 and were signed on its behalf by:

Simon Thomas

Director

Consolidated statement of cash flows

For the 18 months ended 31 December 2016

Notes to the Consolidated financial statements

1 Significant accounting policies

General information

JRP Group plc ("the Company") was incorporated and registered in England and Wales on 13 June 2013 as a public company limited by shares. The Company's registered office is Vale House, Roebuck Close, Bancroft Road, Reigate, Surrey, RH2 7RU.

As explained in note 2, on 4 April 2016, Just Retirement Group plc ("JRG") and Partnership Assurance Group plc ("PAG") completed an all-share transaction to create JRP Group plc ("JRP"). This has been accounted for as a business combination in which JRG has acquired 100% of the ordinary share capital of PAG through a share-for-share exchange, with effective control passing on 1 April 2016. JRG changed its name to JRP Group plc on 4 April 2016. In May 2016 JRP changed its accounting reference date from 30 June to 31 December. As such, these financial statements comprise the Consolidated financial statements of JRP Group plc (formerly Just Retirement Group plc) and its subsidiaries, together referred to as "the Group", as at, and for the 18 month period ended, 31 December 2016.

1.1 Basis of preparation

The results in this preliminary announcement have been taken from the Group's Annual Report and Accounts for the period ended 31 December 2016 which will be delivered to the Registrar of Companies following the Company's Annual General Meeting. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union effective for accounting periods commencing on or before 1 July 2015 and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

This preliminary announcement does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The auditor has reported on the consolidated financial statements. Their report was unqualified and neither contained a statement under section 498 (2) or (3) of the Companies Act 2006.

The following new accounting standards, interpretations and amendments to existing accounting standards in issue, but either not yet effective or endorsed by the EU, have not been early adopted by the Group. Unless stated, the new and amended standards and interpretations are being assessed but are not expected to have a significant impact on the Group's financial statements:

· IFRS 9, Financial instruments (effective 1 January 2018) and amendment to IFRS 4, Insurance contracts (effective 1 January 2018, not yet endorsed).

IFRS 9 includes comprehensive requirements relating to the classification and measurement of financial instruments. In 2016 the IASB amended IFRS 4, the existing Insurance Contracts standard, to allow entities that issue insurance contracts to defer application of IFRS 9 until accounting periods beginning on or after 1 January 2021. This is intended to align with the expected effective date of IFRS 17, the forthcoming Insurance Contracts standard.

This option, which the Group intends to adopt, is subject to meeting criteria relating to the predominance of insurance activity. It is expected that the amendment of the insurance standard will have a significant impact on the presentation of future cashflows within the financial statements, which will be formally assessed once the standard has been finalised.

· IFRS 15, Revenue from contracts with customers (effective 1 January 2017, not yet fully endorsed by the EU).

IFRS 15 specifies how and when an entity recognises revenue, providing a single, principles-based model to be applied to all contracts with customers, whilst requiring more informative and relevant disclosures. Insurance contracts, although contracts with customers, are outside the scope of IFRS 15.

· IFRS 16, Leases (effective 1 January 2019, not yet endorsed).

IFRS 16 specifies how to recognise, measure, present and disclose leases. The standard provides a single accounting model, requiring lessees to recognise assets and liabilities for leases unless the term is 12 months or less, or the underlying asset has a low value.

The effect of applying this standard will be to bring the operating leases disclosed in note 32 onto the balance sheet.

· Amendments to IAS 1, Disclosure initiative (effective 1 January 2016, not yet endorsed).

The amendments clarify guidance on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies.

· Amendment to IAS 12, Income taxes (effective 1 January 2017, not yet endorsed).

The amendments clarify the recognition of deferred tax assets for unrealised losses on debt instruments, and provide guidance on estimates for future taxable profits and the assessment of multiple deferred tax assets in combination.

· Amendment to IAS 7, Statement of cash flows (effective 1 January 2017, not yet endorsed).

The amendments require additional disclosures that will allow users to understand changes in liabilities arising from financing activities, including changes arising from cash flows, such as drawdowns and repayments of borrowings, and non-cash changes, such as acquisitions, disposals and unrealised exchange differences.

1.2 Significant accounting policies and the use of judgements, estimates and assumptions

The preparation of financial statements requires the Group to select accounting policies and make estimates and assumptions that affect items reported in the Consolidated statement of comprehensive income, Consolidated statement of financial position, other primary statements and Notes to the consolidated financial statements.

