TIDM41BM TIDM60KE
RNS Number : 9500X
Royal London
16 August 2018
2018 INTERIM RESULTS ANNOUNCEMENT
16 August 2018
ROYAL LONDON MAINTAINS STRONG TRADING RESULTS.
CEO URGES GOVERNMENT TO 'PUT CONSUMER FIRST' BY SAVING THE
PENSIONS DASHBOARD.
Commenting on the results, Royal London CEO Phil Loney said:
"Sluggish economic growth and the ending of the auto enrolment
roll out provided a challenging backdrop for pensions and
investment companies in the first half of 2018. I'm pleased to
report that Royal London has consolidated its record 2017 trading
position with EEV pre-tax profit up 9% to GBP358m, reflecting an
operating profit of GBP187m in the first six months of the
year."
Phil Loney also urged the Government to save the proposed
'pensions dashboard' project:
"The UK pensions system is highly fragmented and auto enrolment
will add further to the number of people with pensions scattered
across multiple schemes and providers. In many other countries
citizens can see all of their pensions - state, workplace and
private - all in one place, and there is no reason why UK citizens
should not be able to do so. The industry has already shown its
commitment by spending time and money preparing a prototype
dashboard. We need Government to take a lead, both in ensuring that
state and public sector pension data is available and also in
requiring all pension schemes and providers to supply data. Only
the Government can do this. It is time to put the consumer first
and press ahead with the dashboard project, and we stand ready to
work with the Government to drive this project forward."
Key numbers
30-Jun-18 30-Jun-17 Change(2)
EEV Life and pensions sales GBP6,077m GBP6,078m (GBP1m)
PVNBP(1)
------------------------------- ---------- ---------- -----------
New business margin 1.8% 1.8% -
-------------------------------------------- ---------- ---------- -----------
EEV operating profit before GBP187m GBP185m GBP2m
tax
------------------------------- ---------- ---------- -----------
EEV profit before tax GBP358m GBP327m GBP31m
------------------------------- ---------- ---------- -----------
Flows Gross inflows(3) GBP9,589m GBP9,095m GBP494m
------------------------------- ---------- ---------- -----------
Net flows(3) GBP4,177m GBP3,657m GBP520m
------------------------------- ---------- ---------- -----------
IFRS IFRS transfer to the UDS GBP196m GBP192m GBP4m
before other comprehensive
income
------------------------------- ---------- ---------- -----------
30-Jun-18 31-Dec-17 Change(2)
---------- ---------- -----------
Funds Funds under management(4) GBP117bn GBP114bn GBP3bn
------------------------------- ---------- ---------- -----------
Capital Solvency surplus (Investor GBP5.4bn GBP5.5bn (GBP0.1bn)
(Solvency View)(5)
II)
------------------------------- ---------- ---------- -----------
Capital cover ratio (Investor
View)(5) 225% 235% (10pp)
-------------------------------------------- ---------- ---------- -----------
Trading, financial and capital highlights
Royal London announces increased half year EEV operating profits
of GBP187m (+1%) and EEV pre-tax profit of GBP358m (+9%).
-- Consistent EEV operating profit achieved in difficult trading conditions;
-- Increases in Personal Pension and Life Assurance new business
sales(1) largely offset reduced Group Pension sales resulting from
the end of the auto enrolment roll out;
-- Increased net flows across the Group;
-- Our capital position remains strong with a Solvency II
Investor View(5) solvency surplus of GBP5.4bn and a capital cover
ratio of 225%; and
-- The business is well placed to deliver its future financial goals.
Our businesses
Intermediary
-- Overall Pensions new business sales(1) remained strong at
GBP5,399m (HY 2017: GBP5,465m), achieved against a challenging
market background. The strong performance demonstrates our ability
to provide compelling propositions to support customers continuing
to accumulate pension savings, and also simultaneously provide
solutions for those closer to retirement with ambitions to prepare
effectively for the next phase of their life.
-- We welcomed over 86,000 new entrants to our Group Pension
schemes and have an attractive offering for new savers and those
wishing to make incremental contributions alike. Our drawdown
offering maintains one of the leading market positions and the
performance of our governed investment portfolios has made our
pension products popular with customers and advisers in the pension
transfer market. We continue to focus on offering value for money
products underpinned by a great service and our unique profit
sharing approach which helps to boost investment returns for our
pension members.
-- Individual Pensions and Drawdown new business sales(1) were
up by 23% to GBP3,577m (HY 2017: GBP2,916m) as greater numbers of
customers and advisers selected Royal London as the pension
provider of choice.
-- The ability to remain competitive across all these market
sectors is down to our underlying business agility and foresight to
position our propositions appropriately in the market place. As an
example, we have recently launched our scheme health check tool
which shows employers how their scheme is performing against their
expectations and will assist advisers in attracting new business
and offering an ongoing service to existing clients.
