I wrote on 10 August1 about how possibly material facts – in this case a missing £1bn itemised as ‘other valuation differences’ – have been hidden in plain view, scattered across different reports or couched in opaque regulatory language. But there was something else in plain view that I failed to notice. Page 4 of Just Group’s 2017 Solvency and Financial Condition Report states
The main reason for the change since the publication in March 2018 follows the Group’s decision to change the assumptions underlying the valuation and credit rating of the LTM notes (described in D.2.6) in the Matching Adjustment in JRL as at 31 December 2017.
My emphasis. Further on it says that the impact of the reduction in Matching Adjustment was £470m. I had previously queried this with the firm on 31 July, via their publicist Alex Child-Villiers, who simply reiterated the same statement, and declined to answer my question about the £1bn. I asked again, and the whole firm (and their auditor KPMG) went into radio silence. A number of others have asked since then, and received the same stony silence.
The answer is in the italics above. They reference the matching adjustment and they specifically reference the entity as JRL (Just Retirement Limited), even though Just Group consists of two legal entities, namely JRL and PLACL (Partnership Life Assurance Company Limited).
PLACL has no matching adjustment permission. See the statement hidden on SFCR p.70 where it says that PLACL does not include structured callable bonds and lifetime mortgages in its Matching Adjustment, and p.43 where it explains that in September, as a result of change in reinsurance policy, the non-MA eligible portfolio has lost its ‘liquidity premium’ – an earlier version of matching adjustment which for some unexplained reason PLACL was allowed to continue with.
Finally, look at the table I discussed in that earlier post, and notice how the £1bn change in ‘other valuation differences’ is split evenly between JRL (477.6m) and PLACL (£487.8m). So Child-Villiers was perfectly right to say that the changes resulting from the matching adjustment could be found on pages 3 and 4, and he was perfectly correct in suggesting that the impact, i.e. impact on JRL of matching adjustment, was only £470m, not £1bn. But he omitted to discose the impact on PLACL, which does not have matching adjustment.2
But that leaves a sour taste. FRS 102 says:
Information is material—and therefore has relevance—if its omission or misstatement, individually or collectively, could influence the economic decisions of users taken on the basis of the financial statements.
Would the users who ‘made the economic decision’ to continue holding shares in Just Group after accepting the firm’s reassurances, have done so if they had known about this omission? I wonder.
- And later on 19 October here
- I was not the only one to be led up this particular garden path. See ‘Just enough capital? We think so’ by Alan Devlin at Barclays, 17 August 2018, who quotes the £470m number (p.6) as though it were the entire capital hit.