The major areas of judgement used as part of accounting policy application are summarised below.

All estimates are based on management's knowledge of current facts and circumstances, assumptions based on that knowledge and predictions of future events and actions. Actual results may differ significantly from those estimates.

The table below sets out those items the Group considers susceptible to changes in critical estimates and assumptions together with the relevant accounting policy.

1.3 Consolidation principles

The consolidated financial statements incorporate the assets, liabilities, results and cash flows of the Company and its subsidiaries.

Subsidiaries are those investees over which the Group has control. The Group has control over an investee if all of the following are met: (1) it has power over the investee; (2) it is exposed, or has rights, to variable returns from its involvement with the investee; and (3) it has the ability to use its power over the investee to affect its own returns.

Subsidiaries are consolidated from the date on which control is transferred to the Group and are excluded from consolidation from the date on which control ceases. All inter-company transactions, balances and unrealised surpluses and deficits on transactions between Group companies are eliminated. Accounting policies of subsidiaries are aligned on acquisition to ensure consistency with Group policies.

The Group uses the acquisition method of accounting for business combinations. Under this method, the cost of acquisition is measured as the aggregate of the fair value of the consideration at date of acquisition and the amount of any non-controlling interest in the acquiree. The excess of the consideration transferred over the identifiable net assets acquired is recognised as goodwill.

The Group uses the equity method to consolidate its investments in joint ventures and associates. Under the equity method of accounting the investment is initially recognised at fair value and adjusted thereafter for the post-acquisition change in the Group's share of net assets of the joint ventures and associates.

1.4 Segments

The Group's segmental results are presented on a basis consistent with internal reporting used by the Chief Operating Decision Maker ("CODM") to assess the performance of operating segments and the allocation of resources. The CODM has been identified as the Group Executive Office Committee.

The internal reporting used by the CODM includes product information (which comprises analysis of product revenues, LTM advances and amounts written under investment contracts) and information on adjusted operating profit and profit before tax for the Group's operating segments.

Product information is analysed by product line and includes DB, GIfL, Care Plans, Protection, LTM and Capped Drawdown products.

An operating segment is a component of the Group that engages in business activities from which it earns revenues and incurs expenses.

The operating segments from which the Group derives revenues and incurs expenses are as follows:

· The writing of insurance products for distribution to the at- or in-retirement market, which is undertaken through the activities of the life company;

· The arranging of guaranteed income for life contracts and lifetime mortgages through a regulated advice and intermediary services; and

· The provision of licensed software to financial advisers, banks, building societies, life assurance companies and pension trustees.

Operating segments, where certain materiality thresholds in relation to total results from operating segments are not exceeded, are combined when determining reportable segments. For segmental reporting, the arranging of guaranteed income for life contracts, providing intermediary mortgage advice and arranging, plus the provision of licensed software, are included in the Other segment along with Group activities, such as capital and liquidity management, and investment activities.

The information on adjusted operating profit and profit before tax used by the CODM is presented on a combined product basis within the insurance operating segment and is not analysed further by product.

1.5 Foreign currencies

Transactions in foreign currencies are translated to sterling at the rates of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange ruling at the end of the financial year. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

The assets and liabilities of foreign operations are translated to sterling at the rates of exchange at the reporting date. The revenues and expenses are translated to sterling at the average rates of exchange for the period. Foreign exchange differences arising on translation to sterling are accounted for through other comprehensive income.

1.6 Classification of insurance and investment contracts

The measurement and presentation of assets, liabilities, income and expenses arising from life and pensions business contracts is dependent upon the classification of those contracts as either insurance or investment contracts.

A contract is classified as insurance only if it transfers significant insurance risk. Insurance risk is significant if an insured event could cause an insurer to pay significant additional benefits to those payable if no insured event occurred. A contract that is classified as an insurance contract remains an insurance contract until all rights and obligations are extinguished or expire.

Any contracts not considered to be insurance contracts under IFRS are classified as investment contracts. Capped Drawdown pension business and Flexible Pension Plan contracts are classified as investment contracts as there is no transfer of longevity risk due to the fixed term and unit-linked natures of these respective contracts.

1.7 Premium revenue

Premium revenue in respect of Individual GIfL contracts is accounted for when the premiums are received, which coincides with when the liability to pay the GIfL contract is established.

