TIDM41BM TIDM60KE TIDM76DO
RNS Number : 0148V
Royal London
05 August 2022
Interim Results Announcement 2022 5 August 2022
19% increase in new business sales driven by the strength of
investment offering
Barry O'Dwyer, Group Chief Executive, commented:
"Recent market turmoil means that investors look to their
independent financial advisers for reassurance and these advisers,
in turn, look to providers they can rely on. The trust advisers
have in Royal London comes from a consistent track record of
transparent investment governance, excellent returns,
market-leading service and a mutual mindset focused on delivering
for customers, not shareholders.
"As a result, we have seen strong growth in new business sales,
helping to deliver a 36% increase in operating profit over the
first half of the year.
"As the increased cost of living continues to create
uncertainty, building customers' financial resilience remains at
the forefront of our priorities. In partnership with Wealth
Wizards, we have delivered a free online tool which helps Workplace
pension members to assess and build their financial wellbeing. We
are committed to supporting our members and customers to make the
right, informed choices to protect their standard of living now and
over the long term."
Highlights
-- 140,000 new pension policies taken out by customers to save
for their retirement with Royal London during the first half of
2022, increasing the total number of UK pension policies to over
3.1 million.
-- Paid out GBP304m in protection claims, supporting
approximately 40,000 customers and their families at a time when
they needed it most.
-- Our flagship Governed Range saw net inflows of GBP1.5bn, with
AUM stable at GBP51bn. While absolute fund values have been
impacted by market declines in 2022, all of our core pension
propositions continue to outperform their benchmarks over three
years.
-- Enhanced digital capabilities through the launch of a new
financial wellbeing tool via Wealth Wizards and the introduction of
a new Adviser Dashboard for UK protection advisers, giving them the
ability to manage their client applications online.
-- Migrated 4.1 million long-standing policies onto new
technology since 2020, including c.1 million in the first half of
2022, improving customers' overall servicing experience.
-- Continued focus on responsible investment through active
engagement with the largest contributors to the carbon footprint of
our investment portfolios, with a particular focus on investees'
climate strategies and plans to lower emissions.
-- Investment performance of actively managed funds(3) over
three years remains strong in difficult market conditions.
Financials
Six months ended Six months ended
30 June 2022 30 June 2021
=============== ================================== ================ ================
UK GAAP Operating profit before GBP109m GBP80m
tax(4)
(Loss)/profit before tax(5) GBP(228)m GBP228m
New business Life and pensions new business GBP5,494m GBP4,620m
sales(6)
=============== ================================== ================ ================
Inflows Gross inflows(7) GBP18,180m GBP11,987m
Net inflows(7) GBP2,578m GBP405m
================================== ================ ================
30 June 2022 31 December 2021
=============== ================================== ================ ================
Funds Assets under management(8) GBP150bn GBP164bn
=============== ================================== ================ ================
Capital Regulatory View solvency GBP3.0bn GBP2.8bn
(Solvency II) surplus(9)
---------------
Regulatory View capital
cover ratio(9) 202% 173%
Investor View solvency surplus(9) GBP3.0bn GBP2.8bn
Investor View capital cover
ratio(9) 227% 216 %
-------------------------------------------------- ---------------- ----------------
-- Operating profit before tax(4) increased to GBP109m (H1 2021:
GBP80m) driven by a higher contribution from new business sales and
lower corporate costs.
-- Loss before tax(5) was GBP228m (H1 2021: GBP228m profit) as
falls in equity and bond markets led to negative economic variances
compared to our longer term expected return assumptions for assets
supporting the life funds.
-- Life and pensions new business sales (6) were up 19% at
GBP5,494m (H1 2021: GBP4,620m), driven by a 24% rise in Individual
and Workplace pensions sales. UK Protection sales slowed as the
market has returned to pre-pandemic levels.
-- Net inflows(7) increased to GBP2,578m (H1 2021: GBP405m)
reflecting increased pensions market activity and the attraction of
our long-term savings and investment offerings.
-- Assets under management(8) decreased to GBP150bn (31 December
2021: GBP164bn) with net inflows offset by negative market
movements.
-- Capital position remains robust with the Investor View
capital cover ratio(9) increasing to 227% (31 December 2021: 216%)
and the Regulatory View capital cover ratio(9) increasing to 202%
(31 December 2021: 173%) following the significant increases in
yields and credit spreads.