-- Intermediary UK Protection new business sales(1) increased by
14% to GBP383m (HY 2017: GBP337m) fuelled by increased adviser
confidence in our propositions as a result of improved new business
processes, strong and effective underwriting and a commitment to
innovation. Despite strong competition, we have increased market
share(6) to 11.2% at Q1 2018 (31 December 2017: 11.1%) through our
continued focus on adviser relationships and customer service. We
continue to work on solutions that make our products more flexible
and attractive to a wider range of customers. In January 2018 we
introduced Enhanced Children's Critical Illness cover and in June
2018 we launched our new Diabetes Life Cover product, following the
success of the pilot launched in April 2017. Diabetes Life Cover is
most suitable for people with Type 1 and less well controlled Type
2 diabetes who find it more difficult to access protection.
-- Our Irish Protection business continues to grow; new business
sales(1) increased by 4% to GBP48m (HY 2017: GBP46m) driven by our
continued service transformation and regular proposition
enhancements. Broker market share(7) increased to 17.3% at Q2 2018,
up from 16.9% at 31 December 2017. Our new mortgage protection
offering, launched in late 2017, has been positively received and
we were the first provider in Ireland to offer funeral prepayments
to policyholders impacted by delays in the Irish probate
system.
Consumer
-- Consumer new business sales(1) were up by 8% to GBP248m (HY
2017: GBP229m). This was as a result of continued organic growth in
our core Royal London branded Over 50s product line. In addition,
we have seen an increase in sales through our partnership with Post
Office Money Services following expansion of our Over 50s marketing
activity with a successful TV campaign in the first quarter of the
year, as well as the launch of a new simplified Life Insurance
proposition, Easy Life, which streamlines the customer sales
process. In January we launched our new partnership with CYBG Plc,
owner of Clydesdale Bank and Yorkshire Bank, who now offer our Over
50s life cover to their customers.
-- We enhanced our Consumer protection portfolio with the launch
of an innovative Serious Illness rider on our Term proposition,
with the response from consumers exceeding our expectations. We
also expanded our later life offering and in April 2018 introduced
a Royal London Funeral Plan which has also secured a five star
rating from Fairer Finance.
Royal London Asset Management (RLAM)
-- RLAM has continued to perform well in 2018 attracting
external net inflows of GBP2.2bn (HY 2017: GBP2.1bn) from
Institutional and Wholesale markets, with Wholesale net flows
increasing 33% to GBP1.2bn (HY 2017: GBP0.9bn). RLAM achieved some
large investment mandate wins during the first half of 2018, gross
and net flows for our wholesale business continued to be strong, as
we broadened our coverage of wealth managers and financial
advisers.
-- Funds under management(4) increased to GBP117bn (31 December
2017: GBP114bn) driven by strong net flows.
Royal London Platform Services (RLPS)
-- RLPS supports a range of platform offerings including
Ascentric, Succession Investment Platform and wrap offerings for
Royal London Group companies. RLPS Gross inflows remained stable at
GBP1.4bn (HY 2017: GBP1.4bn), as did net flows at GBP612m (HY 2017:
GBP612m). Assets under administration(8) increased by 5% to
GBP15.1bn (31 December 2017: GBP14.4bn). In the first half of 2018
RLPS migrated the first phase of Ascentric advisers to its new
platform solution, Sonata.
Review of financial performance
EEV operating profit
Royal London has performed well in difficult markets, increasing
EEV operating profit before tax by 1% to GBP187m (HY 2017: GBP185m)
and consolidating the record performance achieved in 2017. The
prior year comparative included a one-off GBP30m benefit arising
from the restructuring of a reinsurance agreement. Excluding this
item from the comparative, the operating profit growth would be
21%, reflecting the strong operating performance of the business
and lower strategic development costs.
Profit contribution from new business reduced by 5% to GBP142m
in the six months to 30 June 2018 (HY 2017: GBP149m) as increased
sales from Personal Pension and Insurance products largely offset
the inevitable reduction in new Group Pension sales following the
culmination of the auto enrolment roll out.
The overall new business margin remained in line with the prior
period at 1.8% (HY 2017: 1.8%). The new business margin on Pensions
business remained robust at 2.2% (HY 2017: 2.3%) despite the large
level of change experienced within the pensions market. The
Protection margin increased to 5.8% (HY 2017: 4.4%), with one of
the attributable factors being an increase in new business volumes
with a focus on maintaining a stable cost base. The margin for the
Consumer business was (1.8)%, a reduction from the previous period
(HY 2017: 0.4%). The reduction has been driven by very low interest
rates and changes to assumed investment returns. We are actively
redesigning our products where necessary in response to current
trading headwinds. Our Consumer business was launched four years
ago and is making good progress towards achieving the critical
scale needed for profitable trading.