Premium revenue in respect of Defined Benefit De-risking contracts is accounted for when the Company becomes 'on risk', which is the date from which the policy is effective. If a timing difference occurs between the date from which the policy is effective and the receipt of payment, the amount due for payment but not yet received is recognised as a receivable in the Consolidated statement of financial position.

Premium revenue in respect of Care Plans and Protection policies are recognised in the accounting period in which the insurance contract commences.

Facilitated adviser charges, are not accounted for within premium revenue, and do not represent a charge on the Group.

Deposits collected under investment contracts are not accounted for through the Consolidated statement of comprehensive income, except for fee income and attributable investment income, but are accounted for directly through the Consolidated statement of financial position as an adjustment to the investment contract liability.

Reinsurance premiums payable in respect of reinsurance treaties are accounted for when the reinsurance premiums are due for payment under the terms of the contract. Reinsurance premiums previously incurred can be recaptured under certain conditions, notably once reinsurance financing for an underwriting year is fully repaid.

1.8 Net investment income

Investment income consists of interest receivable for the period and realised and unrealised gains and losses on financial assets and liabilities at fair value through profit and loss.

Interest income is recognised as it accrues.

Realised gains and losses on financial assets and liabilities occur on disposal or transfer and represent the difference between the proceeds received net of transaction costs, and the original cost.

Unrealised gains and losses arising on financial assets and liabilities represent the difference between the carrying value at the end of the reporting period and the carrying value at the start of the reporting period or purchase value during the year, less the reversal of previously recognised unrealised gains and losses in respect of disposals made during the period.

1.9 Fee and commission income

Fee and commission income, which consists of fee income for initial advances made on loans secured by mortgages, investment management fees, administration fees and commission, are recognised as the services are rendered. Revenue is recognised in full on acceptance and inception of the contract by the product provider as there are no post-placement obligations. In addition, operating income includes fees from software licensing which are recognised across the license period.

1.10 Claims paid

Policyholder benefits are accounted for when due for payment. Reinsurance paid claim recoveries are accounted for in the same period as the related claim.

Death claims are accounted for when notified.

1.11 Acquisition costs

Acquisition costs comprise direct costs such as commission and indirect costs of obtaining and processing new business. Acquisition costs are not deferred as they relate to single premium business.

1.12 Leases

Leases, where a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Payments made under operating leases, net of any incentives received from the lessor, are charged to profit or loss on a straight-line basis over the term of the lease.

1.13 Finance costs

Finance costs on deposits received from reinsurers are recognised as an expense in the period in which they are incurred. Interest on reinsurance financing is accrued in accordance with the terms of the financing arrangements.

Interest on loans and borrowings is accrued in accordance with the terms of the loan agreement. Loan issue costs are capitalised and amortised on a straight-line basis over the term of the loan issued. Interest expense is calculated using the effective interest rate method.

1.14 Employee benefits

Defined contribution plans

The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in funds managed by a third party. Obligations for contributions to the defined contribution pension scheme are recognised as an expense in profit or loss when due.

Share-based payment transactions

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at grant date, determined using stochastic and scenario-based modelling techniques where appropriate. The fair value is expensed in the Consolidated statement of comprehensive income on a straight-line basis over the vesting period, with a corresponding credit to equity, based on the Group's estimate of the equity instruments that will eventually vest. At each balance sheet date, the Group revises its estimate of the number of equity instruments that will eventually vest as a result of changes in non-market-based vesting conditions, and recognises the impact of the revision of original estimates in the Consolidated statement of comprehensive income over the remaining vesting period, with a corresponding adjustment to equity. Where a leaver is entitled to their scheme benefits, this is treated as an acceleration of the vesting in the period they leave. Where a scheme is modified before it vests, any change in fair value as a result of the modification is recognised over the remaining vesting period. Where a scheme is cancelled, this is treated as an acceleration in the period of the vesting of all remaining options.

1.15 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted-average number of ordinary shares outstanding during the period. The calculation of the weighted-average number of ordinary shares excludes ordinary shares held in trusts on behalf of employee share schemes.

For diluted earnings per share, the weighted-average number of ordinary shares outstanding during the period, excluding ordinary shares held in trusts on behalf of employee share schemes, is adjusted to assume conversion of potential ordinary shares, such as share options granted to employees, if their conversion would dilute earnings per share.

1.16 Intangible assets

Intangible assets consist of goodwill, which is deemed to have an indefinite useful life, Purchased Value of In-Force ("PVIF"), brand and purchased and internally developed software (including PrognoSysTM), which are deemed to have finite useful lives.

