TIDMJUST
RNS Number : 8532S
Just Group PLC
14 March 2019
THIS ANNOUNCEMENT (INCLUDING THE APPICES) AND THE INFORMATION
CONTAINED HEREIN IS RESTRICTED AND NOT FOR RELEASE, PUBLICATION OR
DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR
INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, HONG KONG, NEW
ZEALAND, SINGAPORE, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH
SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL. PLEASE
SEE THE IMPORTANT NOTICE AT THE OF THIS ANNOUNCEMENT.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014 ("MAR"). Upon
publication of this announcement, the inside information is now
considered to be in the public domain for the purposes of MAR.
Just Group plc
Proposed placing of 9.99% of existing issued share capital
Proposed benchmark restricted tier 1 debt offering with a
minimum size of GBP300 million
Introduction
Following the release of Policy Statement 31/18 (the "Policy
Statement") by the Prudential Regulation Authority (the "PRA"), the
Board of Just Group plc ("Just" or the "Company", together with its
subsidiaries, the "Group"), has decided to strengthen the Group's
capital base to support its new business franchise and maintain its
focus on growing profits.
Just today announces its intention to conduct an underwritten
non-pre-emptive cash placing (the "Placing") to institutional
investors (the "Placees") of 94,012,782 new ordinary shares of 10
pence each (the "Placing Shares") in the capital of the Company
which represents approximately 9.99% of the existing issued share
capital of the Company. The issue of the Placing Shares is to be
effected by way of a cash box placing. The Placing will be
conducted through an accelerated bookbuilding process (the
"Bookbuild") which will commence immediately following this
announcement and will be subject to the terms and conditions set
out in Appendix A to this announcement. Rodney Cook, Chief
Executive Officer of the Company, has indicated his intention to
participate in the Placing up to 9.99% of his existing holding.
Further details of the Placing are set out below.
Barclays Bank PLC ("Barclays") and Numis Securities Limited
("Numis") have been appointed as Joint Global Coordinators in
respect of the Placing (the "Joint Global Coordinators").
As well as the Placing, the Group also announces the launch of
an underwritten benchmark debt offering with a minimum size of
GBP300 million (the "Debt Offering") and its expectation to
recommence dividend payments during FY 2019. The Debt Offering will
take the form of fixed rate reset perpetual non-call 5.1 yr
restricted tier 1 contingent convertible notes (the "Notes"), which
will be more fully described in an offering memorandum (the "Debt
Offering Memorandum") to be made available to eligible investors in
the Debt Offering in due course.
The Placing has been underwritten by the Joint Global
Coordinators pursuant to a placing agreement and the Debt Offering
has been separately underwritten by Barclays pursuant to an
underwriting agreement, in each case upon the terms and subject to
the conditions set out in the respective agreements (which include
certain termination rights). The Placing is not conditional upon
successful completion of the Debt Offering and the Debt Offering is
not conditional upon successful completion of the Placing.
The Company has also today announced its results for the year
ended 31 December 2018.
Background to and reasons for the Placing and Debt Offering
On 10 December 2018, the PRA released the Policy Statement,
setting out its conclusions on the treatment of equity release
mortgages ("ERMs") being held to back annuity liabilities. The
Policy Statement followed the three month consultation process
which began with the release of Consultation Paper 13/18 - Solvency
II: Equity Release Mortgages (the "CP") on 2 July 2018.
As previously announced, following the release of the Policy
Statement, the Board has been determining the optimal capital mix
and level in order to provide a prudent base to support the
development of the Group's business going forward, including
reviewing the strength of the Group's capital base and the range of
capital options available to it. After careful consideration, the
Board has decided to strengthen the Group's capital base through
the Placing and Debt Offering (together, the "Capital
Actions").
The Capital Actions will enable the Group to maintain its focus
on growing profits by taking advantage of the growth opportunities
in its chosen markets whilst maintaining a stronger solvency ratio.
They have been selected to optimise the Group's cost of capital,
maintain appropriate leverage and to support the Group's "A+"
insurer financial strength rating from Fitch.
Assuming a debt offering size of GBP300 million and assuming
proceeds from the Placing of GBP80 million, the Capital Actions
would result in an increase in the Group's solvency ratio from 136%
to 160% on a pro forma basis as at 31 December 2018. Own funds as
at 31 December 2018 were calculated on a basis equivalent to using
a 13% volatility and 0.3% deferment rate assumption ("13/0.3") in
relation to the treatment of lifetime mortgages within the
effective value test (the "EVT"). The Policy Statement prescribes
the use of 13/0 at 31 December 2019, moving to a 13% volatility and
1% deferment rate ("13/1") by 31 December 2021.
The Group is committed to achieving capital self-sufficiency and
expects own funds to increase organically from 2022, following
implementation of a number of management actions to improve new
business capital efficiency, reduce expenses, enhance management of
the no-negative equity guarantee and optimise the Group's
investment approach.
Following completion of the Capital Actions, the Board believes
that the Group's revised capital structure will allow it to
maintain its focus on growing profits and support value creation
for shareholders. The Group is well positioned in structurally
growing segments of the United Kingdom retirement market, being
Defined Benefit ("DB") de-risking, ERMs and Guaranteed Income for
Life ("GIfL"). The DB de-risking market continues to represent a
significant long term opportunity for the Group; Hyman Robertson
expects the market to have exceeded GBP21bn in 2018, an increase of
more than 70% on 2017, yet this still represents less than 1% of
the total GBP2.2 trillion of DB liabilities. The ERM market grew by
29% in 2018 and has now tripled in size over the last 5 years, with
increased supply, greater customer awareness and a growing number
of retirees that are asset rich, but income poor set to support
growth going forward. The GIfL "open" market also recorded growth
in 2018 and will continue to benefit from a structural shift
towards defined contribution pensions and the Financial Conduct
Authority's encouragement of shopping around.
As previously announced, the Group has already aligned new
business pricing with the expected post-CP capital requirements and
remains committed to delivering attractive mid-teen returns on
shareholder capital applied to new business.
Dividend Update
As previously communicated, the Board decided to defer the 2018
interim dividend due to the uncertainty surrounding the potential
outcomes from the CP. Following the release of the Policy
Statement, the Board has decided to strengthen the Group's capital
base through the proposed Capital Actions and, under these
circumstances, and having considered the views of its largest
shareholders, has considered it appropriate not to pay a dividend
for the 2018 financial year.
The Board's current expectation is to recommence dividend
payments during the 2019 financial year at a rebased level. The
rebased level for the 2019 full year dividend is expected to be
approximately one third of the 3.72 pence total dividend paid
during the 2017 financial year, subject to the Group's earnings,
cash flow and capital position.
Shareholder consultation
Ahead of the proposed Placing, the Group has consulted with a
number of its leading shareholders regarding the rationale for the
proposed Placing and its non pre-emptive nature. The Board's belief
that the proposed Placing is in the best interest of shareholders
has been strengthened as a result of these discussions.
Details of the Placing
The Placing is subject to the terms and conditions set out in
Appendix A to this announcement. The Bookbuild will commence today
in respect of the Placing. The book will open with immediate effect
following this announcement.
The price per ordinary share at which the Placing Shares are to
be placed (the "Placing Price") will be decided at the close of the
Bookbuild. Each of the Joint Global Coordinators has severally (and
not jointly or jointly and severally) agreed with the Company, to
the extent that Placees are not procured, to take up the Placing
Shares at a certain price, or in the event of any default by any
Placee in paying the Placing Price in respect of any Placing Shares
allotted to it, to take up such Placing Shares themselves at the
Placing Price in each case in the agreed proportions as set out in
the Placing Agreement.
The timing of the closing of the Bookbuild, the Placing Price
and allocations are at the discretion of the Company and the Joint
Global Coordinators. Details of the Placing Price and the number of
Placing Shares will be announced as soon as practicable after the
close of the Bookbuild.
When issued, the Placing Shares will be credited as fully paid
and will rank pari passu in all respects with the existing ordinary
shares of 10 pence each in the share capital of the Company,
including the right to receive all dividends and other
distributions declared, made or paid on or in respect of such
shares after the date of issue of the Placing Shares.
Application will be made for the Placing Shares to be admitted
to the premium listing segment of the Official List of the
Financial Conduct Authority and to trading on the main market for
listed securities of the London Stock Exchange (together,
"Admission").
Settlement of the Placing Shares and Admission are expected to
take place at 8.00am on 18 March 2019 (or such later date as may be
agreed between the Company and the Joint Global Coordinators). The
Placing is conditional upon, inter alia, Admission becoming
effective and the Placing Agreement not being terminated.
Pursuant to the terms of the Placing Agreement, the Company has
given certain customary indemnities to the Joint Global
Coordinators and has also agreed that it will not, without the
prior written consent of the Joint Global Coordinators and subject
to certain customary exceptions, for a period of 180 days after
Admission, offer, issue or grant any rights over any ordinary
shares in the Company or related securities.
Appendix A to this announcement (which forms part of this
announcement) sets out further information relating to the
Bookbuild and the terms and conditions of the Placing.
Risk factors
Prospective investors in the Placing Shares should consider
fully and carefully the risk factors associated with the Company,
the Placing and the Placing Shares which are set out in Appendix B
to this announcement.
Contacts
Just Group plc
James Pearce, Director of Group Finance
Alistair Smith, Investor Relations Manager
Barclays Bank PLC - Corporate Broker to Just Group
Michael Lamb
Mark Astaire
Phil Drake
Numis Securities Limited - Corporate Broker to Just Group
Charles Farquhar
Jonathan Abbott
IMPORTANT NOTICES RELATING TO THE PLACING
THIS ANNOUNCEMENT HAS BEEN ISSUED BY, AND IS THE SOLE
RESPONSIBILITY OF, THE COMPANY.
MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE
PLACING. THIS ANNOUNCEMENT (INCLUDING THE APPICES) AND THE TERMS
AND CONDITIONS SET OUT HEREIN (TOGETHER, THIS "ANNOUNCEMENT") ARE
DIRECTED ONLY AT PERSONS WHOSE ORDINARY ACTIVITIES INVOLVE THEM IN
ACQUIRING, HOLDING, MANAGING AND DISPOSING OF INVESTMENTS (AS
PRINCIPAL OR AGENT) FOR THE PURPOSES OF THEIR BUSINESS AND WHO HAVE
PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS AND ARE:
(1) IF IN A MEMBER STATE OF THE EUROPEAN ECONOMIC AREA ("EEA"),
QUALIFIED INVESTORS AS DEFINED IN ARTICLE 2(1)(e) OF DIRECTIVE
2003/71/EC AS AMED (THE "PROSPECTUS DIRECTIVE"); (2) IF IN THE
UNITED KINGDOM, QUALIFIED INVESTORS WHO (A) FALL WITHIN ARTICLE
19(5) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL
PROMOTION) ORDER 2005, AS AMED (THE "ORDER") (INVESTMENT
PROFESSIONALS) OR (B) FALL WITHIN ARTICLE 49(2)(a) TO (d) (HIGH NET
WORTH COMPANIES, UNINCORPORATED ASSOCIATIONS, ETC.) OF THE ORDER
(ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANT
PERSONS").
THIS ANNOUNCEMENT AND THE INFORMATION IN IT MUST NOT BE ACTED ON
OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. PERSONS
DISTRIBUTING THIS ANNOUNCEMENT MUST SATISFY THEMSELVES THAT IT IS
LAWFUL TO DO SO. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH
THIS ANNOUNCEMENT RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND
WILL BE ENGAGED IN ONLY WITH RELEVANT PERSONS. THIS ANNOUNCEMENT
DOES NOT ITSELF CONSTITUTE AN OFFER FOR SALE OR SUBSCRIPTION OF ANY
SECURITIES IN JUST GROUP PLC.
THE PLACING SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMED (THE
"SECURITIES ACT") OR WITH ANY SECURITIES REGULATORY AUTHORITY OF
ANY STATE OR JURISDICTION OF THE UNITED STATES OF AMERICA
(INCLUDING ITS TERRITORIES AND POSSESSIONS, ANY STATE OF THE UNTIED
STATES OF AMERICA AND THE DISTRICT OF COLUMBIA (THE "UNITED STATES"
OR "US"), AND MAY NOT BE OFFERED, SOLD OR TRANSFERRED, DIRECTLY OR
INDIRECTLY, IN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
COMPLIANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION OF THE UNITED STATES. THE PLACING SHARES ARE
BEING OFFERED AND SOLD ONLY (I) OUTSIDE OF THE UNITED STATES IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT AND OTHERWISE
IN ACCORDANCE WITH APPLICABLE LAWS AND (II) IN THE UNITED STATES TO
A LIMITED NUMBER OF "QUALIFIED INSTITUTIONAL BUYERS" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN TRANSACTIONS EXEMPT FROM
REGISTRATION UNDER THE SECURITIES ACT. NO PUBLIC OFFERING OF THE
PLACING SHARES IS BEING MADE IN THE UNITED STATES OR ELSEWHERE.
THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT
CONSTITUTE AN OFFER TO SELL OR ISSUE, OR THE SOLICITATION OF AN
OFFER TO BUY, ACQUIRE OR SUBSCRIBE FOR SHARES IN THE CAPITAL OF THE
COMPANY IN THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, HONG KONG,
NEW ZEALAND, SINGAPORE OR THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER
STATE OR JURISDICTION IN WHICH SUFFER OFFER OR SOLICITATION IS NOT
AUTHORISED OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. ANY FAILURE TO COMPLY WITH THESE
RESTRICTIONS MAY CONSISTUTE A VIOLATION OF THE SECURITIES LAWS OF
SUCH JURISDICTIONS.
THIS ANNOUNCEMENT (INCLUDING THE APPICES) AND THE INFORMATION
CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION
OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR
INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, HONG
KONG, NEW ZEALAND, SINGAPORE, THE REPUBLIC OF SOUTH AFRICA OR ANY
OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR
DISTRIBUTION WOULD BE UNLAWFUL.
THIS ANNOUNCEMENT IS NOT FOR PUBLICATION OR DISTRIBUTION,
DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES. THIS
ANNOUNCEMENT IS NOT AN OFFER OF SECURITIES FOR SALE INTO THE UNITED
STATES. THE SECURITIES REFERRED TO HEREIN HAVE NOT BEEN AND WILL
NOT BE REGISTERED UNDER THE SECURITIES ACT AND MAY NOT BE OFFERED
OR SOLD IN THE UNITED STATES, EXCEPT PURSUANT TO AN APPLICABLE
EXEMPTION FROM REGISTRATION. NO PUBLIC OFFERING IS BEING MADE IN
THE UNITED STATES.
The distribution of this Announcement and/or the Placing and/or
issue of the Placing Shares in certain jurisdictions may be
restricted by law. No action has been taken by the Company, the
Joint Global Coordinators or any of their respective affiliates,
agents, directors, officers or employees that would permit an offer
of the Placing Shares or possession or distribution of this
Announcement or any other offering or publicity material relating
to such Placing Shares in any jurisdiction where action for that
purpose is required. Persons into whose possession this
Announcement comes are required by the Company and the Joint Global
Coordinators to inform themselves about and to observe any such
restrictions.
This Announcement or any part of it does not constitute or form
part of any offer to issue or sell, or the solicitation of an offer
to acquire, purchase or subscribe for, any securities in the United
States (including its territories and possessions, any state of the
United States and the District of Columbia (the "United States" or
the "US")), Australia, Canada, Japan or the Republic of South
Africa or any other jurisdiction in which the same would be
unlawful. No public offering of the Placing Shares is being made in
any such jurisdiction.
The Placing Shares have not been approved or disapproved by the
US Securities and Exchange Commission, any state securities
commission or other regulatory authority in the United States, nor
have any of the foregoing authorities passed upon or endorsed the
merits of the Placing or the accuracy or adequacy of this
Announcement. Any representation to the contrary is a criminal
offence in the United States. The relevant clearances have not
been, nor will they be, obtained from the securities commission of
any province or territory of Canada, no prospectus has been lodged
with, or registered by, the Australian Securities and Investments
Commission or the Japanese Ministry of Finance; the relevant
clearances have not been, and will not be, obtained for the South
Africa Reserve Bank or any other applicable body in the Republic of
South Africa in relation to the Placing Shares and the Placing
Shares have not been, nor will they be, registered under or offered
in compliance with the securities laws of any state, province or
territory of Australia, Canada, Japan, Hong Kong, New Zealand,
Singapore or the Republic of South Africa. Accordingly, the Placing
Shares may not (unless an exemption under the relevant securities
laws is applicable) be offered, sold, resold or delivered, directly
or indirectly, in or into Australia, Canada, Japan, Hong Kong, New
Zealand, Singapore or the Republic of South Africa or any other
jurisdiction outside the United Kingdom.
Persons (including, without limitation, nominees and trustees)
who have a contractual right or other legal obligations to forward
a copy of this Announcement should seek appropriate advice before
taking any action.
By participating in the Bookbuild and the Placing, each Placee
by making an oral and legally binding offer to acquire Placing
Shares will be deemed to have read and understood this Announcement
in its entirety, to be participating, making an offer and acquiring
Placing Shares on the terms and conditions contained herein and to
be providing the representations, warranties, indemnities,
acknowledgements and undertakings contained in Appendix A.
This Announcement may contain and the Company may make verbal
statements containing "forward-looking statements" with respect to
certain of the Company's plans and its current goals and
expectations relating to its future financial condition,
performance, strategic initiatives, objectives and results.
Forward-looking statements sometimes use words such as "aim",
"anticipate", "target", "expect", "estimate", "intend", "plan",
"goal", "believe", "seek", "may", "could", "outlook" or other words
of similar meaning. By their nature, all forward-looking statements
involve risk and uncertainty because they relate to future events
and circumstances which are beyond the control of the Company,
including amongst other things, United Kingdom domestic and global
economic business conditions, market-related risks such as
fluctuations in interest rates and exchange rates, the policies and
actions of governmental and regulatory authorities, the effect of
competition, inflation, deflation, the timing effect and other
uncertainties of future acquisitions or combinations within
relevant industries, the effect of tax and other legislation and
other regulations in the jurisdictions in which the Company and its
respective affiliates operate, the effect of volatility in the
equity, capital and credit markets on the Company's profitability
and ability to access capital and credit, a decline in the
Company's credit ratings; the effect of operational risks; and the
loss of key personnel. As a result, the actual future financial
condition, performance and results of the Company may differ
materially from the plans, goals and expectations set forth in any
forward-looking statements. Any forward-looking statements made in
this Announcement by or on behalf of the Company speak only as of
the date they are made. Except as required by applicable law or
regulation, the Company expressly disclaims any obligation or
undertaking to publish any updates or revisions to any
forward-looking statements contained in this Announcement to
reflect any changes in the Company's expectations with regard
thereto or any changes in events, conditions or circumstances on
which any such statement is based.
Solely for the purposes of the product governance requirements
contained within: (a) EU Directive 2014/65/EU on markets in
financial instruments, as amended ("MiFID II"); (b) Articles 9 and
10 of Commission Delegated Directive (EU) 2017/593 supplementing
MiFID II; and (c) local implementing measures (together, the "MiFID
II Product Governance Requirements"), and disclaiming all and any
liability, whether arising in tort, contract or otherwise, which
any "manufacturer" (for the purposes of the Product Governance
Requirements) may otherwise have with respect thereto, the Placing
Shares have been subject to a product approval process, which has
determined that the Placing Shares are: (i) compatible with an end
target market of (a) retail investors, (b) investors who meet the
criteria of professional clients and (c) eligible counterparties,
each as defined in MiFID II; and (ii) eligible for distribution
through all distribution channels as are permitted by MiFID II (the
"Target Market Assessment"). Notwithstanding the Target Market
Assessment, distributors should note that: the price of the Placing
Shares may decline and investors could lose all or part of their
investment; the Placing Shares offer no guaranteed income and no
capital protection; and an investment in the Placing Shares is
compatible only with investors who do not need a guaranteed income
or capital protection, who (either alone or in conjunction with an
appropriate financial or other adviser) are capable of evaluating
the merits and risks of such an investment and who have sufficient
resources to be able to bear any losses that may result therefrom.
The Target Market Assessment is without prejudice to the
requirements of any contractual, legal or regulatory selling
restrictions in relation to the Placing. Furthermore, it is noted
that, notwithstanding the Target Market Assessment, the Joint
Global Coordinators will only procure investors who meet the
criteria of professional clients and eligible counterparties.
For the avoidance of doubt, the Target Market Assessment does
not constitute: (a) an assessment of suitability or appropriateness
for the purposes of MiFID II; or (b) a recommendation to any
investor or group of investors to invest in, or purchase, or take
any other action whatsoever with respect to the Placing Shares.