Profits from managing existing business of GBP78m (including
expected return on opening net worth) have reduced by 4% from
GBP81m. This mainly consists of a higher expected return of GBP61m
(HY 2017: GBP52m) driven by a higher value of in-force business, as
a result of strong fund performance and prior year new business
sales. In addition, positive experience variances of GBP8m (HY
2017: GBP16m) arose due to a higher rate of retention of business
within RLAM.
Strategic development costs and other items reduced to GBP33m
(HY 2017: GBP41m) with the prior year comparative including a
GBP30m benefit arising from the restructuring of a reinsurance
agreement. Excluding this item from the comparative, strategic
development costs and other items reduced by GBP38m. Current year
costs primarily relate to expenses incurred in the development of
various new IT systems across the Group which we believe will
enable us to deliver a market leading digital proposition and
deliver better outcomes and experiences for customers.
IFRS transfer to unallocated divisible surplus
The IFRS transfer to the unallocated divisible surplus for the
six months ended 30 June 2018, before other comprehensive income,
was GBP196m (HY 2017: GBP192m). Consistent with EEV, our IFRS
result benefits from the strong trading performance of the Group.
Investment returns have reduced to GBP500m (HY 2017: GBP2,159m)
through lower unrealised fair value gains, as a result of lower
equity market returns.
The credit of GBP10m (HY 2017: charge of GBP91m) within premiums
ceded to reinsurers arose through the downward revaluation of a
reinsurance agreement of GBP160m (HY 2017: GBP56m), with a
corresponding charge included within investment returns.
Other comprehensive income included the positive movement in the
surplus in the Group's pension schemes of GBP45m (HY 2017: GBP32m),
with the RLGPS surplus increasing by GBP38m. Including other
comprehensive income, the total transfer to the unallocated
divisible surplus for the six months to 30 June 2018 was GBP241m
(HY 2017: transfer to the unallocated divisible surplus of
GBP224m).
IFRS balance sheet
Our balance sheet remains robust. Our total investment
portfolio, including investment property, was GBP89.4bn at 31
December 2017 and increased by 1.5% to GBP90.7bn at 30 June 2018.
Our financial investment portfolio continues to be well balanced
across a number of financial instruments, with the majority in
equities, debt and fixed income securities.
The accounting policies applied are consistent with those set
out in the Group's Annual Report and Accounts for the year ended 31
December 2017, with the exception of the adoption of IFRS 15,
'Revenue from contracts with customers', which is applicable for
the first time in 2018. Further detail is set out in Appendix
2.
Net flows(3)
Net flows of GBP4,177m (HY 2017: GBP3,657m) comprise internal
net flows of GBP1,952m (HY 2017: GBP1,523m) and external net
inflows of GBP2,225m (HY 2017: GBP2,134m). Higher internal net
flows have been driven by increased Individual Pension product
sales and a greater retention of our closed book products. External
net inflows have been driven by a number of large investment
mandate wins in RLAM.
Investment performance
Global equity markets have experienced an increased level of
volatility in 2018, driven by continued political and economic
uncertainty as well as talk of trade wars. Despite this
uncertainty, the investments backing the asset shares of the Open
Fund achieved a return of 1.20% in the six months to 30 June 2018
(HY 2017: 3.30%). This is against a benchmark of 1.23% (HY 2017:
2.84%), which is constructed from market indices weighted to
reflect the asset mix of each sub fund.
Capital
Our capital position remains strong with additional detail set
out in section 3.
For further information please contact:
Mona Patel 0203 272 5133
Mona.patel@royallondon.com 07919 171964
Editor's notes:
Royal London is the largest mutual life, pensions and investment
company in the UK, with funds under management of GBP117 billion,
8.8 million policies in-force and 3,745 employees. Figures quoted
are as at 30 June 2018.
1) Present value of new business premiums (PVNBP) is the total
of new single premium sales received in the year plus the
discounted value, at the point of sale, of the regular premiums the
Group expects to receive over the term of the new contracts sold in
the year. The rate used to discount the cash flows in the reported
results has been derived from the swap curve.
2) Change is increase or decrease compared to 30 June 2017 or 31
December 2017.
3) Gross and net flows incorporate The Royal London Mutual
Insurance Society (RLMIS) and Royal London Asset Management (RLAM).
Net flows from RLMIS represent the combined premiums and deposits
received (net of reinsurance) less claims and redemptions (net of
reinsurance). Given its nature, Protection business is not
included. RLAM net flows represent external inflows less external
outflows, including cash mandates but excluding Chanel Islands cash
mandates.
4) Funds under management represent the total of assets managed
or administered by the Group on behalf of Institutional and
Wholesale clients, and on behalf of the Group. It excludes assets
administered through RLPS our platform business.