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net assets of the acquired subsidiary and represents the future economic benefit arising from assets that are not capable of being individually identified and separately recognised. Goodwill is measured at initial value less any accumulated impairment losses. Goodwill is not amortised, but assessed for impairment annually or when circumstances or events indicate there may be uncertainty over the carrying value.

For the purpose of impairment testing, goodwill has been allocated to cash generating units and an impairment is recognised when the carrying value of the cash generating unit exceeds its recoverable amount. Impairment losses are recognised directly in the Consolidated statement of comprehensive income and are not subsequently reversed.

Other intangible assets are recognised if it is probable that the relevant future economic benefits attributable to the asset will flow to the Group, and are measured at cost less accumulated amortisation and any impairments.

PVIF, representing the present value of future profits from the purchased inforce business, is recognised upon acquisition and is amortised over its expected remaining economic life up to 16 years on a straight-line basis.

PrognoSysTM is the Group's proprietary underwriting engine. The Group has over 2 million person-years of experience collected over twenty years of operations. It is enhanced by an extensive breadth of external primary and secondary healthcare data and medical literature.

Costs that are directly associated with the production of identifiable and unique software products controlled by the Group are capitalised and recognised as an intangible asset. Direct costs include the incremental software development team's employee costs. All other costs associated with researching or maintaining computer software programmes are recognised as an expense as incurred.

Intangible assets with finite useful lives are amortised on a straight-line basis over their useful lives, which range from three to 16 years. The useful lives are determined by considering relevant factors, such as usage of the asset, potential obsolescence, competitive position and stability of the industry.

For intangible assets with finite useful lives, impairment testing is performed where there is an indication that the carrying value of the assets may be subject to an impairment. An impairment loss is recognised where the carrying value of an intangible asset exceeds its recoverable amount.

The significant intangible assets recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows:

The useful economic lives of intangible assets recognised by the Group other than those acquired in a business combination are as follows:

1.17 Property, plant and equipment

Land and buildings are measured at their revalued amounts less subsequent depreciation, and impairment losses are recognised at the date of revaluation. Valuations are performed with sufficient frequency to ensure that the fair value of the revalued asset does not differ materially from its carrying value.

A revaluation surplus is recognised in Other comprehensive income and credited to the revaluation reserve in equity. However, to the extent that it reverses a revaluation deficit of the same asset previously recognised in profit or loss, the increase is recognised in profit or loss. A revaluation deficit is recognised in profit or loss, except to the extent that it offsets an existing surplus on the same asset recognised in the revaluation reserve.

Buildings are depreciated on a straight-line basis over the estimated useful lives of the buildings of 25 years.

Equipment is stated at cost less accumulated depreciation and impairment losses. Depreciation is calculated on a straight-line basis to write down the cost to residual value over the estimated useful lives as follows:

Computer equipment - 3 to 4 years

Furniture and fittings - 2 to 10 years

1.18 Financial investments

Classification

The Group classifies financial investments in accordance with IAS 39 whereby, subject to specific criteria, they are accounted for at fair value through profit and loss. This comprises assets designated by management as fair value through profit and loss on inception, as they are managed on a fair value basis, and derivatives that are classified as held for trading. These investments are measured at fair value with all changes thereon being recognised in investment income in the Consolidated statement of comprehensive income.

Purchases and sales of investments are recognised on the trade date, which is the date that the Group commits to purchase or sell the assets. Amounts payable or receivable on unsettled purchases or sales are recognised in other payables or other receivables respectively. Transaction costs are expensed through profit and loss.

Loans secured by residential mortgages are recognised when cash is advanced to borrowers.

The Group receives and pledges collateral in the form of cash or gilts in respect of derivative contracts. Collateral received is recognised as an asset in the Consolidated statement of financial position with a corresponding liability for the repayment in other financial liabilities. Collateral pledged is recognised in the Consolidated statement of financial position within the appropriate asset classification.

Derivatives are recognised at fair value through profit and loss. The fair values are obtained from quoted market prices or, if these are not available, by using standard valuation techniques based on discounted cash flow models or option pricing models. All derivatives are carried as assets when the fair value is positive and liabilities when the fair values are negative. The Group does not use hedge accounting.

The Group's policy is to derecognise financial investments when it is deemed that substantially all the risks and rewards of ownership have been transferred.