Each distributor is responsible for undertaking its own target
market assessment in respect of the Placing Shares and determining
appropriate distribution channels.
Barclays is authorised by the Prudential Regulation Authority
(the "PRA") and regulated by the Financial Conduct Authority
("FCA") and the PRA in the United Kingdom and is acting exclusively
for the Company and no one else in connection with the Placing, and
Barclays will not be responsible to anyone (including any Placees)
other than the Company for providing the protections afforded to
its clients or for providing advice in relation to the Placing or
any other matters referred to in this Announcement.
Numis is authorised and regulated by the FCA in the United
Kingdom and is acting exclusively for the Company and no one else
in connection with the Placing, and Numis will not be responsible
to anyone (including any Placees) other than the Company for
providing the protections afforded to its clients or for providing
advice in relation to the Placing or any other matters referred to
in this Announcement.
No representation or warranty, express or implied, is or will be
made as to, or in relation to, and no responsibility or liability
is or will be accepted by the Joint Global Coordinators or by any
of their respective affiliates or agents as to, or in relation to,
the accuracy or completeness of this Announcement or any other
written or oral information made available to or publicly available
to any interested party or its advisers, and any liability
therefore is expressly disclaimed.
In addition, in the event that the Joint Global Coordinators
acquire Placing Shares in the Placing, the Joint Global
Coordinators may co-ordinate disposals of such shares in accordance
with applicable law and regulation. Except as required by
applicable law or regulation, the Joint Global Coordinators and
their respective affiliates do not propose to make any public
disclosure in relation to such transactions.
No statement in this Announcement is intended to be a profit
forecast or estimate, and no statement in this Announcement should
be interpreted to mean that earnings per share of the Company for
the current or future financial years would necessarily match or
exceed the historical published earnings per share of the
Company.
This Announcement does not constitute a recommendation
concerning any investor's options with respect to the Placing. Each
investor or prospective investor should conduct his, her or its own
investigation, analysis and evaluation of the business and data
described in this Announcement. The price and value of securities
can go down as well as up. Past performance is not a guide to
future performance. The contents of this Announcement are not to be
construed as legal, business, financial or tax advice. Each
investor or prospective investor should consult his, her or its own
legal adviser, business adviser, financial adviser or tax adviser
for legal, financial, business or tax advice.
The Placing Shares to be issued pursuant to the Placing will not
be admitted to trading on any stock exchange other than the London
Stock Exchange.
Neither the content of the Company's website nor any website
accessible by hyperlinks on the Company's website is incorporated
in, or forms part of, this Announcement.
APPIX A - TERMS AND CONDITIONS OF THE PLACING
FURTHER DETAILS OF THE PLACING
TERMS AND CONDITIONS
THIS APPIX, AND THE INFORMATION CONTAINED IN IT, IS RESTRICTED
AND IS NOT FOR PUBLIC RELEASE, PUBLICATION, OR DISTRIBUTION, IN
WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED
STATES, AUSTRALIA, CANADA, JAPAN, HONG KONG, NEW ZEALAND,
SINGAPORE, SOUTH AFRICA OR ANY OTHER STATE OR JURISDICTION IN WHICH
SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL.
IMPORTANT INFORMATION FOR INVITED PLACEES ONLY REGARDING THE
PLACING
MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE
PLACING. THIS ANNOUNCEMENT AND THE TERMS AND CONDITIONS SET OUT IN
THIS APPIX ARE FOR INFORMATION PURPOSES ONLY AND ARE DIRECTED ONLY
AT PERSONS WHO ARE: (A) PERSONS IN MEMBER STATES OF THE EUROPEAN
ECONOMIC AREA ("EEA") WHO ARE QUALIFIED INVESTORS WITHIN THE
MEANING OF ARTICLE 2(1)(E) OF EU DIRECTIVE 2003/71/EC AND AMMENTS
THERETO (THE "PROSPECTUS DIRECTIVE") ("QUALIFIED INVESTORS"), (B)
IF IN THE UNITED KINGDOM, PERSONS WHO (I) HAVE PROFESSIONAL
EXPERIENCE IN MATTERS RELATING TO INVESTMENTS WHO FALL WITHIN THE
DEFINITION OF "INVESTMENT PROFESSIONALS" IN ARTICLE 19(5) OF THE
FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER
2005, AS AMED (THE "ORDER"), OR ARE HIGH NET WORTH COMPANIES,
UNINCORPORATED ASSOCIATIONS OR PARTNERSHIPS OR TRUSTEES OF HIGH
VALUE TRUSTS AS DESCRIBED IN ARTICLE 49(2) OF THE ORDER AND (II)
ARE "QUALIFIED INVESTORS" AS DEFINED IN SECTION 86 OF THE FINANCIAL
SERVICES AND MARKETS ACT 2000, AS AMED ("FSMA"),AND (C) OTHERWISE,
TO PERSONS TO WHOM IT MAY OTHERWISE BE LAWFUL TO COMMUNICATE IT TO
(EACH A "RELEVANT PERSON"). NO OTHER PERSON SHOULD ACT OR RELY ON
THIS ANNOUNCEMENT AND PERSONS DISTRIBUTING THIS ANNOUNCEMENT MUST
SATISFY THEMSELVES THAT IT IS LAWFUL TO DO SO. BY ACCEPTING THE
TERMS OF THIS ANNOUNCEMENT YOU REPRESENT AND AGREE THAT YOU ARE A
RELEVANT PERSON. THIS APPIX AND THE TERMS AND CONDITIONS SET OUT
HEREIN MUST NOT BE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT
RELEVANT PERSONS. ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH
THIS ANNOUNCEMENT (INCLUDING THIS APPIX) AND THE TERMS AND
CONDITIONS SET OUT HEREIN RELATE IS AVAILABLE ONLY TO RELEVANT
PERSONS AND WILL BE ENGAGED IN ONLY WITH RELEVANT
PERSONS. THIS ANNOUNCEMENT (INCLUDING THIS APPIX) DOES NOT
ITSELF CONSTITUTE AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF
AN OFFER TO BUY OR ACQUIRE ANY SECURITIES IN THE COMPANY.
THE INFORMATION CONTAINED HEREIN IS NOT FOR RELEASE, PUBLICATION
OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED
STATES (INCLUDING ITS TERRITORIES AND POSSESSIONS, ANY STATE OF THE
UNITED STATES AND THE DISTRICT OF COLUMBIA) AUSTRALIA, CANADA,
JAPAN, HONG KONG, NEW ZEALAND, SINGAPORE, SOUTH AFRICA OR ANY
JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION
WOULD BE UNLAWFUL. THIS DOCUMENT (AND THE INFORMATION CONTAINED
HEREIN) DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN THE
UNITED STATES, AUSTRALIA, CANADA, JAPAN, HONG KONG, NEW ZEALAND,
SINGAPORE, SOUTH AFRICA OR IN ANY OTHER JURISDICTION IN WHICH THE
SAME WOULD BE UNLAWFUL.
THE PLACING SHARES HAVE NOT BEEN AND WILL NOT BE REGISTERED
UNDER THE US SECURITIES ACT OF 1933, AS AMED (THE "SECURITIES
ACT"), OR UNDER THE APPLICABLE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION OF THE UNITED STATES, AND MAY NOT BE OFFERED,
SOLD, ACQUIRED, RESOLD, TRANSFERRED OR DELIVERED, DIRECTLY OR
INDIRECTLY WITHIN, INTO OR IN THE UNITED STATES, EXCEPT PURSUANT TO
AN APPLICABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
COMPLIANCE WITH THE SECURITIES LAWS OF ANY RELEVANT STATE OR OTHER
JURISDICTION OF THE UNITED STATES. THERE WILL BE NO PUBLIC OFFER OF
THE PLACING SHARES IN THE UNITED STATES, THE UNITED KINGDOM OR
ELSEWHERE.
EACH PLACEE SHOULD CONSULT ITS OWN ADVISERS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF ACQUIRING THE PLACING
SHARES.
Persons who are invited to and who choose to participate in the
Placing (and any person acting on such person's behalf) by making
an oral or written offer to acquire Placing Shares, including any
individuals, funds or others on whose behalf a commitment to
acquire Placing Shares is given ("Placees"), will be deemed to have
read and understood this Announcement including this Appendix, in
its entirety and to be making such offer on the terms and
conditions, and to be providing the representations, warranties,
acknowledgements and undertakings, contained in this Appendix. In
particular, each such Placee represents, warrants and acknowledges
that:
1. it is a Relevant Person and undertakes that it will acquire,
hold, manage or dispose of any Placing Shares that are allocated to
it for the purposes of its business only;
2. if it is in a member state of the EEA and/or if it is a
financial intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, that any Placing Shares acquired by it in the
Placing will not be acquired on a non-discretionary basis on behalf
of, nor will they be acquired with a view to their offer or resale
to, persons in any member state of the EEA in circumstances which
may give rise to an offer of securities to the public, other than
an offer or resale in a member state of the EEA which has
implemented the Prospectus Directive to Qualified Investors, or in
circumstances in which the prior consent of each of Barclays Bank
PLC ("Barclays") and Numis Securities Limited ("Numis") has been
given to each such proposed offer or resale;
3. it is acquiring the Placing Shares for its own account or is
acquiring the Placing Shares for an account with respect to which
it exercises sole investment discretion and has the authority to
make and does make the representations, warranties, indemnities,
acknowledgements, undertakings and agreements contained in this
Announcement;
4. it understands (or if acting for the account of another
person, such person has confirmed that such person understands) the
resale and transfer restrictions set out in this Appendix;
5. it acknowledges that the Placing Shares have not been and
will not be registered under the Securities Act or with any
securities regulatory authority of any state or other jurisdiction
of the United States and may not be offered, sold or transferred,
directly or indirectly, within the United States except pursuant to
an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and in compliance
with any applicable securities laws of any state or other
jurisdiction of the United States;
6. except for a limited number of "qualified institutional
buyers" ("QIBs") as defined in Rule 144A under the Securities Act
("Rule 144A") who have executed and delivered to the Company,
Barclays and Numis a US investor letter substantially in the form
provided to it, (i) it and the person(s), if any, for whose account
or benefit it is acquiring the Placing Shares are purchasing the
Placing Shares in an "offshore transaction" as defined in
Regulation S under the Securities Act; (ii) it is aware of the
restrictions on the offer and sale of the Placing Shares pursuant
to Regulation S; and (iii) the Placing Shares have not been offered
to it by means of any "directed selling efforts" as defined in
Regulation S;
7. The Company, Barclays and Numis will rely upon the truth and
accuracy of the foregoing representations, acknowledgements and
agreements.
The Placing Shares have not been approved or disapproved by the
US Securities and Exchange Commission, any state securities
commission or other regulatory authority in the United States, nor
have any of the foregoing authorities passed upon or endorsed the
merits of the Placing or the accuracy or adequacy of this
Announcement. Any representation to the contrary is a criminal
offence in the United States.
The relevant clearances have not been, and nor will they be,
obtained from the securities commission or similar regulatory
authority of any province or territory of Canada. The offering of
the Placing Shares is being made on a private placement basis only
in the provinces of British Columbia, Alberta, Ontario and Quebec
and is exempt from the requirement that the Company prepare and
file a prospectus with the relevant securities regulatory
authorities in Canada. No offer of securities is made pursuant to
this Announcement in Canada except to a person who has represented
to the Company and the Joint Global Coordinators that such person
(i) is purchasing as principal, or is deemed to be purchasing as
principal in accordance with applicable Canadian securities laws,
for investment only and not with a view to resale or
redistribution; (ii) is an "accredited investor" as such term is
defined in section 1.1 of National Instrument 45-106 Prospectus
Exemptions or, in Ontario, as such term is defined in section
73.3(1) of the Securities Act (Ontario); and (iii) is a "permitted
client" as such term is defined in section 1.1 of National
Instrument 31-103 Registration Requirements, Exemptions and Ongoing
Registrant Obligations. Any resale of the Placing Shares acquired
by a Canadian investor in this offering must be made in accordance
with applicable Canadian securities laws, which may vary depending
on the relevant jurisdiction, and which may require resales to be
made in accordance with Canadian prospectus requirements, a
statutory exemption from the prospectus requirements, in a
transaction exempt from the prospectus requirements or otherwise
under a discretionary exemption from the prospectus requirements
granted by the applicable local Canadian securities regulatory
authority. These resale restrictions may under certain
circumstances apply to resales of the Placing Shares outside of
Canada.
No prospectus has been lodged with, or registered by, the
Australian Securities and Investments Commission or the Japanese
Ministry of Finance; and the Placing Shares have not been, and nor
will they be, registered or otherwise qualified for offer and sale
under the securities laws of any state, province or territory of
Australia, Japan, Hong Kong, New Zealand, Singapore or South
Africa. Accordingly, the Placing Shares may not (unless an
exemption under the relevant securities laws is applicable) be
offered, sold, resold or delivered, directly or indirectly, in or
into the United States, Australia, Japan, Hong Kong, New Zealand,
Singapore or South Africa or any other jurisdiction outside the
United Kingdom.
Persons (including, without limitation, nominees and trustees)
who have a contractual or other legal obligation to forward a copy
of this Appendix or the Announcement of which it forms part should
seek appropriate advice before taking any action.
Neither Barclays nor Numis makes any representation to any
Placees regarding an investment in the Placing Shares.
Information to Distributors
Solely for the purposes of the product governance requirements
contained within: (a) EU Directive 2014/65/EU on markets in
financial instruments, as amended ("MiFID II"); (b) Articles 9 and
10 of Commission Delegated Directive (EU) 2017/593 supplementing
MiFID II; and (c) local implementing measures (together, the "MiFID
II Product Governance Requirements"), and disclaiming all and any
liability, whether arising in tort, contract or otherwise, which
any "manufacturer" (for the purposes of the MiFID II Product
Governance Requirements) may otherwise have with respect thereto,
the Placing Shares have been subject to a product approval process,
which has determined that such securities are: (i) compatible with
an end target market of retail investors and investors who meet the
criteria of professional clients and eligible counterparties, each
as defined in MiFID II; and (ii) eligible for distribution through
all distribution channels as are permitted by MiFID II (the "Target
Market Assessment"). Notwithstanding the Target Market Assessment,
distributors should note that: the price of the Placing Shares may
decline and investors could lose all or part of their investment;
the Placing Shares offer no guaranteed income and no capital
protection; and an investment in Placing Shares is compatible only
with investors who do not need a guaranteed income or capital
protection, who (either alone or in conjunction with an appropriate
financial or other adviser)
are capable of evaluating the merits and risks of such an
investment and who have sufficient resources to be able to bear any
losses that may result therefrom. The Target Market Assessment is
without prejudice to the requirements of any contractual, legal or
regulatory selling restrictions in relation to the Issue.
Furthermore, it is noted that, notwithstanding the Target Market
Assessment, the Joint Global Coordinators will only procure
investors who meet the criteria of professional clients and
eligible counterparties.
For the avoidance of doubt, the Target Market Assessment does
not constitute: (a) an assessment of suitability or appropriateness
for the purposes of MiFID II; or (b) a recommendation to any
investor or group of investors to invest in, or purchase, or take
any other action whatsoever with respect to the Placing Shares.
Each distributor is responsible for undertaking its own target
market assessment in respect of the Placing Shares and determining
appropriate distribution channels.
Details of the Placing Agreement and of the Placing Shares
The Company has today entered into an agreement (the "Placing
Agreement") with Barclays and Numis, who are each acting as global
coordinators and bookrunners (the "Joint Global Coordinators"),
under which, subject to the conditions set out therein, each of the
Joint Global Coordinators has agreed, as agent for and on behalf of
the Company, to use its reasonable endeavours to procure Placees
for the Placing Shares at a price to be determined following
completion of the Bookbuild (as described in this Announcement and
defined below).
Each of the Joint Global Coordinators has severally (and not
jointly or jointly and severally) agreed with the Company, to the
extent that Placees are not procured, to take up the Placing Shares
at a certain price, or in the event of any default by any Placee in
paying the Placing Price (as defined below) in respect of any
Placing Shares allotted to it, to take up such Placing Shares
themselves at the Placing Price in each case in the agreed
proportions as set out in the Placing Agreement.
The Placing Shares will, when issued, be credited as fully paid
and will rank pari passu in all respects with the existing ordinary
shares in the Company, including the right to receive all dividends
and other distributions declared, made or paid in respect of such
ordinary shares after the date of issue of the Placing Shares.
The issue of the Placing Shares is to be effected by way of a
cash box placing. The Company will allot the Placing Shares to
Placees in consideration for the transfer to the Company by
Barclays of certain shares in a Jersey incorporated subsidiary of
the Company, certain of which shares in the Jersey company Barclays
shall be obliged to subscribe for using the proceeds of the Placing
(net of any agreed commission and expenses).
Applications for listing and admission to trading
Applications will be made to the Financial Conduct Authority
(the "FCA") for admission of the Placing Shares to listing on the
premium listing segment of the Official List of the FCA (the
"Official List") and to the London Stock Exchange plc ("London
Stock Exchange") for admission of the Placing Shares to trading on
its main market for listed securities (together, "Admission").
It is expected that Admission will become effective on or around
8.00 a.m. on 18 March 2019 and that dealings in the Placing Shares
will commence at that time.
Bookbuild
The Joint Global Coordinators will today commence the
bookbuilding process in respect of the Placing (the "Bookbuild") to
determine demand for participation in the Placing by Placees. This
Appendix gives details of the terms and conditions of, and the
mechanics of participation in, the Placing. No commissions will be
paid to Placees or by Placees in respect of any Placing Shares.
The Joint Global Coordinators and the Company shall be entitled
to effect the Placing by such alternative method to the Bookbuild
as they may, in their sole discretion, determine.
Participation in, and principal terms of, the Placing
Barclays and Numis are arranging the Placing and acting as Joint
Global Coordinators and agents of the Company in connection with
the Placing.
1. Participation in the Placing will only be available to
persons who may lawfully be, and are, invited to participate by the
Joint Global Coordinators. The Joint Global Coordinators' agents
and their respective affiliates are each entitled to enter bids in
the Bookbuild as principal.
2. The Bookbuild will establish a single price per Placing Share
payable to the Joint Global Coordinators by all Placees whose bids
are successful (the "Placing Price"). The final number of Placing
Shares and the Placing Price will be agreed between the Joint
Global Coordinators and the Company following completion of the
Bookbuild. Any discount to the market price of the existing
ordinary shares of the Company will be determined in accordance
with the FCA's Listing Rules. The Placing Price and the number of
Placing Shares will be announced on an FCA-listed regulatory
information service (a "Regulatory Information Service") following
the completion of the Bookbuild (the "Pricing Announcement").
3. To bid in the Bookbuild, Placees should communicate their bid
by telephone or in writing (including via Bloomberg chat or email)
to their usual sales contact at either of the Joint Global
Coordinators. Each bid should state the number of Placing Shares
which the prospective Placee wishes to acquire at either the
Placing Price which is ultimately established by the Company and
the Joint Global Coordinators or at prices up to a price limit
specified in its bid. Bids may be scaled down by the Joint Global
Coordinators on the basis referred to in paragraph 9 below. Each of
the Joint Global Coordinators is arranging the Placing severally
(and not jointly, or jointly and severally), each as agent of the
Company.
4. The Bookbuild is expected to close no later than 5.00 p.m.
(London time) today, 14 March 2019, but may be closed earlier or
later at the absolute discretion of the Joint Global Coordinators.
The Joint Global Coordinators may, in agreement with the Company,
accept bids that are received after the Bookbuild has closed. The
Company reserves the right (upon the agreement of the Joint Global
Coordinators) to reduce the amount to be raised pursuant to the
Placing. The total number of shares to be issued pursuant to the
Placing shall not exceed 9.99% of the Company's existing issued
ordinary share capital.
5. Each prospective Placee's allocation will be determined
following agreement between the Joint Global Coordinators and the
Company and will be confirmed orally by one of the Joint Global
Coordinators as agent of the Company following the close of the
Bookbuild. That oral confirmation will constitute an irrevocable
legally binding commitment upon that person in favour of the
relevant Joint Global Coordinator (who will at that point become a
Placee) to acquire the number of Placing Shares allocated to it at
the Placing Price on the terms and conditions set out in this
Appendix and in accordance with the Company's articles of
association and each Placee will be deemed to have read and
understood this Announcement (including this Appendix) in its
entirety.
6. Each prospective Placee's allocation and commitment will be
evidenced by a contract note issued to such Placee by one of the
Joint Global Coordinators. The terms of this Appendix will be
deemed incorporated by reference therein.
