Just Retirement set for return to market

Permira is aiming to return Just Retirement to the stock market at a valuation six times higher than it paid for the pension provider in 2009 – netting as much as £350m in cash.

People familiar with the private equity group said it was planning to sell between 15 and 30 per cent of its 84 per cent stake in the specialist annuity company, in a London listing that would value Just Retirement’s equity at as much as £1.4bn.

The company – which sells pension annuities that pay a larger income to people with below-average life expectancies – is also planning to raise £300m worth of fresh equity.

A successful listing would result in a chunky return for Permira, which took Just Retirement private four years ago for about £230m – little more than half the company’s original 2006 listing price.

Shares in Just Retirement were hit hard during the financial crisis as investors worried about a possible default in its bond portfolio. However, the company’s managers stressed that it had since bounced back.

“We are a very different company, I would suggest, now,” said Simon Thomas, finance director. “We were [originally] listed on Aim, which is obviously a far smaller market – and the free float was tiny.”

About two-fifths of the equity is likely to be publicly traded when Just Retirement returns to the stock market – this time on the main, not the junior, market of the London Stock Exchange.

But to secure a bumper valuation, investors have suggested that Permira will need to overcome big questions about a sector that has already expanded rapidly in recent years.

Some are especially anxious given the mixed performance of Partnership – Just Retirement’s largest rival – which completed a £1.54bn flotation in June.

Shares in Partnership dropped 7 per cent on a single day last month after regulators found evidence suggesting that it may have breached a new ban on commission payments to financial advisers. Partnership has said it would co-operate fully with the investigation.

Regulators have found no such problems at Just Retirement, but the disruption caused by this year’s rule-changes for UK financial advisers did dent its sales in the first half of 2013.

Moreover, in an “intention to float” document filed on Thursday, the company acknowledged it expected only “single-digit” expansion of the individually underwritten annuities market until the middle of next year.

But it expects the growth to subsequently pick up – not least because regulators and government officials are trying to encourage consumers to shop around for the best annuity deal.

“People are understanding that, if they answer a few simple medical questions, they can get a better deal in retirement from companies such as ourselves,” said Rodney Cook, chief executive.

Just Retirement focuses on selling annuities to individuals who are expected to die early either because of their lifestyles – smokers, for example – or because they have suffered from medical problems, such as a recent heart attack.

Its rival Partnership has a bigger presence in the market for “impaired” annuities, which are sold to pensioners who have chronic or terminal conditions.

Some analysts say Just Retirement’s end of the market could be more vulnerable to competition from mainstream annuity providers such as Legal & General and Scottish Widows.

However, Just Retirement brushes aside the threat. “Other players are nine years behind us,” claimed Mr Cook. “They’re going to have to run fairly fast to catch up.”

James Fraser, a partner at Permira, highlights that the company has an “unrivalled” intellectual property database.

Just Retirement, founded in 2004 by the team that ran Britannic Assurance’s annuities arm, also sells equity release schemes, which allow borrowers to receive lump sums secured against the value of their property.

Like Partnership, Just Retirement transfers about two-thirds of risks to reinsurers – in the latter’s case, Hannover Re and Reinsurance Group of America.

While such arrangements increase costs, they reduce the amount of capital that annuity providers have to hold – and should make their profits less volatile.

Just Retirement plans to use its listing proceeds – about £280m, after fees – to strengthen its capital position and enable expansion, according to people close to the group.

The company’s advisers, led by Deutsche Bank and Nomura and which also include Fenchurch Advisory Partners, expect more than half the shares to be bought by UK institutions.

But the stock is unlikely to appeal to income-seekers. Just Retirement would have paid dividends worth only £15m in the past year.

“This is not an income play,” said Mr Thomas. “This is a growth company.”

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.