Use of fair value

The Group uses current bid prices to value its investments with quoted prices. Actively traded investments without quoted prices are valued using prices provided by third parties. If there is no active established market for an investment, the Group applies an appropriate valuation technique such as discounted cash flow analysis.

Determining the fair value of financial investments when the markets are not active

The Group holds certain financial investments for when the markets are not active. These comprise financial investments which are not quoted in active markets and include loans secured by residential mortgages, derivatives and other financial investments for when markets are not active. When the markets are not active, there is generally no or limited observable market data that can be used in the fair value measurement of the financial investments. The determination of whether an active market exists for a financial investment requires management's judgement.

If the market for a financial investment of the Group is not active, the fair value is determined using valuation techniques. The Group establishes fair value for these financial investments by using quotations from independent third parties or internally developed pricing models. The valuation technique is chosen with the objective of arriving at a fair value measurement which reflects the price at which an orderly transaction would take place between market participants on the measurement date. The valuation techniques include the use of recent arm's length transactions, reference to other instruments that are substantially the same, and discounted cash flow analysis. The valuation techniques may include a number of assumptions relating to variables such as credit risk and interest rates and, for loans secured by mortgages, mortality, future expenses, voluntary redemptions and house price assumptions. Changes in assumptions relating to these variables impact the reported fair value of these financial instruments positively or negatively.

The financial investments measured at fair value are classified into the following three-level hierarchy on the basis of the lowest level of inputs that are significant to the fair value measurement of the financial investment concerned:

Level 1: Quoted price (unadjusted) in active markets for identical assets and liabilities;

Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly or indirectly (i.e. derived from prices); and

Level 3: Significant inputs for the asset or liability that are not based on observable market data (unobservable inputs).

1.19 Reinsurance

Reinsurance assets

Amounts recoverable from reinsurers are measured in a consistent manner with insurance liabilities and are classified as reinsurance assets. If a reinsurance asset is impaired, the carrying value is reduced accordingly and that impairment loss is recognised in the Consolidated statement of comprehensive income.

Financial liabilities

Where reinsurance contracts entered into by the Group are structured to provide financing, with financing components to be repaid in future periods, such amounts are classified as "reinsurance finance" and included in other financial liabilities in the Consolidated statement of financial position.

Where reinsurance contracts entered into by the Group require deposits received from reinsurers to be repaid, such amounts are classified as "deposits received from reinsurers" and included in other financial liabilities in the Consolidated statement of financial position. Where the liability carries no insurance risk, it is initially recognised at fair value at the date the deposited asset is recognised and subsequently re-measured at fair value at each balance sheet date. The resulting gain or loss is recognised in the Consolidated statement of comprehensive income. Fair value is determined as the amount payable discounted from the first date that the amount is required to be paid. All other deposits received from reinsurers are valued in accordance with the terms of the reinsurance contracts, which take into account an appropriate discount rate for the timing of expected cash flows.

Amounts receivable/payable

Where reinsurance contracts the Group has entered into include longevity swap arrangements, such contracts are settled on a net basis and amounts receivable from or payable to the reinsurers are included in the appropriate heading under either Insurance and other receivables or Insurance and other payables.

1.20 Cash and cash equivalents

Cash and cash equivalents consist of cash at bank and in hand, deposits held at call with banks, and other short-term highly liquid investments with less than 90 days' maturity from the date of acquisition.

1.21 Equity

The difference between the proceeds received on issue of the shares, net of share issue costs, and the nominal value of the shares issued is credited to the share premium account.

Interim dividends are recognised in equity in the period in which they are paid. Final dividends are recognised when they have been approved by shareholders.

Where the Company purchases shares for the purposes of employee incentive plans, the consideration paid, net of issue costs, is deducted from equity. Upon issue or sale any consideration received is credited to equity net of related costs.

The reserve arising on the reorganisation of the Group represents the difference in the value of the shares in the Company and the value of shares in Just Retirement Group Holdings Limited for which they were exchanged as part of the Group reorganisation in November 2013.

1.22 Insurance liabilities

Measurement

Long-term insurance liabilities arise from the Group writing Retirement Income contracts, including Defined Benefit De-risking solutions, long-term care insurance, and whole of life and term protection insurance. Their measurement uses estimates of projected future cash flows arising from payments to policyholders plus the costs of administering them. Valuation of insurance liabilities is derived using discount rates, adjusted for default allowance, and mortality assumptions, taken from the appropriate mortality tables and adjusted to reflect actual and expected experience.