7. A bid in the Bookbuild will be made on the terms and subject
to the conditions in this Announcement (including this Appendix)
and will be legally binding on the Placee on behalf of which it is
made and, except with the consent of the Joint Global Coordinators,
will not be capable of variation or revocation after the time at
which it is submitted. Each Placee will also have an immediate,
separate, irrevocable and binding obligation, owed to the relevant
Joint Global Coordinator, to pay as principal to the relevant Joint
Global Coordinator (or as it may direct) in cleared funds
immediately on the settlement date an amount equal to the product
of the Placing Price and the number of Placing Shares such Placee
has agreed to acquire and the Company has agreed to allot and issue
to that Placee.
8. Subject to paragraphs 4 and 5 above, the Joint Global
Coordinators may choose to accept bids, either in whole or in part,
on the basis of allocations determined in agreement with the
Company and may scale down any bids for this purpose on such basis
as they may determine. The Joint Global Coordinators may also,
notwithstanding paragraphs 4 and 5 above, (i) allocate Placing
Shares after the time of any initial allocation to any person
submitting a bid after that time; and (ii) allocate Placing Shares
after the Bookbuild has closed to any person submitting a bid after
that time.
9. Except as required by law or regulation, no press release or
other announcement will be made by the Joint Global Coordinators or
the Company using the name of any Placee (or its agent), in its
capacity as Placee (or agent), other than with such Placee's prior
written consent.
10. Irrespective of the time at which a Placee's allocation
pursuant to the Placing is confirmed, settlement for all Placing
Shares to be acquired pursuant to the Placing will be required to
be made at the same time, on the basis explained below under
"Registration and Settlement".
11. All obligations under the Bookbuild and Placing will be
subject to fulfilment or (where applicable) waiver of the
conditions referred to below under "Conditions of the Placing" and
to the Placing not being terminated on the basis referred to below
under "Right to terminate under the Placing Agreement".
12. By participating in the Bookbuild, each Placee will agree
that its rights and obligations in respect of the Placing will
terminate only in the circumstances described below and will not be
capable of rescission or termination by the Placee.
13. To the fullest extent permissible by law, neither of the
Joint Global Coordinators nor any of their respective affiliates,
nor any of their or their respective affiliates' agents, directors,
officers or employees shall have any liability to Placees (or to
any other person whether acting on behalf of a Placee or
otherwise). In particular, neither of the Joint Global Coordinators
nor any of their respective affiliates, agents, directors, officers
or employees shall have any liability (including to the extent
permissible by law, any fiduciary duties) to Placees (or to any
person whether acting on behalf of a Placee or otherwise) in
respect of the Joint Global Coordinators' conduct of the Bookbuild
or of such alternative method of effecting the Placing as the Joint
Global Coordinators and the Company may agree.
Conditions of the Placing
The obligations of the Joint Global Coordinators under the
Placing Agreement in respect of the Placing Shares are conditional
on, inter alia:
a) certain publication of announcement obligations;
b) the warranties in the Placing Agreement being true and
accurate and not misleading on and as of the date of the Placing
Agreement and at all times prior to Admission by reference to the
facts and circumstances then subsisting;
c) fulfilment by the Company of its obligations under the Placing Agreement;
d) allotment of the Placing Shares, subject only to Admission;
e) no material adverse change in respect of the Company having occurred;
f) the obligations of the Joint Global Coordinators under the
Placing Agreement not having been terminated prior to Admission;
and
g) Admission occurring by 8.00am on 18 March 2019 (or such later
time and date as the Joint Global Coordinators and the Company may
agree).
The Joint Global Coordinators have a discretion to waive
compliance with the conditions (where capable of waiver) and/or
agree an extension in time for their satisfaction.
If (i) any of the conditions contained in the Placing Agreement,
including those described above, are not fulfilled (or, where
permitted, waived or extended in writing by the Joint Global
Coordinators) or become incapable of fulfilment on or before the
date or time specified for the fulfilment thereof (or such later
date and/or time as the Joint Global Coordinators and the Company
may agree); or (ii) the Placing Agreement is terminated in the
circumstances specified below, the Placing will not proceed and the
Placees' rights and obligations hereunder in relation to the
Placing Shares shall cease and terminate at such time and each
Placee agrees that no claim can be made by the Placee in respect
thereof.
The Joint Global Coordinators may, at their discretion and upon
such terms as they think fit, waive compliance by the Company with
the whole or any part of any of the Company's obligations in
relation to the conditions in the Placing Agreement, save that
conditions (a), (d) and (g) above may not be waived. Any such
extension or waiver will not affect Placees' commitments as set out
in this Announcement (including this Appendix).
Neither the Joint Global Coordinators nor the Company shall have
any liability to any Placee (or to any other person whether acting
on behalf of a Placee or otherwise) in respect of any decision they
may make as to whether or not to waive or to extend the time and/or
the date for the satisfaction of any condition to the Placing nor
for any decision they may make as to the satisfaction of any
condition or in respect of the Placing generally, and by
participating in the Placing each Placee agrees that any such
decision is within the absolute discretion of the Joint Global
Coordinators.
Lock-up
The Company has undertaken that it will not at any time between
the date of the Placing Agreement and the date which is 180
calendar days from the date of Admission without the prior written
consent of the Joint Global Coordinators, (i) issue, allot, offer,
pledge, sell, contract to sell, grant any option or contract to
purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, lend or otherwise transfer or
dispose of, directly or indirectly, any ordinary shares or other
shares in the capital of the Company or any securities convertible
into or exchangeable for ordinary shares or other shares in the
capital of the Company; or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of ordinary shares or other
shares in the capital of the Company, whether any such transaction
described in (i) or (ii) above is to be settled by delivery of
ordinary shares or other shares in the capital of the Company or
such other securities, in cash or otherwise, provided that the
foregoing shall not prevent or restrict the issue of shares or
other securities in connection with the Placing, the Debt Offering
or as a result of the conversion of the Restricted Trier 1 Bonds
issued pursuant to the Debt Offering; the issue of shares on the
exercise or conversion of any outstanding securities previously
disclosed; the grant of options under, or the allotment and issue
of shares pursuant to options under, any existing employee share
schemes of the Company previously disclosed; or the issue of shares
the Company is required to issue pursuant to the implementation of
an offer made to the shareholders of the Company in accordance with
the Takeover Code and which has become unconditional.
Right to terminate under the Placing Agreement
At any time before Admission, the Joint Global Coordinators are
entitled to terminate the Placing Agreement in the following
circumstances, amongst others: (i) if any of the Company's
warranties or representations are not or cease to be true and
accurate or have become misleading; or (ii) if any of the
conditions have not been satisfied or waived by the Joint Global
Coordinators by the date specified therein; or (iii) if the
Company's applications to the FCA and the London Stock Exchange,
respectively, are refused by the FCA or the London Stock Exchange
(as appropriate); or (iv) if the Company has failed to comply with
any of its obligations under the Placing Agreement; or (v) if there
has occurred any material adverse change in any major financial
market in the United States, the United Kingdom or any member of
the European Economic Area or in other international financial
markets which make it impracticable or inadvisable to proceed with
the Placing; or (vi) if trading in the ordinary shares of the
Company is suspended or limited by the London Stock Exchange; or
(vii) if a banking moratorium has been declared; or (viii) if there
is a change or development in tax materially affecting the Ordinary
Shares or the transfer thereof or exchange controls having been
imposed by the United States the United Kingdom or any other member
of the EEA.
Upon such notice being given, the parties to the Placing
Agreement shall be released and discharged (except for any
liability arising before or in relation to such termination) from
their respective obligations under or pursuant to the Placing
Agreement, subject to certain exceptions.
By participating in the Placing, Placees agree that the exercise
by either of the Joint Global Coordinators of any right of
termination or other discretion under the Placing Agreement shall
be within the absolute discretion of the Joint Global Coordinators,
and that it need not make any reference to Placees and that the
Joint Global Coordinators and the Company (or its directors,
officers or employees) shall have no liability to Placees
whatsoever in connection with any such exercise or failure so to
exercise.
No prospectus
No offering document or prospectus or admission document has
been or will be published or submitted to be approved by the FCA in
relation to the Placing and Placees' commitments will be made
solely on the basis of their own assessment of the Company, the
Placing Shares and the Placing based on the Company's publicly
available information taken together with the information contained
in this Announcement (including this Appendix) released by the
Company today and any information publicly announced to a
Regulatory Information Service by or on behalf of the Company on or
prior to the date of this Announcement, and subject to the further
terms set forth in the contract note to be provided to individual
prospective Placees. Each Placee, by accepting a participation in
the Placing, agrees that the content of this Announcement
(including this Appendix) is exclusively the responsibility of the
Company and confirms that it has neither received nor relied on any
other information, representation, warranty or statement made by or
on behalf of the Company, the Joint Global Coordinators or any
other person and neither of the Joint Global Coordinators or the
Company nor any of their respective affiliates will be liable for
any Placee's decision to participate in the Placing based on any
other information, representation, warranty or statement which the
Placees may have obtained or received. Each Placee acknowledges and
agrees that it has relied on its own investigation of the business,
financial or other position of the Company in accepting a
participation in the Placing. Each Placee should not consider any
information in this Announcement to be legal, tax or business
advice. Each Placee should consult its own attorney, tax adviser
and business advisor for legal, tax and business advice regarding
an investment in the Placing Shares. Nothing in this paragraph
shall exclude the liability of any person for fraudulent
misrepresentation by that person.
Registration and settlement
Settlement of transactions in the Placing Shares (ISIN:
GB00BCRX1J15) following Admission will take place within the CREST
system, subject to certain exceptions. The Company and the Joint
Global Coordinators reserve the right to require settlement for and
delivery of the Placing Shares (or a portion thereof) to Placees by
such other means that they deem necessary, including in
certificated form, if in the Joint Global Coordinators' reasonable
opinion delivery or settlement is not possible or practicable
within the CREST system within the timetable set out in this
Announcement or would not be consistent with the regulatory
requirements in the Placee's jurisdiction.
Following the close of the Bookbuild for the Placing, each
Placee allocated Placing Shares in the Placing will be sent a
contract note or electronic confirmation in accordance with the
standing arrangements in place with Barclays or Numis (as
applicable) stating the number of Placing Shares to be allocated to
it at the Placing Price, the aggregate amount owed by such Placee
to Barclays or Numis (as applicable) and settlement instructions.
Each Placee agrees that it will do all things necessary to ensure
that delivery and payment is completed in accordance with the
standing CREST or certificated settlement instructions that it has
in place with the Joint Global Coordinators.
The Company will deliver the Placing Shares to a CREST account
operated by Barclays as agent for and on behalf of the Company and
will enter its delivery (DEL) instruction into the CREST system.
Barclays will hold any Placing Shares delivered to this account as
nominee for the Placees. The input to CREST by a Placee of a
matching or acceptance instruction will then allow delivery of the
relevant Placing Shares to that Placee against payment.
It is expected that settlement will be on 18 March 2019 on a T+2
basis in accordance with the instructions set out in the contract
note.
Interest is chargeable daily on payments not received from
Placees on the due date in accordance with the arrangements set out
above at the rate of two percentage points above LIBOR as
determined by the Joint Global Coordinators.
Each Placee is deemed to agree that, if it does not comply with
these obligations, the Joint Global Coordinators may sell any or
all of the Placing Shares allocated to that Placee on such Placee's
behalf and retain from the proceeds, for the account and benefit of
the Joint Global Coordinators, an amount equal to the aggregate
amount owed by the Placee plus any interest due. The relevant
Placee will, however, remain liable for any shortfall below the
aggregate amount owed by it and may be required to bear any stamp
duty or stamp duty reserve tax or other stamp, securities,
transfer, registration, execution, documentary or other similar
impost, duty or tax (together with any interest or penalties
thereon or other similar taxes imposed in any jurisdiction) which
may arise upon the sale of such Placing Shares on such Placee's
behalf. By communicating a bid for Placing Shares, each Placee
confers on Barclays or Numis (as applicable) all such authorities
and powers necessary to carry out any such transaction and agrees
to ratify and confirm all actions which Barclays or Numis (as
applicable) lawfully takes on such Placee's behalf.
If Placing Shares are to be delivered to a custodian or
settlement agent, Placees should ensure that the contract note or
electronic trade confirmation (as applicable) is copied and
delivered immediately to the relevant person within that
organisation.
Insofar as Placing Shares are registered in a Placee's name or
that of its nominee or in the name of any person for whom a Placee
is contracting as agent or that of a nominee for such person, such
Placing Shares should, subject as provided below, be so registered
free from any liability to UK stamp duty or stamp duty reserve tax.
If there are any other circumstances in which any stamp duty or
stamp duty reserve tax (including any interest and penalties
relating thereto) is payable in respect of the allocation,
allotment, issue or delivery of the Placing Shares (or for the
avoidance of doubt if any stamp duty or stamp duty reserve tax is
payable in connection with any subsequent transfer of or agreement
to transfer Placing Shares), neither of the Joint Global
Coordinators nor the Company shall be responsible for the payment
thereof. Placees (or any nominee or other agent acting on behalf of
a Placee) will not be entitled to receive any fee or commission in
connection with the Placing.
Representations and warranties
By submitting a bid and/or participating in the Placing, each
prospective Placee (and any person acting on such Placee's behalf)
irrevocably acknowledges, confirms, undertakes, represents,
warrants and agrees (as the case may be) with each Joint Global
Coordinator (in its capacity as a global coordinator, bookrunner
and agent of the Company, in each case as a fundamental term of its
application for Placing Shares) that:
1. it has read and understood this Announcement (including this
Appendix) in its entirety and that its participation in the
Bookbuild and the Placing and its acquisition of Placing Shares is
subject to and based upon all the terms, conditions,
representations, warranties, indemnities, acknowledgements,
agreements and undertakings and other information contained
herein;
2. no offering document or prospectus or admission document has
been prepared in connection with the Placing and it has not
received a prospectus, admission document or other offering
document in connection with the Bookbuild, the Placing or the
Placing Shares;
3. if it has received any "inside information" as defined in the
EU Market Abuse Regulation ("MAR") about the Company in advance of
the Placing, it has not: (a) dealt in the securities of the
Company; (b) encouraged or required another person to deal in the
securities of the Company; or (c) disclosed such information to any
person, prior to the information being made publicly available;
4. it has the power and authority to carry on the activities in
which it is engaged, to acquire Placing Shares and to execute and
deliver all documents necessary for such acquisition;
5. neither of the Joint Global Coordinators nor the Company nor
any of their respective affiliates, agents, directors, officers or
employees nor any person acting on behalf of any of them has
provided, and none of them will provide it, with any material
regarding the Placing Shares or the Company other than information
included in this Announcement (including this Appendix), nor has it
requested either of the Joint Global Coordinators, the Company or
any of their respective affiliates or any person acting on behalf
of any of them to provide it with any such information;
6. (i) it has made its own assessment of the Company, the
Placing Shares and the terms of the Placing based on this
Announcement (including this Appendix) and any information publicly
announced to a Regulatory Information Service by or on behalf of
the Company prior to the date of this Announcement (the "Publicly
Available Information"); (ii) the Company's ordinary shares are
listed on the premium listing segment of the Official List and the
Company is therefore required to publish certain business and
financial information in accordance with the rules and practices of
the London Stock Exchange and relevant regulatory authorities (the
"Exchange Information"), which includes a description of the nature
of the Company's business, most recent balance sheet and profit and
loss account, and similar statements for preceding years, and it
has reviewed such Exchange Information as it has deemed necessary
or that it is able to obtain or access the Exchange Information
without undue difficulty; and (iii) it has had access to such
financial and other information (including the business, financial
condition, prospects, creditworthiness, status and affairs of the
Company, the Placing and the Placing Shares, as well as the
opportunity to ask questions) concerning the Company, the Placing
and the Placing Shares as it has deemed necessary in connection
with its own investment decision to acquire any of the Placing
Shares and has satisfied itself that the information is still
current and relied on that investigation for the purposes of its
decision to participate in the Placing;
7. (i) none of the Company, the Joint Global Coordinators or any
of their respective affiliates has made any representations to it,
express or implied, with respect to the Company, the Placing and
the Placing Shares or the accuracy, completeness or adequacy of the
Publicly Available Information or the Exchange Information, and
each of them expressly disclaims any liability in respect thereof;
and (ii) it will not hold the Joint Global Coordinators or any of
their respective affiliates responsible for any misstatements in or
omissions from any Publicly Available Information or any Exchange
Information. Nothing in this paragraph or otherwise in this
Announcement (including this Appendix) excludes the liability of
any person for fraudulent misrepresentation made by that
person;
8. the content of this Announcement (including this Appendix)
and the Publicly Available Information has been prepared by and is
exclusively the responsibility of the Company and that neither of
the Joint Global Coordinators nor any of their respective
affiliates, agents, directors, officers or employees nor any person
acting on their behalf has or shall have any liability for any
information, representation or statement contained in this
Announcement (including this Appendix) or any information
previously published by or on behalf of the Company and will not be
liable for any Placee's decision to participate in the Placing
based on any information, representation or statement contained in
this Announcement or otherwise. Each Placee further represents,
warrants and agrees that the only information on which it is
entitled to rely and on which such Placee has relied in committing
itself to acquire the Placing Shares is contained in this
Announcement (including this Appendix) and any Publicly Available
Information including (without limitation) the Exchange
Information, such information being all that it deems necessary to
make an investment decision in respect of the Placing Shares and
that it has neither received nor relied on any other information
given, investigation made or representations, warranties or
statements made by either of the Joint Global Coordinators or the
Company nor any of their respective affiliates, agents, directors,
officers or employees nor any person acting on its or their behalf
and neither of the Joint Global Coordinators nor the Company nor
any of their respective affiliates, agents, directors, officers or
employees will be liable for any Placee's decision to accept an
invitation to participate in the Placing based on any other
information, representation, warranty or statement;
9. in making any decision to acquire the Placing Shares, it has
knowledge and experience in financial, business and international
investment matters as is required to evaluate the merits and risks
of taking up the Placing Shares. It further confirms that it is
experienced in investing in securities of this nature in this
sector and is aware that it may be required to bear, and is able to
bear, the economic risk of participating in, and is able to sustain
a complete loss in connection with, the Placing. It further
confirms that it relied on its own examination and due diligence of
the Company and its associates taken as a whole, and the terms of
the Placing, including the merits and risks involved, and not upon
any view expressed or information provided by or on behalf of
either of the Joint Global Coordinators;
10. it and each account it represents is not and at the time the
Placing Shares are acquired will not, other than as set out in
paragraphs 14, 25, 27 and 28 below, be a resident of Australia,
Canada, Japan, Hong Kong, New Zealand, Singapore, South Africa or
any other jurisdiction in which it is unlawful to make or accept an
offer to acquire the Placing Shares;
11. the Placing Shares are being offered and sold on behalf of
the Company (i) outside the United States in offshore transactions
(as defined in Regulation S under the Securities Act) pursuant to
Regulation S under the Securities Act and (ii) in the United States
solely to QIBs (as defined in Rule 144A under the Securities Act)
in reliance upon Rule 144A under the Securities Act or another
exemption from, or transaction not subject to, the registration
requirements under the Securities Act. It and the prospective
beneficial owner of the Placing Shares is, and at the time the
Placing Shares are subscribed for will be either: (i) outside the
United States and subscribing for the Placing Shares in an
"offshore transaction" as defined in, and in accordance with,
Regulation S under the Securities Act or (ii) a QIB which has duly
executed a US investor letter in a form provided to it and
delivered the same to one of the Joint Global Coordinators or its
affiliates. In addition, it has such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of an investment in the Placing Shares, will not
look to the Joint Global Coordinators for all or part of any such
loss it may suffer, is able to bear the economic risk of an
investment in the Placing Shares, is able to sustain a complete
loss of the investment in the Placing Shares, has relied upon its
own examination and due diligence of the Company and its affiliates
taken as a whole, and the terms of the Placing (including the
merits and risks involved) and has no need for liquidity with
respect to its investment in the Placing Shares and, with respect
to (iii) above, it is subscribing for the Placing Shares for its
own account or for one or more accounts as to each of which it
exercises sole investment discretion and each of which is a QIB,
for investment purposes only and not with a view to any
distribution or for resale in connection with the distribution
thereof in whole or in part, in the United States; and it has full
power to make the acknowledgements, representations and agreements
herein on behalf of each such account. The Placing Shares have not
been and will not be registered or qualified for offer or sale nor
will a prospectus be cleared or approved in respect of any of the
Placing Shares under the securities laws or legislation of the
