ST. JAMES'S PLACE GROUP

SOLVENCY AND FINANCIAL CONDITION REPORT 2020

Table of contents

Introduction ������������������������������������������������������������������������1 Summary ����������������������������������������������������������������������������2 Statement of Directors' Responsibilities ������������������ 4 Auditors' Report and Opinion ��������������������������������������� 5 A) Business and Performance ������������������������������������� 8

A.1 Business ���������������������������������������������������������������� 8

A.2 Underwriting performance ������������������������������ 9

A.3 Investment performance ���������������������������������� 9

A.4 Performance of other activities ���������������������� 9 B) System of Governance ������������������������������������������ 10

B.1 General information on

the system of governance �����������������������������

10

B.2 Fit and proper requirements ����������������������������� 11

B.3 Risk management system

including the ORSA ������������������������������������������ 11

B.4 Internal control system ���������������������������������� 12

B.5 Internal audit function ������������������������������������ 13

B.6 Actuarial function ��������������������������������������������� 13

B.7 Outsourcing ������������������������������������������������������� 13 C) Risk Profile ���������������������������������������������������������������� 15 C.1 Underwriting risk ���������������������������������������������� 16 C.2 Market risk ��������������������������������������������������������� 17 C.3 Credit risk ����������������������������������������������������������� 18 C.4 Liquidity risk ������������������������������������������������������� 18 C.5 Operational risk ������������������������������������������������ 18 C.6 Other material risks ����������������������������������������� 18 C.7 Any other information ������������������������������������� 18

D) Valuation for Solvency Purposes ����������������������� 19 D.1 Assets ������������������������������������������������������������������ 19 D.2 Technical provisions ���������������������������������������� 21 D.3 Other liabilities �������������������������������������������������� 25 D.4 Alternative methods of valuation ���������������� 26 D.5 Any other information ������������������������������������� 26

E) Capital Management ��������������������������������������������� 27 E.1 Own Funds ��������������������������������������������������������� 27

E.2 Solvency Capital Requirement

& Minimum Capital Requirement ���������������

28

E.3 Use of duration based equity risk sub-module in

the calculation of SCR ������������������������������������ 29

E.4 Difference between Standard Formula and

any internal model used ��������������������������������� 29

E.5 Non-compliance with the MCR and Non-Compliance

with the SCR ������������������������������������������������������ 29

Appendix: Quantitative

Reporting Templates ��������������������������������������������������� 30 Glossary of Terms �������������������������������������������������������� 57

S T. J A M E S ' S P L A C E P L C

1

Introduction

This Solvency and Financial Condition Report (SFCR) has been prepared in line with the requirements of the Solvency II (SII) Regulations, to assist clients of the St. James's Place Group (the 'Group) and other stakeholders in understanding the nature of our business, how it is managed, and its solvency position.

This is a single SFCR that incorporates consolidated information at the level of the Group, and solo information for the subsidiary insurance undertakings located within the UK and European Union: St. James's Place UK plc (SJPUK) and St. James's Place International plc (SJPI). This report is prepared in compliance with rule modification 5272800 granted by the PRA with effect from

1 January 2020.

Following the UK's exit from the EU and the end of the subsequent Transitional Period at 11pm on 31 December 2020, the PRA has adopted the SII requirements with only limited changes. Throughout this document, any references to the SII Directive and associated Delegated Regulation should be interpreted as referring to:

  • the UK enactment of the legislation (unless otherwise indicated) for the Group and for SJPUK
  • the EU enactment of the legislation for SJPI

Relevant information about the business of our Group is provided in the Group's Annual Report and Accounts for the year ended

31 December 2020 (the Report and Accounts), a copy of which can be found at www.sjp.co.uk/shareholders/reports-presentation-and-webcasts/2021. Where appropriate we will refer readers to that document.

There are, however, certain specific SFCR requirements which are not already reported publicly elsewhere, and those are specifically included in this report. In particular this report includes full reporting of the SII valuation undertaken at 31 December 2020, and the associated capital position for our Group. Those results are also presented in quantitative reporting templates (QRTs), and the Group's and its solo insurance undertakings' submissions can

be found in the Appendix to this report.