Liability adequacy test

The Group performs adequacy testing on its insurance liabilities to ensure the carrying amount is sufficient to cover the current estimate of future cash flows. Any deficiency is immediately charged to the Consolidated statement of comprehensive income.

1.23 Investment contract liabilities

Investment contracts are measured at fair value through profit and loss in accordance with IAS 39. The fair value of investment contracts is estimated using an internal model and determined on a policy-by-policy basis using a prospective valuation of future Retirement Income benefit and expense cash flows, but with an adjustment to amortise any day-one gain over the life of the contract.

1.24 Loans and borrowings

Loans and borrowings are initially recognised at fair value, net of transaction costs, and subsequently amortised through profit and loss over the period to maturity at the effective rate of interest required to recognise the discounted estimated cash flows to maturity.

1.25 Other provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. The amount recorded as a provision is the best estimate of the expenditure required to settle the obligation at the balance sheet date. Where the effect of the time value of money is material, the provision is the present value of the expected expenditure.

1.26 Taxation

The current tax expense is based on the taxable profits for the year, using tax rates substantively enacted at the Consolidated statement of financial position date, and after any adjustments in respect of prior years. Tax, including tax relief for losses if applicable, is allocated over profits before taxation and amounts charged or credited to components of other comprehensive income and equity as appropriate.

Provision is made for deferred tax liabilities, or credit taken for deferred tax assets, using the liability method, on all material temporary differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. The principal temporary differences arise from the revaluation of certain financial assets and liabilities, including technical provisions and other insurance items and tax losses carried forward, and include amortised transitional tax adjustments resulting from changes in tax basis.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

2 Acquisition of Partnership Assurance Group plc

On 4 April 2016, the Group completed the acquisition of 100% of the ordinary share capital of Partnership Assurance Group plc (PAG) through an all share exchange which gave PAG shareholders 0.834 Just Retirement Group plc (JRP) shares for every PAG share held, with effective control having passed on 1 April 2016. In total, 368,376,421 new JRP shares were issued and commenced trading on 4 April 2016. As a result, PAG shareholders hold approximately 40% of the enlarged share capital of the Combined Group. At the closing price of 154.60 pence on1 April 2016, the share exchange represented consideration of £569.5m. As part of the acquisition certain employee share schemes granted to PAG employees have been exchanged for equivalent JRP employee share schemes. The fair value cost of replacing those schemes, included in the consideration for PAG, was £2.4m.

Established in 2005 following the acquisition of the business of the Pension Annuity Friendly Society, PAG was a UK life insurance group whose strategy was aligned with that of the Group. PAG was focused on retirement income products, offering better rates to customers who suffer from shortened life expectancy by utilising an intellectual property led, capital-efficient business model. Following the Pensions Freedom changes announced in the 2014 Budget, PAG increased its focus on the defined benefit scheme de-risking segment whilst continually developing its individually underwritten annuities. The acquisition recognises the benefits of greater scale, enhanced intellectual property, a broader product proposition and a more efficient distribution platform that will improve the potential of the Group to succeed in its chosen markets in the future.

In accordance with the accounting standard on Business Combinations (IFRS 3), valuations used in acquisition balance sheets may be refined within one year following the acquisition date. The fair value of PAG identifiable assets and liabilities acquired have been determined to have a net value of £571.6m, compared with the initial value of £644.7m disclosed in the 30 June 2016 Interim report. When compared with consideration of £571.9m, goodwill of £0.3m has arisen on acquisition, as follows:

The issue of new shares in the Company in exchange for shares of PAG will attract merger relief under section 612 of the Companies Act 2006. Of the £569.5m, £36.8m has been credited to share capital (representing 10 pence per ordinary share) and the remaining £532.7m has been credited to the merger reserve within equity.

Fair value and accounting policy adjustments

Insurance liabilities and reinsurance assets

On completion of the acquisition, the economic assumptions applied to the actuarial models used to determine the value of insurance liabilities and reinsurance assets have been reviewed across the Group. Following this review, consistent economic and other assumptions have been applied to all Group entities, resulting in an increase of £37.3m to PAG's insurance liabilities and an increase of £6.2m to PAG's reinsurance assets recognised on acquisition. Similarly, consistent economic assumptions have been applied to the models used to determine the fair value of loan assets secured by mortgages, resulting in an increase of £30.7m to the value of PAG's mortgage loan assets.