Investor Conference call
Royal London will hold an investor conference call to present
its 2022 Interim Financial Results on Friday, 5 August 2022 at
09:00. Interested parties can register here . A copy of the
presentation to investors is available on the Group's website .
For further information please contact:
Meera Khanna, Senior PR Manager, Meera.Khanna@royallondon .com
07919 170 502
About Royal London
Royal London is the UK's largest mutual life, pensions and
investment company. We provide long-term savings, protection and
asset management products and services in the UK, and protection
products in Ireland. We work with advisers and customers to protect
the standard of living of this and future generations.
Financial calendar:
-- 5 August 2022 - Interim Financial Results for 2022 and Investor Conference Call
-- 7 October 2022 - RL Finance Bonds No 4 plc subordinated debt interest payment date
-- 14 November 2022 - RL Finance Bonds No 3 plc subordinated debt interest payment date
-- 30 November 2022 - RL Finance Bonds No 2 plc subordinated debt interest payment date
Editor's notes
1. The information in this announcement relates to The Royal
London Mutual Insurance Society Limited ('RLMIS' or 'the Company'),
and its subsidiary undertakings, together referred to as 'Royal
London' or 'the Group'.
2. The Group assesses its financial performance based on a
number of measures, some of which are not defined or specified in
accordance with relevant financial reporting frameworks such as UK
GAAP or Solvency II. These measures are known as alternative
performance measures (APMs) and include Operating profit before
tax. APMs are disclosed to provide further information on the
performance of the Group and should be viewed as complementary to,
rather than a substitute for, the measures determined according to
UK GAAP and Solvency II requirements. Accordingly, these APMs may
not be comparable with similarly titled measures and disclosures by
other companies.
3. Investment performance has been calculated using a weighted
average of active assets under management for funds with a defined
external benchmark. Benchmarks differ by fund and reflect their mix
of assets to ensure direct comparison. Passive funds are excluded
from this calculation as, while they have a place as part of a
balanced portfolio, Royal London believes in the long-term value
added by active management.
4. Operating profit before tax represents (loss)/profit
(transfer (from)/to fund for future appropriations before other
comprehensive income) excluding: short-term investment return
variances and economic assumption changes; amortisation and
impairment of goodwill and other intangibles arising from mergers
and acquisitions; ProfitShare; tax; and one-off items of an unusual
nature that are not related to the underlying trading of the Group.
Profits/losses arising within the closed funds are held within the
respective closed fund surplus; therefore operating profit
represents the result of the Royal London Main Fund (RL Main
Fund).
5. (Loss)/profit before tax represents the statutory
'(Loss)/profit before tax and before transfer (from)/to the fund
for future appropriations' in the consolidated statement of
comprehensive income.
6. Life and pensions new business sales represent life and
pensions business only and excludes Asset Management and other
lines of business. Sales are presented as the Present Value of New
Business Premiums (PVNBP), which is the total of new single premium
sales received in the period 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 period. The rate
used to discount the cash flows in the reported results has been
derived from the swap curve at 31 December 2021 for all new
business except annuities, where instead the swap rate at the end
of each prior month is used to discount the next month's new
business cashflows.
7. Gross and net inflows incorporate flows into RLAM from
external clients (external flows) and those generated from RLMIS
(internal flows). External client net inflows represent external
inflows less external outflows, including cash mandates. Internal
net inflows from RLMIS represent the combined premiums and deposits
received (net of reinsurance) less claims and redemptions paid (net
of reinsurance). Given its nature, non-linked Protection business
is not included.
8. Assets under management (AUM) represent the total of assets
managed by the Group, including funds managed on behalf of third
parties.
9. The capital cover ratio is calculated as the Group's Own
Funds, being the regulatory capital under Solvency II, divided by
the Solvency Capital Requirement (SCR). The 'Regulatory View'
solvency surplus and capital cover ratio restricts each closed
funds' surplus to the value of the SCR of that fund. The 'Investor
View' equals the RL Main Fund capital position (excluding
ring-fenced funds, which are run on a standalone basis). All
capital figures are stated on a Group Partial Internal Model
basis.
10. Figures presented throughout are rounded. The capital cover
ratios and new business margins are calculated based on exact
figures.
Business Review
The first half of 2022 saw continuing geopolitical and economic
uncertainty, stemming from the war in Ukraine, the emergence of
stagnation fears and the increased cost of living. These factors
have led to turbulent market conditions, with a compression in
fixed income prices, volatile equity valuations and pressure on
customers' disposable income.
