The Just Group SFCR is out today. One thing leapt out. Table S.22.01.22 on page 110 which quantifies the effect of transitionals and matching adjustment, shows a large increase in the effect of TMTP from £1.7bn in 2018 to £2.8 bn in 2019, that more than a £1bn increase. The figure is broadly consistent with the figure for JRL on p.120 and for Partnership Life on p.129 (although, unlike last year, they don’t add up precisely).
If correct, the coverage ratio would have fallen to 82%.
Yet the figure is not consistent with the figures on p.80, which show the effect of transitionals at only £1bn, leaving the capital coverage ratio broadly unchanged at 141%. I have no way of explaining this.
Note also the weird lack of sensitivity to a 100bp changes in credit spreads, given on p.10 as 1% of coverage ratio. The puzzle is resolved on p.62 where it states “Credit Spread Risk: “The 100bps increase in credit spread for corporate bonds (excludes gilts, EIBs, any other government/supranational) assumes that the Fundamental Spread and volatility adjustment remain unchanged”.
More bizarre insurance accounting, in other words. The fundamental spread represents the supposed default risk for the firm, which if unchanged would not impact p/l. The widening of the spread, for example in a crisis period like now, would therefore be attributable to a change in Matching Adjustment, and the fall in asset value be matched by a corresponding fall in obligations.
This is not false accounting at all!