5) We have presented a Total Company ('Investor View'), which
comprises the Royal London Open Fund, into which all new business
is written, and seven closed ring-fenced funds from previous
acquisition activity. The Investor View includes the surplus from
the closed funds. Total Company ('Regulatory View') includes a
restriction of GBP3.0bn (31 December 2017: GBP3.1bn) as a deduction
from total Own Funds of GBP9.7bn (31 December 2017: GBP9.6bn),
because excess capital in the closed funds is ultimately for the
benefit of those closed fund policyholders. Therefore closed funds
report a zero surplus, with Total Company surplus equal to the Open
Fund surplus. After the GBP3.0bn restriction, the Total Company
('Regulatory View') reported a capital cover ratio of 156% at 30
June 2018 (31 December 2017: 159%).
6) Market share based on Q1 2018 Royal London and Association of
British Insurers figures.
7) Market share based on Q2 2018, Royal London Ireland analysis
of Milliman Temperature Gauge results.
8) Assets under administration represent the total assets
administered on behalf of individual customers and Institutional
clients through our platform business. It includes those assets for
which the Group provides investment management services, as well as
those that the Group administers when the customer has selected an
external third-party investment manager.
9) Financial calendar:
-- 13 November 2018 - RL Finance Bonds No 3 plc subordinated debt interest payment date
-- 30 November 2018 - RL Finance Bonds No 2 plc subordinated debt interest payment date
Royal London will hold an investor conference call to present
its 2018 interim financial results on Thursday 16 August 2018 at
09:00. Interested parties can register at:
https://cossprereg.btci.com/prereg/key.process?key=PH8K43FP8
10) Forward-looking statements:
This document may contain forward-looking statements with
respect to certain of Royal London's plans, its current goals and
expectations relating to its future financial position. By their
nature, forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances which are
beyond Royal London's control. These include, among others, UK
economic and business conditions, market-related risks such as
fluctuations in interest rates, the policies and actions of
governmental and regulatory authorities, the impact of competition,
the timing, impact and other uncertainties of future mergers or
combinations within relevant industries.
As a result, Royal London's actual future financial condition,
performance and results may differ materially from the plans, goals
and expectations set forth in Royal London's forward-looking
statements. Royal London undertakes no obligation to update the
forward-looking statements.
CONTENTS
Page
1 New business review 9
2 Interim Financial Statements
10
* Consolidated income statement - EEV basis for the six 11
months ended 30 June 2018
* Consolidated balance sheet - EEV basis as at 30 June
2018
* IFRS consolidated statement of comprehensive income
for the six months ended 30 June 2018
12
* IFRS consolidated balance sheet as at 30 June 2018 14
3 Capital Position
* Solvency II capital position on a Standard Formula 15
basis 17
* Movement analysis of capital position
4 Other matters
* UK decision to leave the EU 18
* Ratings agencies 18
Appendix 1: EEV basis of preparation 19
Appendix 2: IFRS basis of preparation 20
Appendix 3: Reconciliation of the IFRS unallocated divisible
surplus to EEV 21
1. New business review
Intermediary PVNBP New business New business margin(1)
contribution(1)
30 June 30 June 30 June 30 June 30 June 30 June
2018 2017 2018 2017 2018 2017
-------- -------- ----------- ---------- ------------ -----------
GBPm GBPm GBPm GBPm % %
-------- -------- ----------- ---------- ------------ -----------
Pensions 5,399 5,465 119.5 126.5 2.2 2.3
-------- -------- ----------- ---------- ------------ -----------
Protection 431 384 24.9 16.8 5.8 4.4
-------- -------- ----------- ---------- ------------ -----------
Consumer PVNBP New business New business margin(1)
contribution(1)
30 June 30 June 30 June 30 June 30 June 30 June
2018 2017 2018 2017 2018 2017
-------- -------- --------- -------- ------------ -----------
GBPm GBPm GBPm GBPm % %
-------- -------- --------- -------- ------------ -----------
Consumer 248 229 (4.5) 0.9 (1.8) 0.4
-------- -------- --------- -------- ------------ -----------
RLAM PVNBP(2) New business New business margin(1)
contribution(1)
30 June 30 June 30 June 30 June 30 June 30 June
2018 2017 2018 2017 2018 2017
-------- -------- --------- -------- ------------ -----------
GBPm GBPm GBPm GBPm % %
-------- -------- --------- -------- ------------ -----------
RLAM 3,002 3,220 22.3 21.6 0.7 0.7
-------- -------- --------- -------- ------------ -----------
Net flows(3)
30 June 30 June Change
2018 2017
-------- -------- -------
GBPm GBPm %
-------- -------- -------
Internal flows 1,952 1,523 28.2
-------- -------- -------
External flows 2,225 2,134 4.3
-------- -------- -------
Net flows 4,177 3,657 14.2
-------- -------- -------
RLPS net inflows
30 June 30 June Change
2018 2017
-------- -------- ----------
GBPm GBPm %
-------- -------- ----------
Net inflows 612 612 -
-------- -------- ----------
Notes on the new business review
1 The new business contribution in the tables above has been
grossed up for tax at 19% (2017: 19%). We have done this to help
compare our results with the results of shareholder-owned life
insurance companies which typically pay tax at 19% (2017: 19%). The
EEV Consolidated income statement has been grossed up at the
applicable tax rates. The 2017 new business contribution and new
business margin for UK Protection have been updated to reflect
revised cost allocation. Overall new business margin of 1.8% (2017:
1.8%) combines Intermediary, Consumer and RLAM and is based on
exact figures.