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2

Summary

St. James's Place plc is an award-winning wealth management company. Clients of St. James's Place have access to a range of financial solutions, including the provision of funds and expert advice regarding building investment portfolios, retirement planning, managing intergenerational wealth and ensuring financial protection. Advice is provided by the St. James's Place Partnership, a 4,338-strong force of self-employed advisers, with whom we enjoy a close relationship.

We aim to be the most trusted brand in UK wealth management, and focus on doing 'the right thing' for our clients.

The Group provides insurance-based investment and pension products, mainly to UK clients, through two key subsidiary companies - St. James's Place UK plc (SJPUK), which is based in the UK and St. James's Place International plc (SJPI) which is based in Dublin. The Group also provides insurance-based investment products to a small but growing number of clients, mainly expatriates, in Asia through a branch of SJPI based in Singapore and a subsidiary of SJPUK based in Hong Kong.

The Group also provides unit trusts and discretionary fund management.

Our business

Our financial business model remains straightforward and unchanged. We attract and then retain funds under management on which we will receive an annual management fee. We use this income to meet our overheads and to invest for the future.

The emergence of COVID-19 early in 2020, leading to the World Health Organisation's declaration of a pandemic on 11 March 2020 has had far-reaching consequences for the Group, the local and worldwide economy and the environment in which the Group operates. Ongoing uncertainty around the UK's future trading relationship with the EU has created further market volatility.

The COVID-19 pandemic is a major external risk event which has led, directly and indirectly, to a range of operational challenges for the Company, not least of which being the rapid transition to effective home-working for the overwhelming majority of SJP's employees (and those of our outsourced providers).

The unit-linked business model means that the financial positions of SJPUK and SJPI have remained resilient throughout the year. The uncertainty caused by the pandemic throughout most of the year impacted on the pace of discretionary investment flows as some clients took a more cautious approach to investing new funds, leading to a reduction in gross inflows of 7% compared to 2019. However, as we have seen historically in periods of significant market turmoil, client retention has remained strong with our advisers working hard to provide reassurance and sound counsel in an uncertain environment.

Insurance Funds Under Management (FUM) in the Group and individual entities grew over the year as follows:

SJP Group

SJPUK1

SJPI

£bn

2020

2019

2020

2019

2020

2019

Opening FUM

84.06

68.34

75.78

61.34

8.28

7.00

Gross inflows

10.16

10.94

9.46

10.22

0.70

0.72

Outflows

(4.09)

(4.17)

(3.72)

(3.76)

(0.37)

(0.41)

Investment return

3.38

8.95

3.0

7.98

0.38

0.97

Closing FUM

93.51

84.06

84.52

75.78

8.99

8.28

1 Figures for SJPUK include closing funds under management of £0.18 billion (2019: £0.12 billion) in a subsidiary life insurance company based in Hong Kong.

Most of the Group's insurance business is investment-related. However, both SJPUK and SJPI have small legacy books of protection business, which are substantially reinsured with highly-rated UK and EU-based reinsurance companies.

The Group has an additional £35.81 billion (2019: £32.93 billion) of FUM within its unit trust and discretionary fund management companies.

SJPI is continuing to write new business in the UK during the Temporary Transition Period following Brexit. Whilst the UK signed a Deal, Trade and Cooperation Agreement with the EU at the end of 2020, this did not include detailed arrangements for the financial services sector; more detail on these is expected in a Memorandum of Understanding later in 2021. The Group will continue to assess the impact of changes in the regulatory environment on its business, and develop its plans accordingly.

More information about our business can be found in Section A of this report.

Risk management

The Group Board and the Boards of the insurance entities have responsibility for assessing the main risks affecting the business, and these are monitored on a regular basis.

Over the past year, the emergence and impact of COVID-19 has been a major external risk event. No event of this nature can be precisely forecast and planned for. However, through our approach to the fundamentals of risk management the Group has been able to demonstrate resilience, from a financial and operational perspective, against COVID-19. We remain highly confident in our ability to withstand further challenges that may or may not emerge. In addition to the uncertainties surrounding COVID-19, the short and longer-term consequences of Brexit may impact upon investor sentiment and the wider external environment in which SJP operates.