United States, Australia, New Zealand, Canada, Japan, or South
Africa and, subject to certain exceptions, may not be offered,
sold, resold, delivered, pledged or transferred, directly or
indirectly, within those jurisdictions;
12. it understands, and each account it represents has been
advised that, (i) the Placing Shares have not been and will not be
registered under the Securities Act or under the applicable
securities laws of any state or other jurisdiction of the United
States; (ii) the Placing Shares are being offered and sold only (a)
to persons reasonably believed to be QIBs in transactions exempt
from, the registration requirements of the Securities Act or (b) in
"offshore transactions" within the meaning of and pursuant to
Regulation S under the Securities Act; and (iii) no representation
has been made as to the availability of any exemption under the
Securities Act or any relevant state or other jurisdiction's
securities laws for the reoffer, resale, pledge or transfer of the
Placing Shares;
13. it will not distribute, forward, transfer or otherwise
transmit this document or any other materials concerning the
Placing (including any electronic copies thereof), in or into the
United States;
14. if in Australia, that it is (i) a "sophisticated investor"
within the meaning of section 708(8) of the Australian Corporations
Act 2001 (Cth) (the "Corporations Act") or a "professional
investor" within the meaning of section 9 and section 708(11) of
the Corporations Act, and (ii) a "wholesale client" as defined in
section 761G(7) of the Corporations Act, and the issue of the
Placing Shares to it does not require a prospectus or other form of
disclosure document under the Corporations Act;
15. if it is a pension fund or investment company, its
acquisition of Placing Shares is in full compliance with applicable
laws and regulations;
16. neither it, nor the person specified by it for registration
as holder of Placing Shares is, or is acting as nominee or agent
for, and the Placing Shares will not be allotted to, a person who
is or may be liable to stamp duty or stamp duty reserve tax under
any of sections 67, 70, 93 and 96 of the Finance Act of 1986
(depositary receipts and clearance services) and (ii) the Placing
Shares are not being acquired in connection with arrangements to
issue depositary receipts or to issue or transfer Placing Shares
into a clearance system;
17. it has complied with its obligations in connection with
money laundering and terrorist financing under the Proceeds of
Crime Act 2002, the Criminal Justice Act 1993, the Terrorism Act
2000, the Terrorism Act 2006 and the Money Laundering, Terrorist
Financing and Transfer of Funds (Information on the Payer)
Regulations 2017 and any related or similar rules, regulations or
guidelines issued, administered or enforced by any government
agency having jurisdiction in respect thereof (together the
"Regulations") and, if making payment on behalf of a third party,
that satisfactory evidence has been obtained and recorded by it to
verify the identity of the third party as required by the
Regulations;
18. if a financial intermediary, as that term is used in Article
3(2) of the Prospectus Directive, the Placing Shares acquired by it
in the Placing will not be acquired on a non-discretionary basis on
behalf of, nor will they be acquired with a view to their offer or
resale to, persons in a member state of the EEA other than to
Qualified Investors, or in circumstances in which the prior consent
of the Joint Global Coordinators has been given to the proposed
offer or resale;
19. it and any person acting on its behalf falls within Article
19(5) and/or 49(2)(a) to (d) of the Order and undertakes that it
will acquire, hold, manage and (if applicable) dispose of any
Placing Shares that are allocated to it for the purposes of its
business only;
20. it has not offered or sold and will not offer or sell any
Placing Shares to the public in any member state of the EEA except
in circumstances falling within Article 3(2) of the Prospectus
Directive which do not result in any requirement for the
publication of a prospectus pursuant to Article 3 of that
Directive;
21. it has only communicated or caused to be communicated and
will only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning of
section 21 of FSMA) relating to the Placing Shares in circumstances
in which section 21(1) of FSMA does not require approval of the
communication by an authorised person;
22. it has complied and will comply with all applicable
provisions of FSMA with respect to anything done by it in relation
to the Placing Shares in, from or otherwise involving, the United
Kingdom;
23. it is a professional client and/or eligible counterparty,
each as defined in MiFID II;
24. if in a member state of the EEA, it is a "qualified
investor" within the meaning of the Prospectus Directive;
25. if in Canada, it is an "accredited investor" as such term is
defined in section 1.1 of National Instrument 45-106 Prospectus
Exemptions or, in Ontario, as such term is defined in section
73.3(1) of the Securities Act (Ontario); and (iii) is a "permitted
client" as such term is defined in section 1.1 of National
Instrument 31-103 Registration Requirements, Exemptions and Ongoing
Registrant Obligations;
26. if in the UK, that it is a person (i) who has professional
experience in matters relating to investments falling within
Article 19(5) of the Order, (ii) falling within Article 49(2)(A) to
(D) ("High Net Worth Companies, Unincorporated Associations, etc")
of the Order, or (iii) to whom this Announcement may otherwise be
lawfully communicated;
27. if in Singapore, it is either (i) an institutional investor
under Section 274 of the Securities and Futures Act, Chapter 289 of
Singapore (the "SFA"), or (ii) a relevant person, or any person
pursuant to Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA;
28. if in Hong Kong, it is a "professional investor" as defined
in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and
any rules made under that Ordinance;
29. that no action has been or will be taken by either the
Company or either of the Joint Global Coordinators or any person
acting on behalf of the Company or either of the Joint Global
Coordinators that would, or is intended to, permit a public offer
of the Placing Shares in any country or jurisdiction where any such
action for that purpose is required;
30. it is acting as principal only in respect of the Placing or,
if it is acting for any other person: (i) it is duly authorised to
do so and has full power to make the acknowledgments,
representations and agreements herein on behalf of each such
person; and (ii) it is and will remain liable to the Company and/or
the Joint Global Coordinators for the performance of all its
obligations as a Placee in respect of the Placing (regardless of
the fact that it is acting for another person). Each Placee agrees
that the provisions of this paragraph 28 shall survive the resale
of the Placing Shares by or on behalf of any person for whom it is
acting;
31. (i) it and any person acting on its behalf is entitled to
acquire the Placing Shares under the laws of all relevant
jurisdictions which apply to it, (ii) it has paid any issue,
transfer or other taxes due in connection with its participation in
any territory, (iii) it has not taken any action which will or may
result in the Company, the Joint Global Coordinators, any of their
affiliates or any person acting on their behalf being in breach of
the legal and/or regulatory requirements of any territory in
connection with the Placing, (iv) that the acquisition of the
Placing Shares by it or any person acting on its behalf will be in
compliance with applicable laws and regulations in the jurisdiction
of its residence, the residence of the Company, or otherwise, and
(v) it has all necessary capacity and has obtained all necessary
consents and authorities to enable it to commit to this
participation in the Placing and to perform its obligations in
relation thereto (including, without limitation, in the case of any
person on whose behalf it is acting, all necessary consents and
authorities to agree to the terms set out or referred to in this
Announcement (including this Appendix)) and will honour such
obligations;
32. it (and any person acting on its behalf) will make payment
for the Placing Shares allocated to it in accordance with the terms
and conditions of this Announcement (including this Appendix) on
the due time and date set out herein, failing which the relevant
Placing Shares may be placed with other persons or sold as the
Joint Global Coordinators may in their discretion determine and it
will remain liable for any amount by which the net proceeds of such
sale falls short of the product of the Placing Price and the number
of Placing Shares allocated to it and may be required to bear any
stamp duty for stamp duty reserve tax (together with any interest
or penalties due pursuant to the terms set out or referred to in
this Announcement) which may arise upon the sale of such Placee's
Placing Shares on its behalf;
33. its allocation (if any) of Placing Shares will represent a
maximum number of Placing Shares which it will be entitled, and
required, to acquire, and that the Joint Global Coordinators may
call upon it to acquire a lower number of Placing Shares (if any),
but in no event in aggregate more than the aforementioned
maximum;
34. neither of the Joint Global Coordinators, nor any of their
respective affiliates, agents, directors, officers or employees,
nor any person acting on behalf of any of them, is making any
recommendations to it or advising it regarding the suitability of
any transactions it may enter into in connection with the Placing
and participation in the Placing is on the basis that it is not and
will not be a client of either of the Joint Global Coordinators and
the Joint Global Coordinators have no duties or responsibilities to
it for providing the protections afforded to their respective
clients or customers or for providing advice in relation to the
Placing nor in respect of any representations, warranties,
undertakings or indemnities contained in the Placing Agreement nor
for the exercise or performance of any of their respective rights
and obligations thereunder including any rights to waive or vary
any conditions or exercise any termination right;
35. the person whom it specifies for registration as holder of
the Placing Shares will be (i) itself; or (ii) its nominee, as the
case may be. Neither of the Joint Global Coordinators nor the
Company will be responsible for any liability to stamp duty or
stamp duty reserve tax or other similar taxes resulting from a
failure to observe this requirement. Each Placee and any person
acting on behalf of such Placee agrees to participate in the
Placing and it agrees to indemnify on an after-tax basis and hold
harmless the Company, each of the Joint Global Coordinators and
their respective affiliates, agents, directors, officers and
employees in respect of the same on the basis that the Placing
Shares will be allotted to the CREST stock account of Numis who
will hold them as nominee on behalf of such Placee until settlement
in accordance with its standing settlement instructions;
36. it indemnifies and holds harmless the Company, the Joint
Global Coordinators and their respective affiliates, agents,
directors, officers and employees from any and all costs, claims,
liabilities and expenses (including legal fees and expenses)
arising out of or in connection with any breach of the
representations, warranties, acknowledgements, agreements and
undertakings in this Appendix and further agrees that the
provisions of this Appendix shall survive after completion of the
Placing;
37. in connection with the Placing, a Joint Global Coordinator
and any of its affiliates acting as an investor for its own account
may acquire Placing Shares in the Company and in that capacity may
acquire, retain, purchase or sell for its own account such ordinary
shares in the Company and any securities of the Company or related
investments and may offer or sell such securities or other
investments otherwise than in connection with the Placing. Neither
of the Joint Global Coordinators intends to disclose the extent of
any such investment or transactions otherwise than in accordance
with any legal or regulatory obligation to do so. In addition, in
the event that the Joint Global Coordinators acquire Placing Shares
in the Placing, the Joint Global Coordinators may co-ordinate
disposals of such shares in accordance with applicable law and
regulation. Except as required by applicable law or regulation, the
Joint Bookrunners and their respective affiliates do not propose to
make any public disclosure in relation to such transactions;
38. its commitment to acquire Placing Shares on the terms set
out in this Announcement (including this Appendix) will continue
notwithstanding any amendment that may or in the future be made to
the terms and conditions of the Placing and that Placees will have
no right to be consulted or require that their consent be obtained
with respect to the Company's or the Joint Global Coordinators'
conduct of the Placing;
39. neither the Company nor either of the Joint Global
Coordinators owes any fiduciary or other duties to any Placee in
respect of any representations, warranties, undertakings or
indemnities in the Placing Agreement;
40. its commitment to acquire Placing Shares on the terms set
out herein and in the contract note will continue notwithstanding
any amendment that may in future be made to the terms of the
Placing and Placees will have no right to be consulted or require
that their consent be obtained with respect to the Company's or the
Joint Global Coordinators' conduct of the Placing;
41. these terms and conditions and any agreements entered into
by it pursuant to these terms and conditions (including any
non-contractual obligations arising out of or in connection with
such agreements) shall be governed by and construed in accordance
with the laws of England and it submits (on behalf of itself and on
behalf of any person on whose behalf it is acting) to the exclusive
jurisdiction of the English courts as regards any claim, dispute or
matter arising out of any such contract, except that enforcement
proceedings in respect of the obligation to make payment for the
Placing Shares (together with any interest chargeable thereon) may
be taken by the Joint Global Coordinators in any jurisdiction in
which the relevant Placee is incorporated or in which any of its
securities have a quotation on a recognised stock exchange; and
42. the foregoing acknowledgements, agreements, undertakings,
representations, warranties and confirmations are given for the
benefit of each of the Company and the Joint Global Coordinators
(for their own benefit and, where relevant, the benefit of their
respective affiliates and any person acting on their behalf) and
are irrevocable. The Company, the Joint Global Coordinators and
their respective affiliates, agents, directors, officers and
employees and others will rely upon the truth and accuracy of the
foregoing acknowledgements, representations, warranties and
agreements and it agrees that if any of the acknowledgements,
representations, warranties and agreements made in connection with
its acquiring of Placing Shares is no longer accurate, it shall
promptly notify the Company and the Joint Global Coordinators. It
irrevocably authorises Barclays, Numis and the Company to produce
this Announcement pursuant to, in connection with, or as may be
required by any applicable law or regulation, administrative or
legal proceeding or official inquiry with respect to the matters
set out herein.
The agreement to allot and issue Placing Shares to Placees (or
the persons for whom Placees are contracting as nominee or agent)
free of stamp duty and stamp duty reserve tax relates only to their
allotment and issue to Placees, or such persons as they nominate as
their agents, direct from the Company for the Placing Shares in
question. Such agreement is subject to the representations,
warranties and further terms above and assumes, and is based on the
warranty from each Placee, that the Placing Shares are not being
acquired in connection with arrangements to issue depositary
receipts or to issue or transfer the Placing Shares into a
clearance service. If there are any such arrangements, or the
settlement relates to any other dealing in the Placing Shares,
stamp duty or stamp duty reserve tax or other similar taxes may be
payable, for which neither the Company nor either of the Joint
Global Coordinators will be responsible and each Placee shall
indemnify on an after-tax basis and hold harmless the Company, each
of the Joint Global Coordinators and their respective affiliates,
agents, directors, officers and employees for any stamp duty or
stamp duty reserve tax paid by them in respect of any such
arrangements or dealings.
Neither the Company nor either of the Joint Global Coordinators
is liable to bear any capital duty, stamp duty and all other stamp,
issue, securities, transfer, registration, documentary or other
duties or taxes (including any interest, fines or penalties
relating thereto) payable in or outside the United Kingdom by any
Placee or any other person on a Placee's acquisition of any Placing
Shares or the agreement by a Placee to acquire any Placing Shares.
Each Placee agrees to indemnify on an after-tax basis and hold
harmless the Company, each Joint Global Coordinator and their
respective affiliates, agents, directors, officers and employees
from any and all interest, fines or penalties in relation to any
such duties or taxes to the extent that such interest, fines or
penalties arise from the unreasonable default or delay of that
Placee or its agent.
Each Placee should seek its own advice as to whether any of the
above tax liabilities arise and notify the Joint Global
Coordinators accordingly.
Each Placee, and any person acting on behalf of each Placee,
acknowledges and agrees that the Joint Global Coordinators and/or
any of their respective affiliates may, at their absolute
discretion, agree to become a Placee in respect of some or all of
the Placing Shares.
When a Placee or person acting on behalf of the Placee is
dealing with the Joint Global Coordinators any money held in an
account with either of the Joint Global Coordinators on behalf of
the Placee and/or any person acting on behalf of the Placee will
not be treated as client money within the meaning of the rules and
regulations of the FCA made under FSMA. The Placee acknowledges
that the money will not be subject to the protections conferred by
the client money rules; as a consequence, this money will not be
segregated from the relevant Joint Global Coordinators' money in
accordance with the client money rules and will be used by the
relevant Joint Global Coordinator in the course of its own
business; and the Placee will rank only as a general creditor of
the Joint Global Coordinators.
The rights and remedies of the Banks and the Company under these
Terms and Conditions are in addition to any rights and remedies
which would otherwise be available to each of them and the exercise
or partial exercise of one will not prevent the exercise of
others.
If a Placee is a discretionary fund manager, it may be asked to
disclose, in writing or orally to the Banks the jurisdiction in
which the funds are managed or owned.
All times and dates in this Announcement (including this
Appendix) may be subject to amendment. The Joint Global
Coordinators shall notify the Placees and any person acting on
behalf of the Placees of any changes.
APPIX B - RISK FACTORS
Any investment in the Company is subject to a number of risks.
Accordingly, prospective investors should carefully consider the
risk factors set out below as well as the detailed information
contained in this announcement and any other publicly available
information about the Group before making a decision whether to
invest in the Company.
The factors described in this Appendix B are contingencies which
may or may not occur and the Company is not in a position to
express a view on the likelihood of such a contingency
occurring.
Any of these risk factors, individually or in the aggregate,
could have an adverse effect on the Group and the impact each risk
could have on the Group is set out below.
Factors which the Directors of the Company believe may be
material for the purpose of assessing the market risks associated
with the Placing Shares are described below.
The Directors of the Company believe that the factors described
below represent the principal risks inherent in investing in the
Placing Shares and the Company does not represent that the
statements below regarding the risks of holding the Placing Shares
are exhaustive.
1. RISKS RELATING TO THE GROUP'S BUSINESS AND INDUSTRY
1.1 Risks associated with the Group's insurance products
The assumptions used by the Group in pricing products and
establishing provisions and determining regulatory capital may not
be consistent with actual experience
The Group operates in the retirement income sector providing
products and services to both retail and corporate clients. In
particular, it sells and underwrites products including defined
benefit ("DB") de-risking solutions to corporate clients and
guaranteed income for life solutions ("GIfL") (previously known as
individual annuities) and lifetime mortgages ("LTMs") to retail
clients. The Group also provides care products through Partnership
Life Assurance Company Limited ("PLACL"), though these are not
provided in material quantities as compared to the rest of the
Group's business. These products create assets and liabilities for
the Group that are dependent on future mortality, longevity,
morbidity and withdrawal rates. For example, the Group is subject
to the risk that annuity holders or pension scheme members (as
applicable) live longer (or, equivalently, mortality rates
decrease), compared to what was projected at the time their
policies were issued, with the result that the Group must continue
paying out to the annuitants or pension scheme members (as
applicable) for longer than anticipated and, therefore, longer than
was reflected in the price paid by the customer for the annuity or
bulk purchase agreement. Conversely, increased mortality rates,
compared with those projected at the time of pricing, may result in
earlier redemptions of LTMs than anticipated and lead to lower
returns for the Group.
To deal with the uncertainties arising out of the products it
sells, the Group uses assumptions when pricing, underwriting and
reserving for business. These assumptions are based on a variety of
factors including market data and historical experience (including
customer longevity, corporate bond yields, interest rates, property
values and expenses), estimates and individual expert judgements in
respect of known or potential future changes as well as statistical
projections of what the Group believes will be the costs and cash
flows of its assets and liabilities.
Based on the assumptions made, the Group makes decisions aimed
at ensuring that cash inflows from investments (including LTMs) at
least match expected cash outflows in respect of liabilities to
customers (including its DB de-risking and GIfL customers). These
decisions include the allocation of investments among fixed-income,
lifetime mortgages and other asset classes and the setting of terms
under which products may be cancelled or surrendered. However, the
risks inherent in using assumptions and the nature of the risks
underlying its business, as detailed in the following paragraphs,
mean that it is not possible to determine precisely: (i) the
amounts that the Group will ultimately be required to pay to meet
its liabilities attaching to DB de-risking solutions, its GIfL
solutions and other insurance products; or (ii) the return on, or
the repayment of, its LTMs and other investments. Amounts actually
payable to customers of the Group's products may vary from
estimates, particularly as the liabilities under DB de-risking
solutions, GIfL solutions and other insurance products may extend
further into the future than expected, and the income and timing of
cash flows from investments, including LTMs, may be different from
that assumed.
As a consequence of the foregoing, the Group's results depend
significantly on whether the actual timing of deaths and investment
income experience are consistent with the pricing models and
assumptions it has used in underwriting and setting prices for
these products and also on the returns made by the Group on its
investments. If actual experience is less favourable than the
assumptions used by the Group or the assumptions used by the Group
are wrong or need to be changed, this could have a material adverse
effect on the Group's business, results of operations, financial
condition and prospects. In addition, this could also lead to a
need to increase reserves for policyholder liabilities and/or the
level of regulatory capital that the Group is required to maintain
which, if significant, may reduce the amount of cash or other
assets available for other business purposes or to meet the Group's
financing commitments (including the ability of the Company to pay
dividends to its shareholders).
The following paragraphs summarise the risks relating to the
writing of DB de-risking solutions, GIfL solutions and LTMs. These
risks largely arise from a divergence between actual experience and
assumptions used when pricing the products. Should any of these
risks materialise, they could have a material adverse effect on the
Group's business, results of operations, financial condition and
prospects.
(A) DB de-risking solutions, GIfL (excluding capped drawdown contracts ("CDCs")) solutions
The accurate pricing of the Group's products is dependent on a
detailed understanding of the impact of relevant lifestyle and
medical factors on the longevity of prospective customers. There
are two elements to longevity assumptions for each product line: a
base level of mortality derived from an analysis of historic
experience (whether the Group's own experience data or market
data); and assumed future mortality improvements. The assumed level
of base mortality may be inaccurate to the extent that the
available observed experience is not fully credible or completely
relevant for pricing new business. This could lead to the
application of inaccurate assumptions at the time of pricing.
