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Just Group shares soar after BoE capital rules prove lenient

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(Reuters) – Shares in pensions provider Just Group <JUSTJ.L> rose as much as 27 percent on Monday after the Bank of England released a final decision on capital requirement changes that the company said would prove less of a burden than previously expected.

Just Group said the rules announced by the BoE’s Prudential Regulatory Authority (PRA), were “considerably less onerous” than set out in a consultation paper earlier this year, adding that the outcome was well within its planning ranges.

“We welcome the greater clarity provided by the Policy Statement, and the PRA’s recognition of the important role played by equity release mortgages’ for our customers as they plan their retirement finances,” Just Group said in a statement.

The PRA also said transitional provisions of the European Union’s Solvency II rules, which detail the amount of capital insurance companies must hold to reduce the risk of insolvency, could still be used by companies.

“In our view, this is a very favourable outcome for Just, which gives the company the flexibility to continue as a going concern in what we view as one of the most attractive insurance markets in Europe,” Barclays analysts said.

Just Group shares have been weighed down since July when the firm warned that the new lifetime mortgage rules were likely to affect its finances, with analysts saying the company may need to raise additional regulatory capital to cope.

Barclays’ analysts had said that an equity raise would only be required in the worst case scenario; under Monday’s favourable PRA announcement they said there was no need for one.

The PRA rules are aimed at protecting against the risks generated for insurers by lifetime mortgages, which enable homeowners to borrow against the value of their property and only pay back the loan when they die.

Numis analyst Marcus Barnard said that the new rules translated to Just Group increasing its capital requirements by less than 100 million pounds, compared to the brokerage’s earlier estimates of between 160 million pounds and 876 million pounds.

“Overall this is a good announcement for Just Group and removes a considerable amount of the uncertainty faced by shareholders,” Barnard said in a note.

Just Group said it would evaluate the optimal capital mix and level to support its new business franchise, and to establish an appropriate dividend policy for shareholders.

The new rules are expected to take effect on Dec 31, 2019.

Shares of the UK midcap company were up 21.5 percent at 99.78 pence at 0926 GMT.

(Reporting by Arathy S Nair in Bengaluru)

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