Although these risks remain outside of our control, we remain focussed on understanding the degree to which the various outcomes might impact the business to allow us to consider how they might be mitigated. Stress and scenario testing has been performed which demonstrates that the businesses remains resilient, and we continually monitor the changing environment to ensure our analysis and scenario testing remains appropriate.

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Summary continued

Risk management continued

The key risks that could impact on the profitability of the Group's insurance businesses are:

  • Market Risk: A reduction in funds under management owing to market shocks, poor market performance or currency and exchange rate movements would reduce future annual management charges, and hence future profits.
  • Lapse Risk: Similarly, a reduction in funds under management owing to higher withdrawal rates would reduce future annual management charges. This may arise from factors such as changes in the economic climate, poor investment performance, competitor activity, or reputational damage to the Group.
  • Expense risk: Higher expenses would reduce future profits.
  • Operational risk: Losses from operational risk events, such as a product failure, failure of a Third-Party Administrator or a significant cyber attack could result in one-off operational losses reducing future profits, as well as wider reputational damage which could impact on client retention.

Although these risks may impact on the future profitability of the Group, they do not have a significant impact on our ability to meet contractual payments to clients. Our investment business is managed on a 'unit-linked' basis, where we hold assets which match our clients' investments, ensuring that we are always able to meet clients' withdrawal requests in line with their product's Terms and Conditions.

The low risk nature of our business also means that our Solvency Ratio remains resilient to changes in the business.

More information about the risks that the business faces, and how we manage them, can be found in Section C of this report.

Our solvency position and capital management

We continue to manage our balance sheet prudently to ensure the Group's solvency, and that of its subsidiary entities, is maintained safely through the business cycle. We hold assets which match our clients' unit liabilities, and the remaining assets in the insurance companies are invested in high quality, liquid assets - typically AAA rated money market funds.

Each subsidiary company holds capital which is sufficient to cover any regulatory requirements together with an additional margin which can absorb adverse future changes.

The Group's solvency position assessed on the UK and EU regulatory basis, known as 'Solvency II', is shown in the following table:

SJP Group

SJPUK

SJPI

Solvency (£'Million)

2020

2019

2020

2019

2020

2019

Solvency II Own Funds (A)1

4,617

4,147

3,825

3,428

219

200

Solvency Capital Requirement (B)

3,507

3,148

3,257

2,926

156

139

Solvency II Free Assets (A - B)

1,110

999

568

502

63

61

Solvency ratio (A/B)

132%

132%

117%

117%

141%

144%

Foreseeable dividend (C)

267

167

220

200

-

-

Post-dividend solvency ratio (A-C)/B

124%

126%

111%

110%

141%

144%

1

Before payment of final dividends, as presented in Group Report and Accounts.

2

Figures at 31/12/2019 reflect the planned shareholder dividend of £167m. £60m of this dividend was subsequently retained in the light of the emerging pandemic.

The COVID-19 pandemic led to significant volatility in risk-free interest rates, upon which the Solvency II valuation is based, with 10-year spot rates falling by over 60 basis points during the year to just 0.3% at the end of 2020. The unit-linked nature of the Group's business limits its exposure to such movements, however more frequent updates on the financial position of SJPUK and SJPI have been provided to the relevant Board(s) and to the Group's regulators to provide additional reassurance through the pandemic.

The Group and its insurance subsidiaries remain resilient and have maintained Solvency II Own Funds in excess of their Solvency II Capital Requirement throughout the year.

The Group's business model is focussed on wealth management, and so the overwhelming majority of its insurance business is unit-linked investment and pensions business. The Group has fully reassured, with external reassurers, the legacy protection business in SJPUK, and the level of reassurance in SJPI exceeds 80%. This limits the Group's exposure to the potential for higher levels of claims arising from COVID-19.

More information about our approach to the solvency valuation and capital management can be found in Sections D and E of this report.

Our systems of governance

The Group Board is collectively responsible for the long-term success of our business, and a number of key governance, strategy, planning and risk management processes operate at a Group level. However, key matters must also be considered directly by the relevant entity Board(s).

The UK-regulated entities within the Group (including SJPUK) are subject to the Senior Manager & Certification Regime (SM&CR). There have been no material changes in the system of governance during the year.

More information about our system of governance, can be found in Section B of this report.

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St James's Place Group plc published this content on 08 April 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 08 April 2021 12:57:05 UTC.