Assumed future mortality improvements for each product line should
reflect the extent to which improvements in national,
population-level longevity are likely to occur in the future, but
also the degree to which the pace of improvement is likely to
differ for the Group's customers given their socio-economic class
profile and relevant lifestyle and medical factors. A failure to
anticipate changes in future longevity relevant to the Group's
specific customer base could lead to the application of inaccurate
assumptions at the time of pricing the products. Inaccurate
reporting of medical conditions by pricing or underwriting
applications could also result in the mispricing of the Group's
products.
Further, Just Retirement Limited ("JRL") entered the DB
de-risking solutions market with the assistance of RGA
International Reinsurance Company Limited (UK Branch) and RGA
Global Reinsurance Company, Ltd. (together the "Reinsurance Group
of America"), and until 2018 based its pricing and underwriting on
their reinsurance terms. There is a risk that such reinsurance
terms were not appropriate for the business underwritten.
These risks, by resulting in higher than anticipated payouts for
a given premium, to the extent such payouts are in excess of the
amounts reinsured, could have a material adverse effect on the
Group's business, results of operations, financial condition and
prospects.
(B) LTMs
The Group uses its LTM assets to match some of its liabilities
arising under its DB de-risking solutions, GIfL solutions and other
insurance products. This matching partially hedges the general
population longevity risk inherent in DB de-risking and GIfL
solutions with LTMs where increasing population longevity tends to
increase the potential value of mortgage assets. However, the two
populations are not identical, hence the hedge is expected to be
partial and there is no assurance that general population longevity
risk inherent in the insurance products sold by the Group can be
wholly mitigated by LTMs. This is the case because of certain
assumptions used by the Group when pricing and valuing the LTM
assets: the key assumptions relating to pricing and the subsequent
valuation of the LTM assets are the expected tenure of the
mortgage, house price inflation and the timing of repayment
(typically triggered by the death of the mortgagor or his or her
move into a long-term care home). In the event that repayments
under the LTMs occur earlier than anticipated, less interest will
have accrued and the amount repayable to the Group under such
mortgages will be less than had been assumed at the time of sale.
In the event that repayments occur later, although more interest
will have accrued and the amount repayable by the customers will be
greater than had been assumed at the time of their sale, the cash
inflows associated with the repayment of such mortgages will be
received later than had originally been anticipated.
While a general increase in longevity would have the effect of
increasing the total amount repayable under the relevant LTMs, it
will also, all other things being equal, increase the average loan
to value ("LTV") ratio of the Group's LTMs and could increase the
risk of the Group not being repaid in full as a consequence of the
no-negative-equity guarantees ("NNEG") that the Group provides to
customers in connection with all of its LTMs. The NNEG is a
contractual guarantee from the relevant Group entity that if the
LTM becomes repayable due to the borrower dying or going into
long-term care, the borrower will not owe more than the net sales
proceeds from the property securing his or her LTM and no debt will
therefore be left to his or her estate as a consequence of such
mortgage. The NNEG does not limit the repayment required if the
borrower voluntarily chooses to repay the LTM in circumstances
other than death or going into long-term care.
The Group is exposed to lapse (or withdrawal) risk through early
redemption of LTMs
LTM customers can withdraw by repaying all or part of their
total outstanding mortgage early, subject (typically) to the
payment of an early redemption charge. LTM lapses occur for a
number of reasons including as a function of the movement in
mortgage interest rates since the product was taken out, the desire
and ability of the mortgagor to repay or switch provider, the level
of the early repayment charge, movements in house prices, the
competitiveness of other mortgage providers (also with respect to
LTV) and other product alternatives in the retirement income
market. If the monies repaid by customers cannot be reinvested by
the Group in similarly yielding assets, a significant increase in
lapses by LTM customers could have a material adverse effect on the
Group's business, results of operations, financial condition and
prospects.
The amounts the Group reserves for current and future
administrative and other expenses when it sells its products could
prove to be inadequate
The Group allocates reserves when it sells products not only for
expected payments to annuitants under the Group's retirement income
products, but also for current and future administrative and other
expenses (including an appropriate allowance for inflation) in
connection with those retirement income products. In the event that
the Group fails to establish sufficient reserves to cover current
and future administrative and other expenses in connection with its
products, it could have a material adverse effect on the business,
results of operations, financial condition and prospects of the
Group.
The Group's LTMs must comply with prescriptive rules and
regulations and a failure to comply with such rules and
regulations, including inadvertently, could adversely affect the
Group
Certain mortgage contracts, including the Group's LTMs, are
regulated under the Financial Services and Markets Act 2000
("FSMA"). Entering into and administering these agreements are
regulated activities, to conduct which a person must be authorised
by the FCA. The Mortgages and Home Finance Conduct of Business
Sourcebook ("MCOB"), and related rules and regulations, sets out
detailed content and conduct requirements for these activities.
MCOB can be difficult to interpret and implement with absolute
certainty, which means that inadvertent non-compliance with its
requirements can occur. If the regulated agreements or conduct of
the Group were found to be materially defective, such failure would
amount to a breach of regulation and, possibly, lead to customer
remediation if the breach were considered to have caused customer
detriment.
In particular, early repayment charges payable under a regulated
mortgage contract are subject to MCOB and consumer fairness
requirements regarding their reasonableness and transparency. If a
clause seeking to impose an early repayment charge breaches these
requirements, a lender may be unable to rely on that clause, and
may also be required to remediate customers who have been required
to pay such charges in accordance with that clause in the past.
The issues described above could reduce the Group's income from
operations, impact its reputation in the market and could have a
material adverse effect on the Group's business, results of
operations, financial condition and prospects.
1.2 Regulatory risks
The Group operates in a highly regulated sector and its
operations and practices may be affected by changes in law and
regulation, changes in interpretation or emphasis with respect to
existing law and regulation and/or industry wide changes in
approach to law and regulation and/or potential interventions by
the FCA, Prudential Regulation Authority (the "PRA") and other
regulators
The Group operates in the UK financial services industry which
is a highly regulated sector and one which has witnessed an
increase in regulatory activity, more intense regulatory
supervision and significant change to the legal and regulatory
framework in recent years. Changes in relevant legislation and
regulation are continually being introduced, which may have a
considerable effect on the Group's strategy and day-to-day
operations which could, in turn, have a material adverse effect on
the Group's business, results of operations, financial condition
and prospects. For example, Solvency II (as defined in the
Conditions, and which became effective on 1 January 2016) increased
the regulatory requirements on PLACL, JRL and other members of the
Group, and is described more fully in the risk factor titled "The
regulatory capital regime applying to certain members of the Group
is extensive and subject to change and a failure to comply with
this regime could have a variety of negative regulatory and
operational implications for the Group". Alternatively, a relevant
regulator may reinterpret or place new emphasis on an existing
piece of law or legislation.
Changes in government policy, to legislation and regulation or
to the interpretation of, or approach to, enforcement of
legislation and regulation (at a national and/or international
level) applicable to companies operating in the pensions or
financial services sectors in any of the markets in which the Group
operates may occur in the future and could be applied
retrospectively. Such changes may adversely affect the Group's
underlying profitability, its product range, distribution channels,
capital requirements and, consequently, results and financing
requirements.
In particular, in order to conduct their regulated activities in
the UK, JRL, PLACL and other entities within the Group must hold
and maintain licences, permissions and authorisations from the PRA
and the FCA. The PRA and FCA each have significant statutory powers
in respect of the regulation of PLACL, JRL and the other regulated
entities in the Group. While regulating these entities in the
Group, the PRA and the FCA may use these statutory powers to make
regulatory interventions, including through investigations,
requests for data and analysis, interviews or reviews and requiring
the production of skilled persons reports under section 166 of the
FSMA.
In recent years, the PRA and the FCA have each adopted an
approach of intensive supervision in respect of the firms operating
in the life and pensions sector, including JRL and PLACL. Going
forwards, the Company does not believe the incidence of regulatory
intervention is likely to decrease in any material way.
The PRA and the FCA also carry out formal "thematic reviews"
which are sector wide reviews or other informal sector wide
inquiries in respect of a particular issue or a particular type of
product. The Group has participated in, and expects to continue to
participate in, such reviews from time to time. Regulatory
intervention, including of the sort described above (including
"thematic reviews"), may lead to the FCA and/or the PRA requiring
(among other things):
(a) specific remediation in respect of historic practices (which
could include compensating customers, fines or other financial
penalties);
(b) changes to the Group's practice; and/or
(c) public censure; and/or
(d) the loss or restriction of regulatory permissions necessary
to carry the Group's business in the same manner as before.
Regulatory interventions against a member of the Group or a
determination that the Group has failed to comply with applicable
law or regulation could give rise to any of the matters described
arising. Further, the Group may face increased compliance or
compensation costs due to changes to financial services legislation
or regulation or the need to set up additional compliance controls.
If any such matters were to occur they could have a material
adverse effect on the Group's business, results of operations,
financial condition and prospects, or otherwise divert management's
attention from the day-to-day operation of the business,
potentially affecting its ongoing or future performance.
Just Retirement Life (South Africa) Limited also holds a licence
from South Africa's Financial Services Board to provide retirement
income solutions in South Africa. As a consequence, Just Retirement
Life (South Africa) Limited is subject to regulation in South
Africa resulting in potential policyholder claims and regulatory
intervention in that jurisdiction.
The terms on which products are sold or contracts are entered
into with customers by the Group must comply with various
'fairness' and 'reasonableness' requirements under UK law and
guidance provided by regulatory and trade bodies (including,
without limitation, the Unfair Contract Terms Act 1977 and the
Consumer Rights Act 2015), some of which currently implement EU
law. These requirements apply to both express terms of a contract
and to terms that have not been agreed by the parties but are
implied into the contract by a court. The application and
interpretation of these requirements involves an important element
of judgement and there can be no assurance that governments or
regulators will not determine at some point in the future that
certain terms presently in use do not meet the relevant standards.
Where products of the Group contain such terms, the effect could be
to prevent reliance on those terms by the Group, including
retrospectively in respect of existing products held by the Group's
customers, which may adversely affect the Group's underlying
profitability, its product range, distribution channels, investment
strategy, capital requirements and, consequently, its results of
operation and financial condition.
The Group is also subject to competition and consumer protection
laws enforced by the Competition and Markets Authority ("CMA") and
the European Commission's Directorate-General for Competition, such
as laws relating to price fixing, collusion and other
anti-competitive behaviour in the UK. This regime is supported by
formal cooperation between the CMA and the FCA, along with the
FCA's furtherance of its operational objective to promote effective
competition in the interests of consumers, and its duty to promote
effective competition when addressing its other operational
objectives. This is further supported by the FCA's concurrent
powers with the CMA to enforce competition laws in the UK insofar
as they relate to the provision of financial services.
The Group is subject to risks arising from the UK referendum
vote to withdraw from the EU ("Brexit") and any resulting changes
in law and regulation
The regulatory environment that entities like the Group operate
in within the UK is largely derived from EU financial services
legislation. For so long as the UK remains part of the EU, it is
required to implement and apply such legislation. However, it is
anticipated that Brexit may result in changes to the UK and EU's
regulatory system. Following Brexit, the PRA is also likely to have
greater flexibility to create additional rules which would impact
the Group (positively or negatively). This is because currently a
significant portion of the relevant regulatory regime is derived
from EU sources and subject to oversight by EU bodies - such as the
European Insurance and Occupational Pensions Authority ("EIOPA")
and the EU Commission. While the business of the Group is primarily
situated in the UK, some of the changes to the regulatory system of
the UK and the EU arising as a consequence of Brexit may affect the
business of the Group (positively or negatively). Members of the
Group make use of their passporting rights to service a small
number of existing customers based in member states of the EU.
These rights may be limited or cancelled following Brexit. Changes
may also affect the regulation of UK business if the UK and EU
regulatory systems diverge. As a result, it is possible that Brexit
may require the Group to take mitigating action or to change parts
of its business, which may have a material effect on the Group's
business, results of operations, financial condition and
prospects.
The regulatory capital regime applying to certain members of the
Group is extensive and subject to change, and a failure to comply
with this regime could have a variety of negative regulatory and
operational implications for the Group
The Solvency II regime, which is the regulatory capital regime
applicable to the EU insurance sector is a prudential framework
which is designed to ensure the financial stability of the
insurance industry across the EU and is intended to protect
policyholders through establishing solvency requirements better
matched to the true risks of the business. Firms which are
authorised to underwrite insurance in the UK, including certain
members of the Group, are required to comply with Solvency II.
Solvency II includes a requirement for firms to maintain a
minimum margin of capital in excess of the value of their
liabilities, in order to comply with a number of regulatory
requirements relating to their solvency and reporting bases. The
Group's capital position can be adversely affected by a number of
factors, in particular, factors that erode the Group's capital
resources and/or which affect the quantum of risk to which the
Group is exposed. In addition, any event that erodes current
profitability and is expected to reduce future profitability and/or
make profitability more volatile could affect the Group's capital
position, which in turn could have a material adverse effect on the
Group's business, results of operations, financial condition and
prospects.
There are four aspects of the Solvency II regime in particular
that have the potential to create risks for the Group, although
there are other aspects of the regime that could also be applied in
an adverse way depending on how circumstances develop over time.
These four aspects are:
(e) the Solvency Capital Requirement ("SCR");
(f) the risk margin;
(g) the matching adjustment ("MA"); and
(h) transitional measures on technical provisions ("TMTP deduction").
The use of an internal model to calculate the SCR, the use of MA
and the availability of TMTP deduction are all matters which
require PRA approval. JRL (but not PLACL) currently benefits from
PRA approval to use a full internal model to calculate its SCR and
the Group has approval to calculate its group SCR using a partial
internal model. Each of JRL and PLACL currently benefit from
approval from the PRA to apply MA and TMTP deductions, while PLACL
currently benefits from approval from the PRA to apply a volatility
adjustment.
The risk margin is a component of an insurer's technical
provisions that is calculated by reference to the present value of
the future cost of capital associated with the in-force business.
Under Solvency II rules, this present value is required to be
calculated using risk-free interest rates. This method of
calculation makes the risk margin very sensitive to changes in
interest rates, particularly where an insurer has a portfolio of
business that is expected to remain in force for many decades, as
is the case for JRL and PLACL. This exposes insurers to risks of
significant fluctuations in their technical provisions which are
unrelated to the riskiness of the underlying business.
It is possible that the interpretation or implementation of the
rules, or the withdrawal of or failure to obtain any approvals from
the relevant regulator (for example, to use an internal model to
calculate SCR or to apply MA in relation to certain types of
assets, liabilities or reinsurance of such liabilities) may give
rise to greater capital requirements than is currently the case or
may require changes to the structures and/or businesses or result
in price increases for products of the Group, which, in each case,
could have a material adverse effect on the business, results of
operations, financial condition and prospects of the Group.
Further, an increase in the regulatory capital and/or reserving
requirements of an entity or a restriction on the use of capital
within the Group may reduce the profits of the Group or trap cash
or assets in certain companies within the Group. There are also
circumstances where the Group may choose to move cash or assets
from another part of the Group to meet an increased regulatory
capital requirement. Consequently, a change in the regulatory
capital and/or reserving requirements and, in particular, the loss
of certain discretionary reductions in those requirements, could
have a material adverse effect on the Group's business, results of
operations, financial condition and prospects.
In addition, if the Group is unable to meet applicable
regulatory capital requirements in any of its regulated
subsidiaries, it would have to take other measures to protect its
capital and solvency position, such as increasing the prices of its
products, reducing the volume of or types of business underwritten,
increasing reinsurance coverage, altering its investment and/or
hedging strategy or divesting parts of its business, any of which
may be difficult or costly or result in a significant loss,
particularly in cases where such measures are required to be
undertaken quickly. If the Group is required to take any of these
measures, such measures could have a material adverse effect on the
Group's business, results of operations, financial condition and
prospects.
Following the introduction of the Solvency II regime, the PRA
has published and continues to publish consultations and
supervisory statements that set out its expectations relating to
elements of the Solvency II regime. As a result of these
consultations, a number of Supervisory Statements have been issued
or updated. These include, amongst others, consultations and
supervisory statements relating to illiquid assets, the MA and the
TMTP deduction.
In particular, Supervisory Statement 3/17 ("SS3/17") sets out
the PRA's expectations in respect of firms that are subject to the
Solvency II regime, and that invest in illiquid, unrated assets
within their MA portfolios. Amongst other matters, SS3/17 states
that firms will have to explain how they will group assets in their
Solvency II MA portfolios with respect to credit quality steps
("CQS"), asset class and duration for the purposes of determining
the fundamental spread, and that where assessing internally-rated
assets, greater judgement is involved and firms need to "have
confidence that the risk management of these more complex credit
exposures, in particular the CQS mapping process and the size of
the MA benefit claimed on them, is fit for purpose."
In December 2018, following a consultation initiated by
Consultation Paper 13/18 ("CP13/18"), the PRA published amendments
to SS3/17. These amendments have parameterised various tests that
restrict the total effective value of LTMs that can be reflected on
insurers' balance sheets through the combination of asset value and
discounting of liabilities (these tests are referred to together as
the "effective value test"). The parameters set out in the
amendments are within the ranges for which the Group had been
planning while awaiting the publication of the amendments. The PRA
has announced that these tests will not be required to be applied
retrospectively to the pre-Solvency II valuation, so a TMTP
deduction remains available to offset the impact of SS3/17 on the
MA benefit, to the extent that the impact would otherwise affect
pre-2016 business.
When publishing the amendments to SS3/17, the PRA announced that
it will consult on a number of matters, including how to deal with
the interest rate volatility that will arise from the parameters
that form part of the effective value test, and what changes might
be needed to reflect the impact of the application of the effective
value test in future stress scenarios.
There is a risk that a future change in the regulatory treatment
of LTMs will result in a material increase in technical provisions,
which could have a negative effect on the business, results of
operations, financial condition and prospects of the Group, JRL,
and PLACL. In particular, it could affect the ability of JRL and
PLACL to pay dividends to their shareholder, the Company, and this
could affect the ability of the Company to pay dividends to its
shareholders.
There is a risk that the implementation of one or more of the
PRA consultation papers or supervisory statements may give rise to
greater capital requirements than are currently the case (for
example, based upon the proposed consultation on the application of
the effective value test in future stress scenarios, there is a
risk that more regulatory capital will need to be held in respect
of illiquid assets) or may require changes to the structures and/or
businesses, or result in price increases for products of the Group,
all of which could have a material adverse effect on the business,
results of operations and financial condition of the Group.
Changes to financial reporting requirements generally or
specifically for insurance companies may materially adversely
affect the reporting of the Group's financial results
International Financial Reporting Standards (as adapted by the
EU) ("IFRS") 17 which has been issued by the International
Accounting Standards Board will come into effect on 1 January 2022
and replace IFRS 4 (though companies have the option to implement
it before that date, subject to certain conditions). IFRS 17 sets
out the reporting requirements that insurance companies are
required to adopt in relation to insurance and reinsurance
contracts that they enter into, including reinsurance contracts
under which they lay off the risk of their insurance contracts. The
International Accounting Standards Board has also issued IFRS 9 on
the classification and measurement of financial assets, financial
liabilities and hedging. The implementation of IFRS 9 for insurance
companies has been deferred to 2022 to coincide with the
introduction of IFRS 17 and the two will be implemented in
tandem.
IFRS 17 and IFRS 9 are intended to increase transparency,
consistency and comparability in the reporting of new and existing
business by insurers, with clearer reporting on sources of profits
and quality of earnings. The new standards also change the effect
of reinsurance on the reported value of insurance contracts, and
the relevant periods for presentation of revenue. In particular,
the profit earned on long-term insurance contracts such as those
which are regularly issued by members of the Group, will be
required to be recognised gradually over the life of the contracts,
rather than the expected profit being recognised at the date of
entering into the contract, as is currently permitted by accounting
rules. This change will have the effect of deferring the
recognition of distributable profits by the Group, and may
therefore impact the tax profile of the Group and the ability of
the Company to pay dividends to its shareholders.
Any changes to IFRS or the statutory reporting of insurance
entities referred to above, and any other changes to accounting
standards that may be proposed in the future, whether or not
specifically targeted at insurance companies, could materially
adversely affect the reporting of the Group's business, results of
operations, financial condition and prospects.
Individual and groups of customers may refer their disputes with
the Group to the Financial Ombudsman Service
Disputes relating to the sale of financial services products by
the Group in the UK are subject to the Financial Ombudsman Service
("FOS") regime. The FOS exists to resolve disputes involving
individual or small business policyholder disputes. Applicants may
pursue customary legal remedies if decisions are considered
unacceptable.
There is a risk that decisions taken by the FOS may, if extended
to a particular class or grouping of policyholders, have a material
adverse effect on the Group's business, results of operations,
financial condition and prospects.