Financial liabilities

PAG's subordinated debt liability has been recognised at fair value on acquisition. The fair value represents a £5.8m reduction to the amortised cost of the debt liability. The methodology applied to the valuation of reinsurance deposit back liabilities in Partnership Life Assurance Company Limited has also been reviewed and a Group accounting basis has been adopted. Together with the impact of other basis alignments, this resulted in a £74.7m increase in the value of PAG's financial liabilities.

Acquired value of in-force business and intangible assets

An asset of £142.7m was recognised on acquisition representing the present value of future profits from the acquired in-force business as of 1 April 2016. Future profit streams have been discounted using a weighted-average cost of capital of 11.1%, which was determined using a capital asset pricing model (CAPM) approach. This will be amortised in accordance with the Group's accounting policies.

Intangible assets of £26.9m represent PAG's distribution and customer relationships, brands, technology and software including IP, and other intangibles. These balances will be amortised over their remaining useful economic lives, in accordance with the Group's accounting policies.

Goodwill arising on acquisition

The acquisition resulted in goodwill of £0.3m, representing the excess of purchase consideration over the fair value of assets acquired. The acquisition consideration consisted of shares in the Group exchanged for shares in PAG at a ratio set at the announcement of the transaction on 11 August 2015.

Profit and loss

If the acquisition had been effective on 1 July 2015, on a pro forma basis the Group's revenue is estimated at £4,368.7m and profit before tax attributable to shareholders is estimated at £121.2m for the 18 month period ending 31 December 2016. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 July 2015. The pro forma results are provided for information purposes only and do not necessarily reflect the actual results that would have occurred had the acquisition taken place on 1 July 2015. Since 1 April 2016 £363.3m has been recognised within the Group's revenue and £24.0m has been recognised within the Group's profit before tax attributable to shareholders arising from the acquired entities.

Acquisition costs of £23.4m incurred to support the transaction have been recognised within other operating expenses in the statement of comprehensive income.

3 Net investment income

4 Acquisition costs

5 Other operating expenses

During the period the following services were provided by the Group's auditor at costs as detailed below:

Services provided by Group's auditor

6 Finance costs

The interest payable on deposits received from reinsurers is as defined by the respective reinsurance treaties and calculated with reference to the risk-adjusted yield on the relevant backing asset portfolio.

7 Segmental reporting

Adjusted operating profit

The Group reports adjusted operating profit as an alternative measure of profit which the Group uses for decision making and performance measurement. The Board believes that adjusted operating profit, which excludes effects of short-term economic and investment changes, provides a better view of the longer-term performance and development of the business and aligns with the longer-term nature of the products. The underlying operating profit represents a combination of both the profits generated from new business written in the period and profits expected to emerge from the in-force book of business based on current assumptions. Actual operating experience where different from that assumed at the start of the period and the impacts of changes to future operating assumptions applied in the period are then also included in arriving at adjusted operating profit.

New business profits represent expected investment returns on financial instruments backing shareholder and policyholder funds after allowances for expected movements in liabilities and acquisition costs. Profits arising from the in-force book of business represent the expected return on surplus assets, the expected unwind of prudent reserves above best estimates for mortality, expenses, corporate bond defaults and, with respect to lifetime mortgages, no-negative guarantee and early redemptions.

Adjusted operating profit excludes the impairment and amortisation of goodwill and other intangible assets arising on consolidation, restructuring costs and other exceptional items. Exceptional items are those items that, in the Directors' view, are required to be separately disclosed by virtue of their nature or incidence to enable a full understanding of the Group's financial performance.

Variances between actual and expected investment returns due to economic and market changes are also disclosed outside adjusted operating profit.

Segmental analysis

The Insurance segment writes insurance products for the retirement market - which include Guaranteed Income for Life Solutions and Defined Benefit De-risking Solutions, Care Plans, Flexible Pension Plan and Protection − and invests the premiums received from these contracts in debt securities, gilts, liquidity funds and lifetime mortgage advances. From a management reporting perspective, these are managed together, with LTM being an integral part of the insurance business model.

The professional services business is included with other corporate companies in the Other segment. This business is not currently sufficiently significant to separate from other companies' results and the CODM does not separately consider its results at present. The Other segment also includes the Group's corporate activities that are primarily involved in managing the Group's liquidity, capital and investment activities.

The Group operates in one material geographical segment which is the United Kingdom.

Segmental reporting and reconciliation to financial information