The AGM presentation by Just Group (13 June 2019) fell into the usual trap of confusing capital with capital requirement. Chris Gibson Smith:
As you will be well aware, new regulatory guidance released by the PRA in December – Policy Statement 31/18 (“PS31/18”) – imposed increased capital requirements for lifetime mortgage writers, particularly in relation to business written since January 2016.
[…]The strength of our customer offering has enabled us to adapt new business pricing to the increased capital requirements
David Richardson:
It is very clear that the capital requirements for this business have increased
Etc.
Nope. The PRA never imposed new capital requirements. They may be thinking about them, but they never imposed them. The requirements imposed by SS 3/17 and other papers were on the valuation of embedded guarantees. The PRA was saying ‘look, you valued these things wrong, get it right’.
By analogy, if a fund manager prices a portfolio of FTSE stocks consistent with the FTSE (currently 7,400) being 10,000, on the basis that the FTSE is bound to go up, some regulator would rightly slap their wrists and tell them to get it right. That’s a valuation issue, and separate from, say, a fund manager being required to hold more capital or liquidity against a possible fall in the value of the FTSE.1 The NNEG issue is all about the valuation of capital, not the requirement for it. Using another analogy, capital is like the speed of the car, which we measure using a speedometer. Capital requirement, by contrast, is like the 30mph speed limit sign.
We keep pointing this out, apparently to deaf ears. Lets just bash our head against the keyboard (see gif above).