The Group may in future become subject to regimes governing the
recovery, resolution or restructuring of insurance companies and,
as the scope and implications of these regimes are still evolving,
it is unclear what the consequences could be for the Group
As part of the global regulatory response to the risk that
systemically important financial institutions could fail, banks,
and more recently insurance companies, have been the focus of new
recovery and resolution planning requirements developed by
regulators and policy makers nationally and internationally.
Recovery and resolution reforms for banks in the EEA now provide
regulators with the power, as part of resolution authority, to
write down indebtedness or to convert that indebtedness to capital
(known as "bail-in"), as well as other resolution powers.
It remains unclear whether and in what form the recovery and
resolution regimes currently applicable to banks could be extended
to other financial institutions such as insurance companies. It
therefore remains unclear what recovery and resolution regime could
apply to the Group in the future and, consequently, what the
implications could be for the Group.
Regulatory focus on climate risk could have an impact on the
Group's business and assets in its investment portfolios
Regulators are increasingly seeking to develop regulations that
are directly and indirectly focused on sustainable finance and
climate change. In October 2018, the PRA launched a consultation on
a draft supervisory statement setting out the PRA's expectations
regarding insurers' and banks' approaches to managing financial
risks from climate change. Such regulatory focus on the issue of
sustainable finance and particularly the risks that climate change
could have on the safety and soundness of firms and stability of
the financial system may accelerate actions of market participants
that then have an impact on the availability and attractiveness of
certain securities.
1.3 Market risks
The economic environment and financial market conditions may
have a significant influence on the value of the Group's income,
assets, and liabilities
Any actual or perceived changes in monetary policies globally
may have severe consequences for the UK economy. With a large
deficit, the UK still faces considerable structural and economic
challenges. The impact of any changes in monetary policies could be
exacerbated by the marked reduction in asset liquidity resulting in
magnified market movements and the inability to buy and sell assets
in affected markets. The Bank of England has also responded to
recent economic conditions in the UK by modestly tightening its
monetary policy, and is of the view that if the economy follows the
path currently expected, further increases in the UK bank rate
would be warranted over the next few years to return inflation
sustainably to its target. Further, the current US administration
has various trade, tax and immigration policies that, if enacted,
could have a material impact on the global economy and on the
performance of capital markets globally.
The Company believes that there is a risk that the economic
outlook may reduce the availability of attractive investments to
offset its liabilities to customers, which could have a material
adverse effect on the Group's business, results of operations,
financial condition and prospects.
Additionally, declines in the financial markets, including
equity markets, can reduce the value of a customer's pension funds
available to purchase an annuity, which could influence the
decision to look for alternative products rather than purchase an
annuity.
The premiums paid by the Group's customers are invested by the
Group to enable future benefits to be paid. Although the Group
generally holds its financial assets to maturity, the value of the
Group's financial assets and liabilities is determined at the end
of each financial period, with the movements in market value and
present value in each period being reflected in the Group's
statement of comprehensive income. The Company believes that the
market value or present value of the Group's financial assets and
liabilities may be affected by, among other things, changes in: (i)
interest rates; (ii) inflation; (iii) credit ratings of, or the
credit spreads in respect of, the issuers of fixed income
securities; and (iv) liquidity in the bond markets. Any of these
factors could affect returns on, and the market values of, UK and
international fixed income investments in the Group's financial
asset portfolio as well as the present value of its LTMs and
financial liabilities. For instance, when the credit rating of a
given issuer of fixed income securities falls, or the credit spread
with respect to such issuer increases, the market value of such
issuer's fixed income securities may also decline, and such
decreases in value would be recognised in the Group's statement of
comprehensive income for such period. Changes in the market value
and/or present value of the Group's financial assets and
liabilities can have a material adverse effect on the Group's
results of operations, financial condition and/or prospects.
The value of the Group's LTM assets is subject to accurate
property valuations at the time of issue of the LTM assets and
subsequently to fluctuations in housing market values
The Group's LTMs comprise a significant proportion of its
financial assets supporting its liabilities arising on the sale of
its pension products including its DB de-risking and GIfL products.
Inaccurate property valuations at the time of issuing new loans
and, to the extent the Group purchases previously written LTM books
to supplement the LTMs that it originates, insufficient due
diligence by the originators of such previously written LTMs or by
the Group could also expose the Group to lower than expected
returns on its LTMs which could have a material adverse effect on
the Group's business, results of operations, financial condition
and prospects.
Although the average LTV ratio in respect of the Group's LTMs as
at 31 December 2017 was 29%, given that the LTMs are secured by a
mortgage over a particular property owned by the borrower
(typically such borrower's house), a substantial decline in UK
housing market values could adversely affect the Group's: (i)
returns on existing LTMs by increasing the provisions required to
be held for the NNEG (which applies under defined circumstances on
repayment of a mortgage if the outstanding balance of the LTM loan
secured on a property exceeds the net sales proceeds from the
property at the time of the redemption - see the risk factor
entitled "The assumptions used by the Group in pricing products and
establishing provisions and determining regulatory capital may not
be consistent with actual experience" above); (ii) returns on
existing LTMs, including actual losses if the prices realised on
the sale of the properties securing such loans fall below the
amount of outstanding principal and accrued interest at redemption;
and/or (iii) cash inflow from LTMs by delaying sales of the
properties securing such loans. The Group is also exposed to the
risk that a fall in residential property prices could reduce the
attractiveness of the LTM product to customers and it could reduce
the amounts received from mortgage redemptions. Further, the
regulatory capital required to be held by the Group to support the
possible shortfall in the redemption of an LTM increases if there
is a fall in residential property prices. If any of these events
were to occur, they could have a material adverse effect on the
Group's business, results of operations, financial condition and
prospects.
As explained above (see the risk factor entitled "The regulatory
capital regime applying to certain members of the Group is
extensive and subject to change, and a failure to comply with this
regime could have a variety of negative regulatory and operational
implications for the Group"), the PRA issued guidance in SS3/17
which, through the effective value test, imposes restrictions on
the total effective value that insurers can recognise on their
balance sheets in respect of LTMs, and it made amendments to SS3/17
in December 2018 in which it has been more specific about what the
effective value test requires. The PRA also announced that it will
be consulting on some related matters during 2019. Although the
amendments made in December 2018 were within the range for which
the Group had been planning, there is a risk that future changes in
the regulatory requirements and guidance could reduce the overall
financial benefit that the Group can obtain through investing in
LTMs.
Conversely, significant future rises in property values could
increase early redemptions on LTMs leading to an earlier receipt of
anticipated cash flows and a need to reinvest those cash flows in
other assets which yield suitable returns.
Demand for the Group's GIfL solutions could be adversely
affected by low interest rates or declines in annuity yields
Prices charged for, and the returns associated with, the Group's
GIfL solutions are, in part, dependent upon the current long-term
interest rate environment existing at the time that GIfL solutions
are sold and the financial assets supporting such liabilities are
purchased.
The GIfL solutions sold by the Group can be adversely affected
by periods of consistently low interest rates. In a period of
consistently low interest rates, as is currently the case, new GIfL
business volumes may be affected as alternative retirement income
products may become relatively more attractive to customers.
Moreover, declines in annuity yields could make the purchase of
GIfL products unattractive and inhibit market growth. Such
challenges could result in reduced demand for GIfL products which
may have a material adverse effect on the Group's business, results
of operations, financial condition and prospects.
Demand for the Group's LTMs could be adversely affected by high
interest rates
Prices charged for, and the returns associated with the Group's
LTMs are, in part, dependent upon the current long-term interest
rate environment existing at the time LTMs are sold to
customers.
The LTMs sold by the Group can be adversely affected by periods
of consistently high interest rates. During high interest rate
periods, LTMs may become less attractive to customers whilst other
retirement income products, such as GIfL products, may become
relatively more attractive to customers. Reduced demand for LTMs in
periods of consistently high interest rates may have a material
adverse effect on the Group's business, results of operations,
financial condition and prospects.
Changes in interest and/or inflation rates may cause
policyholders to surrender their LTMs early, reduce the value of
the Group's investment portfolios and may have an adverse impact on
their asset and liability matching, which could adversely affect
the Group's results of operations and financial condition
The sale of retirement investment products, such as annuities,
exposes the Group to the risk that changes in interest rates will
reduce the "spread" or the difference between the amounts that are
required to be paid under the annuities and the rate of return the
Group is able to earn on investments intended to support
obligations under the contracts. The Group manages this risk
through the careful matching of the asset/liability duration.
As interest rates decrease, or if they remain at low levels, the
Group may be forced to reinvest proceeds from investments that have
matured or have been prepaid or sold at lower yields, reducing the
investment margin. Moreover, in a low interest rate environment,
borrowers may redeem the LTMs with greater frequency in order to
borrow at lower market rates, which exacerbates this risk. In a
high interest rate environment borrowers are less likely to redeem
LTMs, which reduces this risk.
Changes in the interest rate environment affect the returns
available on financial assets and thus can affect the prices
charged for GIfL solutions. A material fall in interest rates may
also increase the amount of regulatory capital that the Group is
required to hold.
In addition, risk-free interest rates (as measured by swap
rates) are a component of the discount rate that the Group uses to
determine the present value of its DB de-risking solutions and
retirement income products such as GIfL and LTMs when calculating
the margins on such products. In an environment where swap rates
decrease, they positively affect LTM margins and adversely affect
the margins on GIfL products. The overall impact on the Group will
therefore depend on the mix of new retirement income product sales,
but could be negative. As a result, periods of consistently low
interest rates could have a material adverse effect on the
business, results of operations, financial condition and prospects
of the Group.
The Group's exposure to inflation risk increases as a result of
increases in volumes of DB de-risking solutions sold by the Group.
Most defined benefit pension schemes link member benefits to either
inflation indexation and/or limited price indexation. As the
Group's exposure to inflation risk increases, it expects to
increase its usage of inflation hedging mechanisms which may result
in the Group needing to hold more liquid assets or longer-term
gilts to offset potential increases in collateral requirements when
the future inflation curve is low. Inflation risk increases and a
tightening of the Group's liquidity position could have a material
adverse effect on the Group's business, results of operations,
financial condition and prospects.
The Group's mitigation efforts with respect to interest rate and
inflation risk are primarily focused on maintaining an investment
portfolio with diversified maturities that has a weighted average
duration approximately equal to the duration of the Group's
estimated liability cash flow profile. However, it is not possible
for the Group to hold assets that will provide cash flows to
exactly match those relating to policyholder liabilities. This is
due to the duration and uncertainty of the liability cash flows and
the lack of sufficient assets of suitable duration. This results in
a residual asset/liability mismatch risk that can be managed but
not eliminated. In addition, the Group's estimate of the liability
cash flow profile may be inaccurate for other reasons, such as
varying mortality or morbidity rates, and the Group may be forced
to liquidate investments prior to maturity at a loss in order to
cover the liability. Such matters could have a material adverse
effect on the business, results of operations, financial condition
and prospects of the Group.
As explained above, in December 2018 the PRA finalised the
parameters that it expects insurers to use when applying the
effective value test under SS3/17. One of these parameters relates
to the deferment rate, which the PRA has said should be assumed to
be 1%. The PRA has acknowledged that fixing this percentage may
lead to volatility in insurers' technical provisions in the event
that risk-free interest rates change. It is proposing to consult on
how this volatility may be avoided, which may involve a mechanism
by which the parameter that insurers are expected to use (currently
1%) can be updated whenever there is a material change in interest
rates. Until a mechanism is introduced to address the potential
volatility, the Group will be exposed to this risk of volatility in
its technical provisions.
The Group uses hedging to manage currency exposures and there is
a risk that early redemption or default by an issuer may materially
affect the Group
The Group acquires a proportion of its fixed income securities
denominated in US dollars or other foreign currencies for its
financial asset portfolios. Although the Group hedges these
currency exposures, there is a risk that as a result of an early
redemption or default by an issuer, the derivative becomes
mismatched. If the Group fails to close the hedge quickly, a
currency loss could occur and/or break costs could be incurred
which could have a material adverse effect on the business, results
of operations, financial condition and prospects of the Group.
The UK Government's pension reforms implemented in April 2015
have had, and will continue to have, a fundamental impact on the
expected shape and future of the retirement income market in the UK
and there can be no certainty that the response of the Group to
both these pension reforms and to the Taxation of Pensions Act 2014
(together with the pension reforms implemented in April 2015
referred to as "Pension Freedom Reforms") will fully mitigate any
adverse effects the Group may suffer as a consequence of the
Pension Freedom Reforms
In the UK, a number of significant changes to law and regulation
are currently being proposed or have been implemented over the last
four years. In the pensions sector, the effect of the legal and
regulatory changes may drive changes in customer behaviours which
may take a while to identify.
Of particular note are the series of legal, tax and regulatory
changes known as the Pension Freedom Reforms. Historically, the
UK's tax regime provided favourable tax treatment for individuals
who saved using their pension policies but limited the manner in
which that tax treatment could be preserved through the purchase of
an annuity. The Pensions Freedom Reforms changed how people are
able to access their pension savings including the cessation of the
effective requirement for pension benefits to be taken in the form
of an annuity (consumers approaching retirement age may now opt to
take their entire pension pot as cash, with the first 25% remaining
tax-free and the balance taxed at the individual consumer's
marginal rate) and a requirement for customers to receive guidance
on their options at the time of retirement.
The Pension Freedom Reforms also introduced a free, impartial
guidance service for individuals approaching retirement on their
choices at the point of retirement ("Pension Wise"). As a result of
all these changes, customers are more likely to seek advice, decide
to "self select" their retirement solutions or indeed move from
their existing provider. Given the increased choice and flexibility
that customers now have, it is important that customers receive
appropriate guidance or advice. If only a small proportion take up
the offer of guidance and/or the guidance is ineffective, then
there is a risk that customers fail to move from their existing
pension providers which could result in less appetite for the
Group's retirement income products. The medium term extent of
behavioral changes by the Group's potential customers as a result
of the Pension Freedom Reforms remains difficult to predict, though
at present, it appears that customers have generally reacted by
looking in the market for more flexible retirement solutions, and
in some cases, deferring their retirement decisions.
Of the products in the retirement income market which the Group
provides, the Pension Freedom Reforms only pose a risk to the sales
of GIfL solutions, as inter alia, retirees have greater flexibility
in deciding the extent to which they convert their pensions savings
to GIfL solutions, if at all. To date, the Pension Freedom Reforms
have reduced the number of people purchasing an annuity within the
UK retirement income market, thus reducing the total sales of UK
annuities and reducing the revenue which the Group derives from
sales of GIfL products. The Group's ability to grow its GIfL
business is dependent in part on improving customer awareness of
the benefits of purchasing a GIfL product when considered alongside
alternative at-retirement propositions, including cash withdrawals.
If lower volumes of annuity sales persist or volumes of sales
decrease further and cannot be successfully replaced through other
retirement income product revenue streams (especially if coupled
with a reduction in demand for the DB de-risking solutions of the
Group), it could have a material adverse effect on the Group's
business, results of operations, financial condition and
prospects.
The considerable uncertainty in the UK created by the Pension
Freedom Reforms is likely to persist given that it will take time
for market participants' and consumers' behaviour to adjust to the
Pension Freedom Reforms as well as to the innovative and more
flexible retirement income products which are likely to continue to
emerge as a result of such reforms.
There is also the possibility that the UK Government may further
liberalise or remove restrictions on customers accessing their
pension funds on retirement. For example, the UK Government has
announced a "pensions dashboard" proposal, which is expected to
apply from 2019. This will enable customers to view all of their
pension policies (across multiple providers). The Group is
monitoring and projecting the impact of these reforms on its
business, but the true impact will only become clear once all
relevant laws and regulations are implemented and, following that,
a stable pattern of customer experience has emerged.
There is no certainty as to: (i) the full impact of the Pension
Freedom Reforms on the UK retirement income market; and (ii) the
effectiveness of the Group's revised strategy in respect of the UK
retirement income market. Any response of the Group to changes in
the UK retirement income market may be costly, may expose the Group
to other risks not mentioned in this document, and may not
ultimately be successful in preventing the occurrence of material
adverse effect on the Group's business, results of operations,
financial condition and prospects.
1.4 Liquidity risks
The Group may experience a tightening in liquidity and require
significantly larger cash balances than anticipated and/or
experience a shortfall in the availability of suitable assets in
the markets in the amounts required
Whilst the Group is not expecting any liquidity shortfalls in
the short term irrespective of SS3/17 (as amended in December
2018), under extreme and unforeseen circumstances a tightening of
the Group's liquidity position could have a material adverse effect
on the Group's business, results of operations, financial condition
and prospects in the medium to longer term.
Premiums received from the Group's customers in connection with
the sale of retirement income products are invested in financial
assets, such as fixed income securities and LTMs, so as to attempt
to match cash inflows from such investments against expected future
cash outflows associated with liabilities to customers. This
matching depends on the accuracy of its projections of cash inflows
(premiums received, the repayment of fixed income securities and
LTMs, coupon payments made on fixed income securities and early
redemptions of LTMs) and outflows (the purchase of fixed income
securities, payments to annuitants and defined benefit pension
schemes, mortgage advances, commissions, expenses and tax), which
are subject to a number of assumptions, which are necessarily less
certain the further into the future such projections are made.
Accordingly, the Group is subject to the risk of cash flow
mismatches in the longer term between its financial liabilities to
customers and the assets held to support those liabilities, as a
result of, among other things, inaccurate assumptions regarding the
timing and duration of future cash inflows and/or cash outflows. In
the event of such a mismatch, the Group may be unable to pay its
financial liabilities to customers as they fall due on account of
insufficient cash inflows, which could have a material adverse
effect on the Group's business, results of operations, financial
condition and prospects.
If it were necessary to sell assets in order to generate
liquidity, there is no guarantee that the price achieved would
reflect the valuations at which such assets are recorded in the
financial statements of the Group, especially for illiquid classes
of assets. In particular, it may not be possible to readily sell
LTMs due to the lack of a market in which to trade them.
From time to time liquidity is needed to be able to
collateralise derivative positions that are used to hedge against
interest rates, inflation rates and foreign currencies. Liquidity
is also required to ensure the continued funding of LTMs and, under
Solvency II, to support the restructuring of LTMs required by
regulatory rules. In extreme circumstances, collateral calls could
require more liquid assets to be posted than are readily available.
In this case, one of the actions that the Group could take to
reduce the liquidity strain is to close out derivative positions.
This would increase the exposure of the Group to those risks that
were being hedged by the relevant derivative position, and were the
risk to materialise, it could have a material adverse effect on the
business, results of operations, financial condition and prospects
of the Group.
Further, the Group may also choose to invest in particular
assets in order to benefit from specific regulatory approvals which
give rise to discretionary reductions in regulatory capital and/or
reserving requirements. If suitable assets are not available to
purchase in the market in the amounts required (for example,
because competition for such assets is high as a consequence of
other insurers wishing to hold them to benefit from regulatory
approvals), it may be difficult to find suitable alternative assets
in the market in the amounts required which could have a material
adverse effect on the Group's business, results of operations,
financial condition and prospects.
Any determination to restrict further drawdowns of the undrawn
portion of drawdown LTMs in order to manage liquidity could
adversely affect the reputation and brand of the Group
The Group's drawdown LTMs enable borrowers to drawdown further
advances subsequent to the initial drawdown of the loan, subject to
certain terms and conditions. If there were to be a sharp increase
in customers' propensity to drawdown the undrawn portion of
drawdown LTMs, the Group may not be able to facilitate these
drawdowns. Although under the terms of its drawdown LTMs the Group
may restrict drawdowns as a result of certain events (including to
meet the liquidity needs of the Group), such an eventuality could
adversely affect the Group's reputation, sales and brand, which
could in turn have a material adverse effect on the Group's
business, results of operations, financial condition and
prospects.
1.5 Third party and other counterparty risks
The Group is exposed to counterparty risk in relation to
reinsurers
Under the reinsurance agreements, members of the Group retain
primary liability as the direct insurer on all risks reinsured.
Consequently, reinsurance arrangements do not eliminate their
obligation to pay claims although under the reinsurance agreements
the relevant Group company can recover amounts paid from the
reinsurer. As a consequence, the members of the Group entering into
reinsurance agreements are subject to the credit risk of the
reinsurer with respect to their ability to recover amounts due from
them. Even where the reinsurer has an obligation to provide
collateral in support of its operations, there can be no certainty
that such collateral will satisfy the full amount of the
reinsurer's liability and, as a result, those members of the Group
entering into reinsurance agreements could be left with a shortfall
to the extent that the amounts paid by the members of the Group on
claims made are not recovered from the reinsurer.
In addition, some circumstances, could lead to reinsurers
exercising a right to terminate the existing reinsurance agreements
for cause, either in relation to new business only or in relation
to new and existing business . The termination could have a
material adverse effect on the Group both by increasing the amount
of capital required to be set aside for regulatory purposes and by
exposing the Group to increased risk in respect of which it would
have no ongoing protection.