2 PVNBP for RLAM relates to gross sales inflows in the period,
excluding external cash mandates which are treated as uncovered
business and not valued on an EEV basis.
3 Net flows incorporate RLMIS ('Internal') and RLAM
('External'). Net flows from RLMIS represent the combined premiums
and deposits received (net of reinsurance) less claims and
redemptions (net of reinsurance). Given its nature, Protection
business is not included. RLAM net flows represent external inflows
less external outflows, including cash mandates but excluding
Chanel Islands cash mandates.
2. Interim Financial Statements
Consolidated income statement - EEV basis for the six months
ended 30 June 2018
6 months 6 months 12 months to
to to 31 December
30 June 2018 30 June 2017 2017
GBPm GBPm GBPm
--------------------------------------- --------------- --------------- -------------
Operating activities
Contribution from new business 142 149 292
Profit from existing business
- Expected return 61 52 104
- Operating experience variances 8 16 37
- Operating assumption changes - - 111
Expected return on opening net
worth 9 13 26
Loss on uncovered business - (4) (33)
Strategic development costs and
other items (33) (41) (208)
--------------------------------------- --------------- --------------- -------------
Total operating profit before
tax 187 185 329
Economic experience variances 41 34 159
Economic assumption changes 115 104 79
Movement in Royal London Group
Pension Scheme 38 27 73
Financing costs (23) (23) (46)
--------------------------------------- --------------- --------------- -------------
EEV profit before tax and ProfitShare 358 327 594
ProfitShare - - (150)
EEV profit before tax 358 327 444
Attributed tax charge (22) (11) (30)
Total EEV profit after tax 336 316 414
--------------------------------------- --------------- --------------- -------------
2. Interim Financial Statements (continued)
Consolidated balance sheet - EEV basis as at 30 June 2018
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
---------------------------------------------- -------- -------- ------------
Assets
Assets held in closed funds 35,322 36,161 37,056
Assets backing non-participating liabilities 43,337 35,676 39,726
Reinsurance assets 5,126 5,789 5,384
Assets backing participating liabilities
and net worth 9,254 9,061 9,090
Value of in-force business 2,622 2,312 2,544
Royal London Group Pension Scheme surplus 85 1 47
Total 95,746 89,000 93,847
---------------------------------------------- -------- -------- ------------
Liabilities
Liabilities in closed funds 35,322 36,161 37,056
Non-participating liabilities 43,337 35,676 39,726
Reinsured liabilities 5,126 5,789 5,384
Participating liabilities 6,449 6,273 6,526
Current liabilities 1,616 1,639 1,595
Total 91,850 85,538 90,287
---------------------------------------------- -------- -------- ------------
Embedded Value
Net worth 1,189 1,149 969
Value of in-force business 2,622 2,312 2,544
Royal London Group Pension Scheme surplus 85 1 47
Total 3,896 3,462 3,560
---------------------------------------------- -------- -------- ------------
2. Interim Financial Statements (continued)
IFRS consolidated statement of comprehensive income for the six
months ended
30 June 2018
6 months 6 months 12 months
to to to
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
----------------------------------------------- --------- --------- -------------
Revenues
Gross earned premiums 607 630 1,239
Premiums ceded to reinsurers 10 (91) (265)
----------------------------------------------- --------- --------- -------------
Net earned premiums 617 539 974
Fee income from investment and fund
management contracts 154 145 297
Investment return 500 2,159 6,031
Other operating income 33 36 64
----------------------------------------------- --------- --------- -------------
Total revenues 1,304 2,879 7,366
----------------------------------------------- --------- --------- -------------
Policyholder benefits and claims
Claims paid, before reinsurance 1,337 1,316 2,665
Reinsurance recoveries (264) (251) (519)
----------------------------------------------- --------- --------- -------------
Claims paid, after reinsurance 1,073 1,065 2,146
(Decrease) in insurance contract liabilities,
before reinsurance (1,327) (555) (114)
Reinsurance ceded 217 185 581
----------------------------------------------- --------- --------- -------------
(Decrease) / increase in insurance contract
liabilities, after reinsurance (1,110) (370) 467
(Increase) in non-participating value
of in-force business (143) (171) (271)
Increase in investment contract liabilities 759 1,455 3,215
----------------------------------------------- --------- --------- -------------
Total policyholder benefits and claims 579 1,979 5,557
----------------------------------------------- --------- --------- -------------
Operating expenses
Administrative expenses 277 277 561
Investment management expenses 156 128 321
Amortisation charges and impairment
losses on acquired PVIF and other intangible
assets 12 38 92
Investment return attributable to external
unit holders 6 138 192
Other operating expenses 61 64 141
----------------------------------------------- --------- --------- -------------
Total operating expenses 512 645 1,307
----------------------------------------------- --------- --------- -------------
Finance costs 23 23 47
----------------------------------------------- --------- --------- -------------