The Group is exposed to counterparty risk in relation to other
entities
In addition to the matters described in the risk factor entitled
"The Group is exposed to counterparty risk in relation to
reinsurers", the Group is also exposed to counterparty default risk
in relation to third parties including derivative counterparties,
investment managers, brokers, distribution partners and other
supplier contracts, as well as financial institutions holding its
cash and collateral deposits. The Group's business could suffer if
any of the Group's counterparties fail to honour their obligations.
The potential consequences resulting from counterparties' failure
to honour obligations and payments could have a material adverse
effect on the Group's business, results of operations, financial
condition and prospects.
The Group places substantial reliance on intermediaries, in
particular financial intermediaries, employee benefit consultants
("EBCs"), retirement specialists and key corporate partners in the
UK, to sell and distribute its products
The Group sells its retirement income products through
intermediary distribution channels, such as financial
intermediaries, EBCs, retirement specialists and key corporate
partners. The Group's relationships with its intermediaries and
certain key corporate partners could be damaged or terminated as a
result of a variety of events. Partners are subject to change from
time to time, the Group may be unable to renew its agreements with
such partners on similar terms, or at all, and could subsequently
be unable to secure agreements with new distribution partners.
Termination or non-renewal of, or any other material changes to,
the Group's relationships with its distribution partners could
adversely affect the sale of the Group's retirement income products
and its growth opportunities in the UK. Termination of distribution
relationships can also result in disputes over the dissolution or
final settlement of distribution agreements, which can potentially
lead to litigation. In addition, the Group could be required to
fulfil the obligations of its agreements with distribution partners
in the event of the termination of a relationship. The distribution
agreements include various requirements on the Group, and the Group
may have to pay damages under the arrangements if it fails to
fulfil these obligations. Any of the foregoing events could have a
material adverse effect on the business, results of operations,
financial condition and prospects of the Group.
Sales of GIfL solutions are dependent, in part, on the
availability of advice to consumers through their financial
intermediary or via Pension Wise. The Group's ability to grow sales
of its GIfL products is dependent in part on raising consumer
awareness and on customers taking advantage of the open market
option ("OMO"), and, if they qualify, by purchasing an annuity
underwritten on medical and lifestyle factors. The OMO allows an
individual to use pension savings from any defined contribution
pension fund to purchase an annuity from any annuity provider and
effectively enables an individual to choose the best available
retirement product from all providers. Should financial
intermediaries fail to advise customers to take advantage of the
OMO or fail to advise customers who so qualify to purchase an
annuity, this could adversely affect the sales of annuities and,
accordingly, have a material adverse effect on the business,
results of operations, financial condition and prospects of the
Group.
In addition, the Group considers that the number of financial
intermediaries who have demonstrated a proactive approach to
advising on LTMs has, to date, been limited. The Group believes
this is a result of the relative complexity of the issues required
to be considered when advising on LTMs and the perceived
reputational risks to financial intermediaries, such as claims of
potential mis-selling or provision of investment advice. Continuing
reluctance in the financial intermediary community to sell LTMs
could constrain the future growth in sales of LTMs by the Group,
which could in turn have a material adverse effect on the Group's
business, results of operations, financial condition and
prospects.
Distribution channels may also be adversely affected should the
FCA, in any future review of the distribution model of the Group or
the activities of any relevant distributors, consider that any of
the distribution agreements the Group has for payments made and
services provided to the Group, are or are at risk of
non-compliance with its interpretation of its rules or the spirit
thereof. Further, in the event of any mis-selling of products by
financial intermediaries or other distribution partners, the Group
could face the risk of regulatory censure from the FCA, fines and
related compensation costs and reputational damage. Any of these
developments could have a material adverse effect on the Group's
business, results of operations, financial condition and
prospects.
Legal and regulatory change in the form of the Insurance
Distribution Directive (the "IDD") may lead to a decline in the
number and/or size of distribution firms. Inter alia, this is
because financial advisers may decide to consolidate or to leave
the sector in response to anticipated increased compliance costs
that may be realised and the higher professional standards
required. If a reduction in the capacity of the intermediary
distribution sector does occur, this may result in fewer
opportunities for the Group's products to be distributed by
intermediary firms. The impact of these changes could adversely
affect the strategic importance of these financial intermediaries
as a distribution channel for the Group.
The Group is subject to the risk that reinsurance may not be
available, affordable or adequate to protect it against losses
and/or its existing longevity risk transfer arrangements may be
terminated, may not be renewed, or may be renewed on terms less
favourable than those under the existing treaties
As part of its overall risk mitigation and capital management
strategy, the Group purchases reinsurance from a number of
reinsurance providers (including Reinsurance Group of America, Gen
Re and SCOR Global Life SE - UK Branch) to cover a significant
proportion of its longevity risk (i.e. the risk of annuitants
living longer than expected). Market conditions beyond the Group's
control determine the future availability and cost of appropriate
reinsurance and the receipt of future reinsurance recoveries as
well as the financial strength of reinsurers. Risk appetite among
reinsurers may change, resulting in changes in price or their
willingness to reinsure certain risks in the future. Any
significant changes in reinsurance pricing may result in the Group
being forced to incur additional expenses for reinsurance, writing
less business, having to obtain reinsurance on less favourable
terms or not being able to or choosing not to obtain reinsurance.
The availability of reinsurance to UK insurers may also depend on
the precise terms of the UK's Brexit arrangements. Any of these
could have a material adverse effect on the Group's business,
results of operations, financial condition and prospects.
The Group could face difficulties in entering into an agreement
on similar terms with benefits equivalent to those described above
or at all, with other reinsurers, particularly as there are only a
limited number of reinsurers with credit ratings satisfactory to
the Group who are able to provide equivalent protection for risks
of the type written by the Group.
Third party reinsurers' unwillingness or inability to meet their
obligations under reinsurance agreements, or potential termination
of any of the reinsurance treaties or failure of these treaties to
continue on terms similar to those presently in force, could have a
material adverse effect on the Group's business, results of
operations, financial condition and prospects.
Failure of a sufficiently large and important institution or
other major counterparty may materially disrupt the markets and
could adversely affect the Group
In the global financial system, financial institutions,
including reinsurers, are interdependent. The interdependence of
financial institutions means that the failure of a sufficiently
large and influential financial institution or other major
counterparty, for whatever reason, could materially disrupt
markets. This risk, known as "systemic risk", could adversely
affect the Group in several ways, some of which may be
unpredictable, including increased default or counterparty risk. It
may also adversely affect future sales as a result of reduced
confidence in the insurance industry or difficulties encountered in
clearing premiums and payments through the banking system. The
Company believes that, despite increased focus by regulators with
respect to systemic risk, this risk remains part of the financial
system, and dislocations caused by the interdependence of financial
market participants could have a material adverse effect on the
business, results of operations, financial condition and prospects
of the Group.
The Group is subject to the risk of defaults by the issuers of
fixed income securities in its financial asset portfolio
Premiums received by the Group from customers are invested in
financial assets, such as fixed income securities and LTMs, so as
to match cash inflows from such investments against the Group's
expected future cash outflows in respect of its retirement income
products.
One of the principles of the Group's investment strategy is that
the investment portfolio comprises high quality, low risk
assets.
The Group actively monitors the quality of its overall
investment portfolio, which is not intended to have a particular
concentration by sub-sector or instrument. Nevertheless, the Group
is exposed to default risk with respect to these securities in the
event of adverse market conditions or other factors affecting the
bond market as a whole.
If the issuers of securities held (directly or indirectly) by
the Group default on their obligations, the Group could suffer
significant losses on account of such defaults, which could
materially adversely affect the Group's business, results of
operations, financial condition and prospects.
The Group is dependent on the use of third-party suppliers,
including investment managers, IT software and internet (including
cloud) service providers
The Group is dependent on the use of certain third party
suppliers in order to conduct its business. The Group is reliant in
part on the continued performance, accuracy, compliance and
security of such services. If the contractual arrangements with any
third party providers are terminated, the Group may not find an
alternative outsource provider or supplier for the services, on a
timely basis, on equivalent terms or without significant expense or
at all, in which case the Group would need to handle such services
in-house, which could involve potential additional costs and
delays.
Any reduction in third party product quality or any failure by a
third party utilised by the Group to comply with internal,
contractual, regulatory or other requirements, including
requirements with respect to the handling of customer data, could
cause a material disruption to or adverse financial and/or
reputational impact on the Group's business which could have a
material adverse effect on the Group's business, results of
operations, financial condition and prospects.
The Group may not be able to refinance its borrowings in the
longer term and/or the cost of finance could increase
In the longer term, the Group expects to access debt funding to
refinance its existing indebtedness, comprising the GBP250,000,000
9.00% guaranteed subordinated notes issued by the Company on 26
October 2016, the GBP230,000,000 3.5% subordinated notes issued by
the Company on 7 February 2018 and the GBP100,000,000 9.5%
guaranteed subordinated notes issued by Partnership Assurance Group
plc (which was subsequently replaced and substituted as principal
obligor by Partnership Life Assurance Company Limited with effect
from 4 April 2016) on 24 March 2015, at or prior to the time when
they reach the end of their respective terms. The Group may not be
successful in identifying lenders and/or investors who are willing
to lend on similar terms to those which apply to the Group's
existing indebtedness, or at all. No assurance can be given that
the Group's existing indebtedness will, in the longer term, be able
to be refinanced on similar terms, or at all, upon maturity. A
reduction in the availability of finance or an increase in the
future cost of finance (whether for macroeconomic reasons, such as
a lack of liquidity in debt markets, or reasons specific to the
Group) could adversely affect the Group's business. If, in the
longer term, the Group is not able to refinance borrowings as they
mature and/or the terms of such refinancing are less favourable
than the existing terms of borrowing, this could have a material
adverse effect on the business, financial condition, results of
operations, cash flows and prospects of the Group.
1.6 External environment risks
Following Brexit, uncertainty surrounding the UK's future
relationship with the EU may have a materially adverse effect on
global economic conditions, financial markets and the Group's
business
The potential outcome of the negotiations on UK withdrawal from
the EU and any subsequent negotiations on trade and access to the
country's major trading markets, including the single EU market, is
currently unknown. The terms of the UK's exit are also unclear and
remain to be determined by the negotiations currently taking place.
Under the terms of the current withdrawal agreement that has yet to
be approved by the UK Parliament, a transition period to 31
December 2020 will commence after the UK's exit, during which the
relationship between the UK and the EU on trade and other matters
will be negotiated. However, if the withdrawal agreement is not
approved by the UK Parliament, the UK could leave the EU without a
formal agreement and transition period. In the alternative, the UK
could, subject to agreement by the European Council, extend the
Article 50 deadline for the UK's exit from the EU, or ultimately
revoke its notification of its intent to leave the EU. There is
therefore considerable uncertainty over the arrangements to be put
in place between the UK and the EU after 29 March 2019 or, if
applicable, after the end of any transitional period agreed under
the withdrawal agreement. The potential impact of exiting the EU on
the Group's business operations and assets remains uncertain and
adverse outcomes from the UK's negotiations with the EU may have a
material adverse effect on the Group's business, results of
operations, financial conditions and prospects. See also the risk
factor entitled "The Group is subject to risks arising from the UK
referendum vote to withdraw from the EU ("Brexit") and any
resulting changes in law and regulation".
The intellectual property of the Group, in particular its
extensive database of mortality data, is crucial to its operations
and the Group is exposed to the risk of its theft, loss,
deterioration or corruption
The most significant portion of the intellectual property of the
Group is its data, which comprises 2.8 million person-years of
medical and mortality data which is continually updated. The
Company believes that this mortality data enables the Group to
price and reserve more accurately than they could without such data
and to secure reinsurance agreements on attractive terms.
Any theft of this data by an employee or competitor or another
third party, or loss or corruption of such data, for example as a
result of systems failure, or the deterioration of the relevance of
the dataset over time as a result of medical advances or changes in
longevity trends generally, could impair the ability of the Group
to price its products accurately and obtain reinsurance on
attractive terms, which could have a material adverse effect on the
business, results of operations, financial position or prospects of
the Group.
The Group faces competition
The Group operates in the competitive retirement income market
in which the most important competitive factors for products
include price, which in large measure is determined by the quality
and extent of the relevant mortality dataset, the predicted
investment return and required returns on capital, together with
brand recognition, the utilisation of various distribution
channels, the quality of customer services before and after a
contract is entered into, product flexibility, product innovation
and policy terms and conditions.
In addition, the LTM segment continues to grow and to benefit
from increasing consumer demand. The market is currently dominated
by a limited number of specialist lenders but recent drivers such
as the maturity of interest only mortgages has led to more
providers entering this market. Despite the market growth, the
intensity of competition for products similar to LTMs (such as
interest only mortgages) has increased which may lead to
compression of the Group's profit margins. The Group expects this
trend to continue.
As a consequence, the Group faces, or may face, significant
competition from domestic insurers, international insurance groups,
consolidator funds, non-insurance groups such as investment
managers and others (in any such case, whether they are established
market participants, new entrants to the market or start-up
operations), which offer and/or may in the future offer the same or
similar products and services as the Group in the retirement income
market to individual and corporate clients, and also in the LTM
segment. Such competitors may be willing to accept higher risk or
lower margins than the Group, and those who have assembled their
own sets of mortality data may then be able to price across the
spectrum of annuities at an increased level of accuracy. Further,
the pace of technological change and the introduction of new
technology by its competitors could potentially be disruptive to
the markets in which the Group operates and could lead to increased
competition. If any of these were to occur, they could adversely
affect the Group's ability to obtain new customers, compete with
competitors, or its ability to adjust prices, which could constrain
the growth or otherwise have a material adverse effect on its
business, results of operations, financial condition and
prospects.
Changes in lifestyle, medicine or technology could reduce demand
for the products of the Group
The Group is exposed to changes in the behaviour of its
customers and the markets in which it sells its insurance products.
For example, changes in lifestyle or medicine could significantly
alter customers' and potential customers' actual or perceived need
for GIfL products. Changes in technology could also give rise to
new types of entrants into the insurance and/or insurance sales
sectors, or the development of new distribution channels requiring
further adaptation of the Group's business and operations.
Such changes could result in reduced demand for the Group's
products and/or require the Group to expend significant energy,
resources and capital to change its product offering, build new
risk and pricing models, modify and renew its operating and IT
systems and/or retrain or hire new people. Such changes could have
a material adverse effect on the business, results of operations,
financial condition and prospects of the Group.
The Group's future success may depend on its ability to develop
and market new products, or enter new geographical markets
successfully
Further changes to pension legislation and to social attitudes
are key factors, which may drive a reduction in the UK retirement
income market in the future. Political and social commentary may
also have a destabilising effect on customer confidence. In
addition, further changes to regulation or taxation may make
alternative at-retirement propositions more attractive to customers
than annuities or LTMs. In these circumstances, the need for the
Group to diversify increases, but diversification also entails
risks associated with change. Such diversification could include:
development of new products and services that better meet the needs
of those deferring retirement; further expansion into new markets
in the UK or overseas; and/or expanding the advice proposition
and/or brand and customer led strategies.
Should the Group prove to be unable to diversify successfully in
order to meet these challenges, such failure could have a material
adverse effect on the Group's business, results of operations,
financial condition and prospects.
Legal and arbitration proceedings could cause the Group to incur
significant expenses, which could have an adverse effect on the
Group
In the ordinary course of business the Group is from time to
time party to various claims and complaints, including legal and
arbitration proceedings, in respect of which monetary damages
and/or compensation are sometimes sought.
The Group's management cannot predict with certainty the outcome
of any pending legal and arbitration proceedings or potential
future legal and arbitration proceedings, and the Group may incur
substantial expense in pursuing or defending these proceedings.
Potential liabilities may not be covered by insurance, the Group's
insurers may dispute coverage or may be unable to meet their
obligations, or the amount of the Group's insurance coverage may be
inadequate. Moreover, even if claims brought against the Group are
unsuccessful or without merit, the Group would have to defend
itself against such claims. The defence of any such actions may be
time consuming and costly, may distract the attention of management
and potentially result in reputational damage. As a result, the
Group may incur significant expenses and may be unable to
effectively operate its business. Accounting provisions recognised
by the Group in its financial statements may prove to be
insufficient. Any of the above and any adverse outcomes and
reputational damage arising out of such litigation could have a
material adverse effect on the Group's business, results of
operations, financial condition and prospects.
The Group is subject to the risk of receiving complaints
alleging the provision of unsuitable advice
The Group's distribution arm, HUB Financial Solutions Limited,
provides advice to customers in relation to LTMs and, more
recently, annuities, in particular immediate needs annuities. HUB
Financial Solutions Limited has also launched a simplified advice
service for customers who are determining how to disinvest
retirement savings. The Group has also recently entered the Defined
Pensions Transfer Advice market via its acquisition of Corinthian
Pension Consulting Limited. The Group may be subject to complaints
alleging the provision of unsuitable advice through any of its
advisory businesses. There is also a risk that the process driven
nature of the simplified advice service could contain systematic
errors that could result in the same mistake being made repeatedly
before it is discovered, giving rise to multiple claims. If any
such complaints were sustained, the Group may be subject to
disciplinary or enforcement action by the FCA, which could, for
example, result in private or public censure, fines or sanctions,
or the award of compensation to customers. This could in turn
result in reputational damage that could have a material adverse
effect on the Group's business, results of operations, financial
condition and prospects. See also the risk factor entitled
"Individual and groups of customers may refer their disputes with
the Group to the Financial Ombudsman Service".
Downgrades or the revocation of the Group's ratings could affect
its standing in the market and result in a loss of business and/or
reduced earnings
JRL has been assigned an insurer financial strength rating of
"B+ - very strong" by the actuarial consulting firm AKG Financial
Analytics Ltd ("AKG"), as last confirmed in March 2018, and PLACL
has similarly been assigned an insurer financial strength of "B+ -
very strong" by AKG, as last confirmed in March 2018. Each of these
insurer financial strength ratings is subject to periodic review
by, and may be revised downward or revoked at the sole discretion
of AKG (including as a result of regulatory developments). Fitch
have assigned JRL an insurer financial strength rating of A+ and
issuer default rating of A, and assigned the Group an issuer
default rating of A. Fitch upgraded their outlook on the group from
negative to stable in December, following the publication of
PS31/18. Each of these ratings is subject to periodic review by,
and may be revised downward or revoked at the sole discretion of
Fitch (including as a result of regulatory developments). Fitch
have noted that a downgrade could result from a weakening in
capitalisation, an increase in financial leverage, a weakening in
financial flexibility or a deterioration in business profile. In
particular, Fitch note that a downgrade is likely in the event of
weakening of the Group's capitalisation (as evidenced by a
prolonged fall in the Prism Factor-Based Capital Model score to the
low end in the "Very Strong" category, or a decrease in the Group's
Solvency II ratio to below 130%) or, a weakening of the Group's
financial leverage ratio to above 30% on a sustained basis. The
ratings could also be downgraded as a result of a sustained
weakening in the Group's financial flexibility, as evidenced, for
example, by the Group's fixed charge coverage ratio declining to
below 3:1.
Pursuant to the terms of the GBP200,000,000 revolving credit
facility dated 16 June 2017 between the Company as original
borrower and original guarantor and its subsidiaries Just
Retirement Group Holdings Limited, Just Retirement (Holdings)
Limited, Partnership Assurance Group Limited, Partnership Holdings
Limited and Partnership Group Holdings Limited as original
guarantors (the "2017 Revolving Credit Facility"), a downgrade in
the rating of the Company to below BBB-/Baa3 (or equivalent) from a
recognised rating agency would result in an increase to the margin
payable by the Company in respect of amounts it has borrowed under
the 2017 Revolving Credit Facility, thereby increasing its
borrowing costs. A downgrade in the rating of the Company to below
BBB-/Baa3 (or equivalent) would also result in the application of a
more restrictive covenant package under the 2017 Revolving Credit
Facility. This could impair the Group's ability to implement its
strategy if consent from the majority lenders were not
provided.
A downgrade or revocation of any of these ratings could have a
material adverse effect on the Group's public reputation, ability
to secure reinsurance, and competitive position in the market,
especially in relation to its distribution arrangements and
commercial business, where partners, EBCs or customers may not be
willing or permitted to place their business with a lower rated
insurer, which could result in reduced business volumes and income.
Further, interest rates paid on borrowings by the entities within
the Group are influenced by the existence and strength of the
ratings above, and so a downgrade or revocation could affect the
borrowing costs and/or future financial flexibility of the Group.
The occurrence of any of the above could have a material adverse
effect on the Group's business, results of operations, financial
condition and prospects.