Result before tax and before transfer
to unallocated divisible surplus 190 232 455
----------------------------------------------- --------- --------- -------------
Tax (credit) / charge (6) 40 103
----------------------------------------------- --------- --------- -------------
Transfer to the unallocated divisible
surplus 196 192 352
----------------------------------------------- --------- --------- -------------
Result for the period - - -
----------------------------------------------- --------- --------- -------------
2. Interim Financial Statements (continued)
IFRS consolidated statement of comprehensive income for the six
months ended 30 June 2018 (continued)
6 months 6 months 12 months
to to to
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
------------------------------------------- --------- --------- -------------
Other comprehensive income
------------------------------------------- --------- --------- -------------
Items that will not be reclassified
to profit or loss
------------------------------------------- --------- --------- -------------
Remeasurement of defined benefit pension
schemes 45 32 82
------------------------------------------- --------- --------- -------------
Transfer to the unallocated divisible
surplus 45 32 82
------------------------------------------- --------- --------- -------------
Other comprehensive income for the period - - -
net of tax
------------------------------------------- --------- --------- -------------
Total comprehensive income for the period - - -
------------------------------------------- --------- --------- -------------
As a mutual company, all earnings are retained for the benefit
of participating policyholders and are carried forward within the
unallocated divisible surplus. Accordingly, there is no profit or
loss for the period shown in the statement of total comprehensive
income.
2. Interim Financial Statements (continued)
IFRS consolidated balance sheet as at 30 June 2018
30 June 30 June 31 December
2018 2017 2017
ASSETS GBPm GBPm GBPm
----------------------------------------------------- --------- --------- ------------
Property, plant and equipment 72 67 53
Investment property 6,414 5,413 6,103
Goodwill and other intangible assets 375 358 344
Deferred acquisition costs on investment contracts 322 281 262
Reinsurers' share of insurance contract liabilities 5,109 5,722 5,326
Pension scheme asset 224 137 186
Current tax asset 36 - 5
Financial investments 84,325 77,733 83,328
Trade and other receivables 1,140 1,112 651
Cash and cash equivalents 4,225 3,512 3,061
----------------------------------------------------- --------- --------- ------------
Total assets 102,242 94,335 99,319
----------------------------------------------------- --------- --------- ------------
LIABILITIES
----------------------------------------------------- --------- --------- ------------
Participating insurance contract liabilities 32,065 32,291 33,154
Participating investment contract liabilities 2,128 2,149 2,214
Unallocated divisible surplus 4,050 3,516 3,726
Non-participating value of in-force business (1,632) (1,388) (1,488)
----------------------------------------------------- --------- --------- ------------
36,611 36,568 37,606
Non-participating insurance contract liabilities 7,063 7,723 7,301
Non-participating investment contract liabilities 42,616 34,668 38,847
----------------------------------------------------- --------- --------- ------------
49,679 42,391 46,148
Subordinated liabilities 745 744 745
Payables and other financial liabilities 7,014 7,341 7,225
Provisions 252 272 282
Other liabilities 227 285 271
Liability to external unit holders 7,500 6,498 6,785
Deferred tax liability 214 226 222
Current tax liability - 10 35
Total liabilities 102,242 94,335 99,319
----------------------------------------------------- --------- --------- ------------
3. Capital Position
Solvency II capital position on a Standard Formula basis
Our capital position remains strong, reflecting the strength of
our underlying business and effective capital management
strategies. The Investor View capital cover ratio for Royal London
is 225% including surplus in the closed funds (31 December 2017:
235%(2) ), and Investor View solvency surplus is GBP5.4bn (31
December 2017: GBP5.5bn(2) ). The small decrease in the surplus and
capital cover ratios between 31 December 2017 and 30 June 2018 is
predominantly due to an increase in the Solvency Capital
Requirement (SCR), primarily due to strong new business sales in
2018. The capital cover ratio is more sensitive to changes in SCR
than Own Funds, so where both Own Funds and SCR increase by the
same amounts the capital cover ratio decreases.
We use the Standard Formula approach for the purposes of
measuring regulatory capital under Solvency II. Royal London
received approval for the use of both the Transitional Measure on
Technical Provisions and the Volatility Adjustment. We are
developing an Internal Model that we plan to seek approval to adopt
in 2019. We already use an internal capital model for the purposes
of monitoring our capital and decision making across the Group.
In common with many in the industry, we present two cover
ratios. An 'Investor View' for analysts and investors in our
subordinated debt, which does not restrict the surplus in the
closed funds, and a 'Regulatory View' where the closed funds'
surplus is treated as a liability.
3. Capital Position (continued)
30 June 2018 Royal Royal London Total Company Closed Fund Total Company
London Closed (Investor Restriction (Regulatory
GBPbn Open Fund Funds View) View)
-------------------------- ----------- ------------- -------------- ------------- --------------
Own Funds:
Tier 1 3.6 5.2 8.8 - 8.8
Tier 2 0.9 - 0.9 - 0.9
-------------------------- ----------- ------------- -------------- ------------- --------------
Total Own Funds 4.5 5.2 9.7 - 9.7
Closed funds restriction - - - (3.0) (3.0)
-------------------------- ----------- ------------- -------------- ------------- --------------
Adjusted Own Funds
(A) 4.5 5.2 9.7 (3.0) 6.7
-------------------------- ----------- ------------- -------------- ------------- --------------
Solvency Capital
Requirement (B) 2.1 2.2 4.3 - 4.3
-------------------------- ----------- ------------- -------------- ------------- --------------
Surplus 2.4 3.0 5.4 (3.0) 2.4
Capital cover ratio
(A/B) - 30 June 2018 214% 235% 225% n/a 156%
-------------------------- ----------- ------------- -------------- ------------- --------------
Capital cover ratio(2)
(A/B) - 31 December
2017 226% 243% 235% n/a 159%
-------------------------- ----------- ------------- -------------- ------------- --------------
Notes
1. Figures presented in the table are rounded, and the capital
cover ratio is calculated based on exact figures.
2. The 31 December 2017 Solvency II surplus and capital cover
ratios are as presented in Royal London's 2017 Annual Report and
Accounts. These figures were estimates and final figures were
disclosed in the Solvency Financial Condition Report (SFCR) in May
2018; being a capital cover ratio of 228% and GBP5.4bn surplus
(Investor View), and capital cover ratio of 156% and GBP2.4bn
surplus (Regulatory View) before post balance sheet events.
The Open Fund had an excess surplus of GBP2.4bn at 30 June 2018
(31 December 2017: GBP2.4bn) and a capital cover ratio of 214% at
30 June 2018 (31 December 2017: 226%). The closed funds are also
well capitalised with a surplus of GBP3.0bn at 30 June 2018 (31
December 2017: GBP3.1bn) and a capital cover ratio of 235% (31
December 2017: 243%). The Regulatory View capital cover ratio,
which does not recognise surplus in the closed funds, was 156% at
30 June 2018 (31 December 2017: 159%).
The majority (80% (31 December 2017: 79%)) of total Own Funds
within the Royal London Open Fund is made up of Tier 1 capital,
with subordinated debt valued at GBP0.9bn (31 December 2017:
GBP0.9bn) classified as Tier 2 capital. Own Funds within the closed
funds are entirely Tier 1 capital.
3. Capital Position (continued)
Movement analysis of capital position
The following table sets out an analysis of the movement in the
Investor View solvency surplus and capital cover ratio between 31
December 2017 and 30 June 2018:
Solvency Surplus Capital Cover
Ratio (Investor
View)
(Investor View) %
GBPbn
--------------------------------------------- ----------------- -----------------
31 December 2017 (published in the
2017 Annual Report and Accounts (ARA)) 5.5 235
Estimation difference between 2017
ARA and 2017 SFCR(1) (0.1) (7)
31 December 2017 (published in the
2017 SFCR) 5.4 228
Operating assumption changes and experience
variances (0.1) (7)
Economic assumption changes and experience
variances 0.1 3
Other variances - 1
--------------------------------------------- ----------------- -----------------
30 June 2018 (estimated) 5.4 225
--------------------------------------------- ----------------- -----------------
1. The Solvency II figures disclosed in the 2017 ARA were
estimates and the final 31 December 2017 position was disclosed in
the SFCR in May 2018.
4. Other matters
UK decision to leave the EU
We have considered the impact of the UK's decision to leave the
EU and are confident that there will be no significant impact to
the operations or the capital strength of the Group. The Group
maintains a very strong capital position.
We are in the process of establishing a subsidiary in the
Republic of Ireland to enable our existing business there to
continue to trade after the UK leaves the EU. This mitigates any
uncertainty for Royal London from the UK leaving the EU. We will
continue to monitor the implications of the UK leaving the EU, but
expect we will trade as normal. We continue to work on behalf of
our customers to provide them with stability and the best possible
long-term returns.
Ratings agencies
In July 2018 Moody's reaffirmed our existing A2 Insurance
Financial Strength rating and maintained its outlook for Royal
London at Stable. Standard and Poor's also reaffirmed Royal
London's counterparty credit rating of A in June 2018, with a
stable outlook.