The political, regulatory, economic and business conditions in
new geographical markets could impair the ability of the Group to
succeed in new territories
Any expansion into new geographies will expose the Group to
different local political, regulatory, business and financial risks
and challenges which may affect its ability to implement the
intended strategy and business plans for those geographic markets.
These risks could include political, social or economic
instability, credit and counterparty risks in new geographies, lack
of local business experience and risks of cultural incompatibility
with foreign parties. The occurrence of any of these events could
have a material adverse effect on the business, results of
operations, financial condition and prospects of the Group.
The Group is exposed to the risk of damage to its brand, the
brands of its distribution partners, its reputation, or a decline
in customer confidence in the Group or its products
The Group's success and results are influenced by its financial
strength, reputation and its brand. The Group and its brand are
vulnerable to adverse market perception as the Group operates in an
industry where integrity, customer trust and confidence are
paramount.
Negative publicity or damage to the brand or the Group's
reputation could result from, inter alia, litigation (including
mis-selling claims), employee misconduct, operational failures, the
outcome of regulatory or other investigations or actions,
allegation or determination that the Group has failed to comply
with regulatory or legislative requirements, failure in business
continuity or performance of the Group's IT systems, loss of
customer data or confidential information, fraudulent activities,
malign influences, unsatisfactory service and support levels or
insufficient transparency or disclosure of information. Negative
publicity adversely affecting the Group's brand or its reputation
could also result from misconduct or malpractice by intermediaries,
business promoters or other third parties linked to the Group (such
as strategic partners, distributors and suppliers).
The Group's brand and reputation could also face threats from
external risks such as regulatory intervention or enforcement
action, whether directly or as part of a larger and more general
action against other companies that operate in the same sectors as
the Group's operating entities. See "The UK Government's pension
reforms implemented in April 2015 have had, and will continue to
have, a fundamental impact on the expected shape and future of the
retirement income market in the UK and there can be no certainty
that the response of the Group to both these pension reforms and to
the Taxation of Pensions Act 2014 (together with the pension
reforms implemented in April 2015 referred to as "Pension Freedom
Reforms") will fully mitigate any adverse effects the Group may
suffer as a consequence of the Pension Freedom Reforms". In
particular, the Pension Freedom Reforms have affected customer
confidence in annuities and reduced the number of people purchasing
an annuity within the UK retirement income market, resulting in a
reduction in the total sales of UK annuities and a reduction in the
revenue which the Group derives from sales of GIfL products.
Damage to the Group's brands or reputation could cause existing
customers, partners or intermediaries to withdraw their business
from the Group and potential customers, partners or intermediaries
to be reluctant, or elect not, to do business with the Group. Such
damage to the Group's brand or reputation could cause
disproportionate damage to the Group's business, even if the
negative publicity is factually inaccurate or unfounded.
Furthermore, negative publicity could result in greater regulatory
scrutiny and influence market or rating agencies' perception of the
Group, restricting the Group's access to distribution channels or
the ability to access funding in the capital markets. The
occurrence of any of these events could have a material adverse
effect on the Group's business, results of operations, financial
condition and prospects.
1.7 Internal operations and management
The Group's operations support complex transactions and are
highly dependent on the proper functioning of IT and communication
systems
The Group relies on its operational processes and IT systems to
conduct its business, including the pricing and sale of its
products, measuring and monitoring its underwriting liabilities,
processing claims, assessing acceptable levels of risk exposure,
setting required levels of provisions and capital, producing
financial and management reports on a timely basis and maintaining
customer service and accurate records. These processes and systems
may not operate as expected, may not fulfil their intended purpose
or may be damaged or interrupted by increases in usage, human
error, unauthorised access, power failures, natural hazards or
disasters, blackouts, computer viruses, terrorist attacks or war or
similarly disruptive events. Any failure of the Group's IT and
communications systems and/or third party infrastructure on which
the Group relies could lead to costs and disruptions that could
materially adversely affect the Group's business, results of
operations, financial condition and prospects as well as harm the
Group's reputation and/or attract increased regulatory
scrutiny.
If the Group were to introduce new consumer products beyond its
current offering, it may be required to develop new operational
processes and information systems or to ensure current systems are
adequate to support these products. Development of new systems or
the expansion of current systems may require experience and
resources beyond those the Group currently possesses. Failure to
support new products with necessary resources could lead to costs
or the failure of new product offerings. The occurrence of a
serious disaster resulting in interruptions, delays, the loss or
corruption of data, or the cessation of the availability of
systems, could, to the extent not mitigated by the Group's disaster
recovery and business contingency plans, have a material adverse
effect on the Group's business, results of operations, financial
condition and prospects.
If the Group is unable to maintain the availability of its
systems and safeguard the security of its data, including customer
and employee data, due to accidental loss, cyber-crime, the
occurrence of disasters or other unanticipated events affecting the
Group or its service providers, its ability to conduct business may
be compromised which may have an adverse effect on the Group
The Group collects and processes personal data (including name,
address, age, medical details, bank details and other personal
data) from its customers, business contacts and employees as part
of the operation of its business, and therefore it must comply with
data protection and privacy laws and industry standards in the UK
and the countries of residence of the Group's policyholders. Those
laws and standards impose certain requirements on the Group in
respect of the collection, use, processing and storage of such
personal information. This includes compliance with the General
Data Protection Regulation (EU 2016/679) which came into force on
25 May 2018 (the "GDPR") and introduced substantial changes to the
EU data protection regime. The GDPR places a large compliance
burden on companies who retain customer data and may impair the
ability to use data.
There is a risk that data collected by the Group and its third
party service providers is not processed in accordance with
notifications made to, or obligations imposed by, data subjects,
regulators, or other counterparties or applicable law. Failure to
operate effective data collection controls could potentially lead
to regulatory censure, fines, reputational and financial costs as
well as result in potential inaccurate rating of risks or
overpayment of claims. In particular, fines under the GDPR are
based on a two-tier system, and fines up to a maximum of EUR10
million or 2% of annual global turnover, or, for more severe
infringements, a maximum of EUR20 million of 4% of annual global
turnover, may be imposed.
Business organisations, such as the Group, are increasingly
becoming targets for cyber-crime, particularly if those
organisations retain personal information about many people. The
Group is exposed to the risk that the personal data it controls
could be wrongfully accessed, copied, used and/or destroyed whether
by employees or other third parties, or otherwise lost or disclosed
or processed in breach of data protection regulations. If the Group
or any of the third party service providers on which it relies
fails to process, store or protect such personal data in a secure
manner or if any such theft or loss of personal data were otherwise
to occur, the Group could face liability under data protection
laws. This could also result in damage to the Group's brand and
reputation, the loss of new or repeat business and/or the Group
incurring a large fine, any of which could, to the extent not
mitigated by the Group's disaster recovery and business continuity
contingency plans, have a material adverse effect on the Group's
business, results
of operations, financial condition and prospects.
The Group's risk management policies and procedures may not be
effective and may leave the Group exposed to unidentified or
unexpected risks
The Group's policies, procedures and practices used to identify,
measure, monitor and manage a variety of risks may fail to be
effective. As a result, the Group faces the risk of losses,
including losses resulting from human error, the payment of
incorrect amounts to policyholders due to incorrect administration,
market movements and fraud. The Group's risk management methods
rely on a combination of technical and human controls and
supervision that can be subject to error and failure. Some of the
Group's methods of managing risk are based on internally developed
controls and observed historical market behaviour, and also involve
reliance on industry standard practices. Whilst the Group is
continually updating its risk management policies and procedures to
manage new risks which emerge (for example, those arising in
relation to its IT systems and cyber-crime), these methods may not
adequately prevent future losses, particularly if such losses
relate to extreme or prolonged market movements, which may be
significantly greater than the historical measures indicate. These
methods also may not adequately prevent losses due to technical
errors if the Group's testing and quality control practices are not
effective in preventing technical software or hardware
failures.
Ineffective risk management policies and procedures could have a
material adverse effect on the Group's business, results of
operations, financial condition and prospects.
The Group is exposed to the risk of financial crime (including
bribery, money laundering and corruption)
The Group is exposed to the risk of internal and external fraud
from a variety of sources such as employees, suppliers,
intermediaries, customers and other third parties. This includes
both policy (i.e. application-related) fraud and claims fraud.
Although the Group employs fraud detection processes to help
monitor and combat fraud, the Group is at risk from customers,
financial intermediaries or other distribution partners or
employees who misrepresent or fail to provide full disclosure of
the risks or over-disclose medical or lifestyle risk factors before
policies are purchased and from a range of other fraud-related
exposures, such as the fraudulent use of Group-related confidential
information. These risks are potentially higher in periods of
widespread financial stress.
Additionally, the Group is exposed to risk from employees and
staff members who fail to follow, or who circumvent, procedures
designed to prevent fraudulent activities.
The occurrence or persistence of fraud in any aspect of the
Group's business could damage its reputation and brands as well as
its financial standing, and could have a material adverse effect on
its business, results of operations, financial condition and
prospects.
The Group is exposed to operational risk in the course of its
business and it relies on its employees, operational processes and
IT systems to conduct its business in line with its values,
governance standards, policies and procedures
The Group relies on its people to deliver the quality of
products and services for which it is known and/or the productivity
of its people for the cost efficiencies it is able to deliver. In
an organisation that is dependent on its talent, their continued
commitment, engagement and development is crucial in seeking to
address many operational risk factors. The importance of people to
the success of the Group's business model means that risks relating
to talent attraction, development and retention are
considerable.
The employees of the Group underpin all that it does, and how
they undertake their duties is influenced by the Group's corporate
culture. The Group believes that a positive culture brings positive
attitudes and enthusiasm to embrace and adopt change. The Group
also acknowledges the destructive consequences of an inappropriate
culture. The development of an inappropriate culture could result
in employees of the Group failing to adhere to, or follow the
recommendations of, the Group's governance standards, policies and
procedures and could in turn increase the likelihood of operational
risks materialising. Should such risks materialise, this could have
a material adverse effect on the Group's business, results of
operations, financial condition and prospects.
The Group is exposed to conduct risk
The Group is also exposed to the risk that decisions and
behaviours of its Directors or employees do not support the
integrity of financial markets, leading to unfair treatment of
customers or clients, or otherwise detrimental customer or client
outcomes. This might arise where, inter alia, the Group fails to
maintain appropriate policies and procedures, to communicate
appropriately with customers or clients, to deal with complaints
efficiently or to provide appropriate investment or financial
advice planning to customers or clients (such as the advice
services provided by HUB Financial Solutions Limited). The Group
might also be exposed to conduct risk by the conduct or misconduct
of employees, over which the Group only has limited control by way
of employee policies and procedures.
Conduct risk is an area of close regulatory scrutiny and a
failure by the Group (or its employees) to protect the interests of
customers or clients could lead to legal proceedings or enforcement
action by regulators. This could in turn lead to financial
penalties, reputational damage and/or suspension or revocation of
regulatory permissions, licenses or approvals, which could in turn
have a material adverse effect on the Group's business and
prospects.
If the Group experiences difficulties arising from outsourcing
relationships, its ability to conduct business may be
compromised
The Group outsources some of its key customer service, policy
administration and other administrative functions under formal
outsourcing arrangements (including Capita in respect of
administration and Insight, Robeco, BlackRock and other specialists
in relation to the management of the Group's fixed income
portfolio). The Group only enters into outsourcing relationships
with firms which the Company believes have the know-how, expertise
and business models that meet the Group's required standards. The
Group aims to maintain effective systems and controls for outsource
providers in compliance with the Group's ongoing obligations.
However, there can be no assurance that such systems and controls
will be completely successful in seeking to avoid, or reduce the
potential effects of, underperformance. In particular, while the
outsourcing relationships are carefully monitored, underperformance
may also result in breaches of applicable law and regulation, which
could result in regulatory intervention. There is also a risk that
the providers will not be able to keep up with the pace of legal
and/or regulatory change (including as a result of Brexit), in
which case the Group's operations may become non-compliant.
If the Group does not effectively develop, implement and monitor
its outsourcing strategy, or outsourcing relationships do not
perform as anticipated or the Group experiences problems with a
transition of outsourcing arrangements, the Group may experience
poor investment returns, operational difficulties, increased costs,
reputational damage and a loss of business that may have a material
adverse effect on the Group's business, results of operations,
financial condition and prospects. In addition, the failure or
insolvency of, or inability to provide the relevant services by,
one or more of the Group's third party service providers could have
a material adverse effect on the Group's ability to sustain its
ongoing operations, which could have a material adverse effect on
the Group's business, results of operations, financial condition
and prospects.
The Group could be materially adversely affected by the loss of
key employees, or by an inability to attract and retain, or obtain
FCA or PRA approval for, qualified personnel
The loss of services of key employees could adversely affect the
Group. It may need to temporarily fill certain key roles with
interim employees while recruitment of permanent staff is
concluded. The Group's continued success also depends on its
ability to attract, motivate and retain highly competent
specialists, particularly those with financial, IT, underwriting,
actuarial and other specialist skills. Competition for senior
managers, as well as personnel with these skills and proven
ability, is intense among insurance companies.
The Group competes with other financial services groups for
skilled personnel, primarily based on its reputation, financial
position, location, remuneration policies and support services. If
the Group fails to compete effectively in the labour market, it may
incur significant costs to recruit and retain appropriately
qualified individuals.
In addition to regulating the financial services firms
themselves, the FCA and the PRA also regulate the individual
managers performing certain significant roles. The Group's
inability to attract and retain, or obtain FCA or PRA approval for,
directors and highly skilled personnel, and to retain, motivate and
train its staff effectively, could adversely affect its competitive
position, which could in turn result in a material adverse effect
on its business, results of operations, financial condition and
prospects.
1.8 Taxation risks
Changes in taxation laws may affect decisions of customers
There are specific rules governing the taxation of
policyholders. The Group's management cannot predict accurately the
impact of future changes in tax law on the taxation of life and
pension policies in the hands of policyholders. Amendments to
existing legislation (particularly if there is a withdrawal of any
tax relief or an increase in tax rates) or the introduction of new
rules may impact upon the decisions of policyholders, and could
have a material adverse effect on the Group's business, results of
operations, financial condition and prospects.
Changes in taxation law may have a material adverse effect on
the Group
Changes in corporate and other tax rules (whether in the UK or
in other jurisdictions in which the Group operates) could have both
a prospective and retrospective impact on the Group's business,
results of operations, financial condition and prospects. In
general, changes to existing tax laws or their interpretation, or
amendments to existing tax rates (corporate or personal), or the
introduction of new tax legislation may materially adversely affect
the Group's business, results of operations, financial condition
and prospects, either directly or indirectly, for example by
effecting changes in the insurance purchasing decisions of
customers. Changes to legislation that specifically governs the
taxation of insurance companies might adversely affect the Group's
business. While changes in taxation laws may affect the insurance
sector as a whole, changes may be particularly detrimental to
certain operators or certain products in the industry. The relative
impact on the Group will depend on the areas affected by the
changes, the mix of business within the Group's portfolio and other
relevant circumstances at the time of the change.
Further, there is currently uncertainty in the UK around the
long-term approach to taxation. Should there be a change in
government, or a weakening of the existing government's position,
this may create uncertain economic conditions and create further
uncertainty over the UK's negotiating position with the EU in
relation to Brexit, all of which could have a material adverse
effect on economic conditions within the UK including the UK
property market and could, among other things, lead to an increase
in UK tax rates, which could in turn have a material adverse effect
on the Group's business, results of operations, financial condition
and prospects.
2. RISKS RELATING TO THE PLACING AND THE PLACING SHARES
Certain members of the Group may be restricted by regulatory and
other requirements in their ability to pay dividends
Any decision to declare and pay dividends will be made at the
discretion of the Board and will depend on, among other things,
applicable regulatory, insurance, foreign exchange and tax laws,
rules and regulations that limit the payment of dividends and/or
require approval for their payment; the Company's and the Group's
financial position and the availability of cash and distributable
reserves within the Group; there being sufficient excess above
regulatory capital requirements; Board approved capital management
policies and buffers agreed with the PRA; working capital
requirements; asset and cash liquidity within the Group; gearing
levels within the Group; the covenants within the Group's finance
and senior debt arrangements; the potential impact on the
maintenance of the Group's investment grade rating; finance costs;
general economic conditions and other factors the Directors deem
significant from time to time.
In certain circumstances, if there is an increase in the
regulatory capital requirements of any member of the Group in
excess of amounts currently held, or significant threats to
policyholder protection were identified, the PRA could intervene in
the interests of policyholder security, for example, by imposing
restrictions on the fungibility or movement of capital between
members of the Group, including the payment of dividends by the
Company to Shareholders or the payment of dividends by JRL and
PLACL and other regulated entities within the Group to the Company.
Moreover, the Company may elect to reduce or forgo dividend
payments as a means of maintaining or enhancing its capital
position.
In particular, on 6 September 2018, the Board decided to defer
the 2018 interim dividend due to the uncertainty surrounding the
potential outcomes of the CP. Following the release of the Policy
Statement, the Board has decided to strengthen the Group's capital
base through the proposed Capital Actions and, under these
circumstances, and having considered the views of its largest
shareholders, has considered it prudent not to pay a dividend for
the 2018 financial year.
Accordingly, changes in circumstances, including changes in
applicable regulations, may restrict the ability of the Group to
pay dividends and there can be no assurance that the Group will pay
dividends in the future. It is also possible that the dividend
policy may change in the future as a consequence of any such
matters.
The value of an investment in the Placing Shares may go down as
well as up and any fluctuations may be material and may not reflect
the underlying asset value
Publicly traded securities from time to time experience
significant price and volume fluctuations that may be unrelated to
the operating performance of the companies that have issued them.
In addition, the market price of the Placing Shares may prove to be
highly volatile. The market price of the Placing Shares may
fluctuate significantly in response to a number of factors, many of
which are beyond the Group's control, including:
(a) any of the matters described in earlier risk factors
occurring;
(b) changes in financial estimates by securities analysts;
(c) changes in market valuation of similar companies;
(d) announcements by the Group of significant contracts,
acquisitions, strategic alliances, joint ventures or capital
commitments;
(e) additions or departures of key personnel;
(f) any shortfall in revenues or net income or any increase in
losses or decrease in profits from levels expected by securities
analysts;
(g) future issues or sales of ordinary shares; and
(h) stock market price and volume fluctuations.
Any of these events could result in a material decline in the
price of the Placing Shares.
The market price for the Placing Shares may decline below the
Placing Price
There is no assurance that the public trading market price of
the Placing Shares will not decline below the Placing Price. Should
that occur, shareholders who sell their ordinary shares will suffer
an immediate loss as a result. Moreover, there can be no assurance
that, following an investor's acquisition of ordinary shares, such
investors will be able to sell their ordinary shares at a price
equal to or greater than the acquisition price for those ordinary
shares.
Any future issue of ordinary shares will further dilute the
holdings of shareholders and could adversely affect the market
price of the Placing Shares
The restricted tier 1 contingent convertible notes (the "Notes")
to be issued pursuant to the underwritten benchmark debt offering
(the "Debt Offering") will be converted into ordinary shares upon
the occurrence of certain trigger events (each a "Trigger
Event").
The Notes are not convertible at the option of noteholders, and
will only be converted into ordinary shares on the occurrence of a
Trigger Event. A Trigger Event shall occur if the Company
determines that it has ceased to comply with its capital
requirements under Solvency II in a significant way. In particular,
a Trigger Event shall occur if the amount of own fund items is
equal to or less than 75% of the Solvency Capital Requirement or is
equal to or less than the Minimum Capital Requirement, or if there
has been a breach of the Solvency Capital Requirement for a
continuous period of three months or more.
Subject to the foregoing, the Company has no current plans for
an offering or other issue of ordinary shares other than in
connection with the Group Share Plans (but subject to the dilution
limits in those plans).
However, it is possible that the Company may decide to offer
additional ordinary shares in the future either to raise capital or
for other purposes. If shareholders do not take up such offer of
Placing Shares or are not eligible to participate in such offering,
their proportionate ownership and voting interests in the Company
will be reduced and the percentage that their ordinary shares would
represent of the total issued share capital of the Company would be
reduced accordingly. An additional offering, or significant sales
of shares by major shareholders, could have a material adverse
effect on the market price of the Placing Shares as a whole.
Admission of the Placing Shares may not occur when expected
Application for Admission of the Placing Shares is subject to
the approval (subject to satisfaction of any conditions which such
approval is expressed) of the London Stock Exchange. Admission will
only become effective once a dealing notice has been issued by the
London Stock Exchange has acknowledged that the Placing Shares will
be admitted to trading. There can be no guarantee that the
conditions for Admission will be met or that the London Stock
Exchange will issue a dealing notice.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IOESFESMLFUSEID
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March 14, 2019 03:01 ET (07:01 GMT)
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