Appendix 1 - EEV basis of preparation
The EEV results presented in this document have been prepared in
accordance with the European Embedded Value Principles (the EEV
Principles) and the EEV Basis for Conclusions issued in April 2016
by the CFO Forum. They provide supplementary information for the
six months ended 30 June 2018 and should be read in conjunction
with the Group's IFRS results. These contain information regarding
the Group's financial statements prepared in accordance with IFRS
issued by the International Accounting Standards Board and adopted
for use in the European Union.
The EEV methodology applied is consistent with the methodology
set out in the Group's Annual Report and Accounts for the year
ended 31 December 2017.
The EEV Principles were designed for use by proprietary
companies to assess the value of the firm to its shareholders. As a
mutual, Royal London has no shareholders. Instead we regard our
members as the nearest equivalent to shareholders and have
interpreted the EEV Principles accordingly. The reported embedded
value provides an estimate of Royal London's value to its
members.
EEV operating profit
The definition of EEV operating profit follows the same
principles as IFRS operating profit, with the exception of those
items which are recognised under IFRS but are excluded from EEV as
they cannot be recognised for regulatory purposes.
Appendix 2 - IFRS basis of preparation
The IFRS financial information for the six months ended 30 June
2018 has been prepared on the basis of the accounting policies that
The Royal London Mutual Insurance Society Limited and its
subsidiaries ('the Group') expects to adopt for the 2018 year end.
These accounting policies are in accordance with IFRS issued by the
International Accounting Standards Board as adopted for use in the
European Union. In preparing the results for the six months ended
30 June 2018, the Group has not applied IAS 34, 'Interim Financial
Reporting', because this accounting standard is not mandatory for
the Group.
The accounting policies applied are consistent with those set
out in the Group's Annual Report and Accounts for the year ended 31
December 2017, with the exception of the adoption of IFRS 15,
'Revenue from Contracts with Customers', which is applicable for
the first time in 2018. On adopting this standard the Group has
changed the way that it measures the 'Deferred acquisition costs on
investment contracts' asset recognised in respect of future
commission payable on relevant non-participating investment
contracts. The Group has adopted this change using the modified
retrospective approach set out in IFRS 15, whereby the cumulative
effect as at 1 January 2018, which is an increase to the 'Deferred
acquisition costs on investment contracts' asset of GBP82m, has
been reflected by an increase of GBP82m in the unallocated
divisible surplus. As permitted by the modified retrospective
approach, the comparatives for the year ended 31 December 2017 and
for the six months ended 30 June 2017 have not been restated.
Although effective from 2018, the Group has opted to defer
implementation of IFRS 9 'Financial Instruments' in accordance with
the amendment to IFRS 4, 'Applying IFRS 9 Financial Instruments
with IFRS 4 Insurance Contracts'.
The results for the six months ended 30 June 2018 and 30 June
2017 are unaudited. These results do not constitute statutory
accounts as defined in Section 434 of the Companies Act 2006. The
results for the year ended 31 December 2017 have been taken from
the Group's 2017 Annual Report and Accounts as delivered to the
Registrar of Companies. The auditors have reported on the 2017
financial statements and their report was unqualified and did not
contain a statement under section 498 of the Companies Act
2006.
After making enquiries, the directors are satisfied that the
Group has adequate resources to continue to operate as a going
concern for the foreseeable future and has prepared the IFRS
financial information on that basis. There are no material
uncertainties to our ability to adopt the going concern basis of
accounting.
Appendix 3 - Reconciliation of the IFRS unallocated divisible
surplus to EEV
6 months 6 months
to to 12 months
30 June 30 June to 31 December
2018 2017 2017
GBPm GBPm GBPm
----------------------------------------- --------- --------- ----------------
IFRS unallocated divisible surplus 4,050 3,516 3,726
----------------------------------------- --------- --------- ----------------
Valuation differences between IFRS
and EEV
- Goodwill and intangible assets (234) (245) (239)
- Deferred tax valuation differences (5) (5) (6)
- Subordinated debt at market value (88) (70) (134)
- Subsidiaries valuation differences (2) (1) (2)
Add items only included on an embedded
value basis
- Valuation of asset management and
service subsidiaries 168 197 126
Other valuation differences 7 70 89
----------------------------------------- --------- --------- ----------------
EEV 3,896 3,462 3,560
----------------------------------------- --------- --------- ----------------
Reconciliation of the IFRS transfer to unallocated divisible
surplus to EEV profit for the period
6 months 6 months 12 months
to to to
30 June 30 June 31 December
2018 2017 2017
GBPm GBPm GBPm
------------------------------------------ --------- --------- -------------
IFRS transfer to unallocated divisible
surplus 241 224 434
------------------------------------------ --------- --------- -------------
Amortisation of intangible assets 5 5 11
Differences in valuation of subsidiaries 42 67 (5)
Change in value of subordinated debt 46 (18) (82)
Movement in valuation differences for
deferred tax assets 1 (3) (4)
Other movements in valuation bases 1 41 60
EEV profit for the period 336 316 414
------------------------------------------ --------- --------- -------------
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
IR DELFFVVFZBBF
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