Throughout this uncertainty, we have continued to focus on
supporting our customers' needs. At times like these the value of
impartial financial advice in ensuring appropriate protection cover
is in place and savings and investments are being managed well
becomes ever more apparent.
We remain strong advocates for impartial financial advice and
the benefits it provides. We continue to work in partnership with
thousands of independent financial advisers to support them and
their customers, increasingly using technology to scale the
provision of advice and guidance to make it more accessible.
However, the cost of impartial advice can be prohibitive for some.
We are therefore also committed to ensuring our customers have
access to relevant information and guidance through our
communications, mobile app and our website to help them make
informed and confident financial decisions. Through our charitable
partnerships like Turn2us and our Changemakers programme, we also
support the wider community and people who are struggling to
navigate difficult times.
As well as financial health, our customers also need assistance
with their mental and physical health, particularly at the time of
a claim. Our Helping Hand service is included at no extra cost with
all advised Protection plans and provides access to a dedicated
nurse and personalised support, when it is needed. Earlier this
year we enhanced the offering by introducing a wellbeing service to
help customers maintain a healthy lifestyle, giving them online
access to a range of hand-picked early medical care services.
We remain committed to our target of reducing the carbon
equivalent emissions of our investment portfolio by 50% by 2030 and
to Net Zero by 2050 [a] . Our ambitions are reliant on the actions
of governments and a supportive policy environment. While the war
in Ukraine has increased focus on energy security, which is likely
to lead to a short-term increase in the use of fossil fuels, it is
imperative that government policies promote immediate investment in
a low carbon economy to ensure that the goals of the Paris
agreement remain achievable.
Through the first six months of the year, we have continued to
leverage our position as one of the UK's largest asset managers
engaging with companies to influence the transition to a
sustainable world, using our votes at Annual General Meetings to
express our views.
We are proud of our mutual status and our position of being able
to focus on driving change solely on behalf of our members and
customers. We will continue to use our position to focus on, and
champion, the key issues which will improve their standard of
living now and for future generations.
Our trading performance
UK
We invested further in our technology capability, with the
launch of our new financial wellbeing offering through Wealth
Wizards to Workplace pension customers. This service is free and
includes several tools to help build customers' understanding of
what their future may look like, alongside material to help educate
and build engagement. We were also delighted to launch a new
Adviser Dashboard in early June for protection advisers, giving
full digital visibility of their pipeline and case management
status of policies. We made improvements to our mobile app,
introducing the capability for Workplace pension customers to
request a transfer using a digital signature, improving the
efficiency of the administrative process and the transfer journey
for customers.
Our pension new business sales increased to GBP4,750m (H1 2021:
GBP3,819m) with strong flows into both Workplace and Individual
pensions. Growth in new business sales was driven by increased
confidence within the employment market in the post lockdown period
with Workplace new business sales increasing to GBP2,025m (H1 2021:
GBP1,459m), as well as an increase in face-to-face adviser
appointments leading to Individual pensions new business sales
increasing to GBP2,725m (H1 2021: GBP2,360m). Our flagship
investment solution, the Governed Range, continued to outperform
its three year benchmarks as we adjusted asset allocations to take
account of the market uncertainty; this has further supported the
growth in Pensions new business. With net inflows of GBP1.5bn,
Governed Range assets under management were stable at GBP51bn
following falls in investment markets.
Protection new business sales reduced to GBP569m (H1 2021:
GBP676m) driven by a return to pre-pandemic levels of demand, along
with pressure on disposable income caused by higher inflation.
Following the launch of the 'Underwrite Later' option last year,
94% of all Life Cover on Business and Relevant Life Plans can be
put in force without waiting for medical evidence. We have also
made a series of other improvements to our underwriting processes,
increasing the speed at which we can offer cover to customers,
while reducing the burden on the NHS. Enhancements have also been
made to our critical illness cover to increase the range of
definitions under which we will make payment, helping to pay more
claims when customers have suffered a life shock.
Through our Legacy Simplification programme, we are continuing
to migrate legacy books of business from older mainframe systems
onto a single more modern IT system to reduce risk and improve
services to customers. We have successfully migrated c.1 million
in-force policies onto new technology since the beginning of the
year and we plan to migrate a further 130,000 policies in the
second half of 2022. This work builds on the migrations completed
in 2020 and 2021, and brings the total number of migrated policies
to over 4 million. We are also on track to complete further
with-profits fund consolidations, planned for the second half of
2022.
Asset Management
RLAM, which manages funds for our customers and external
clients, has been operating in volatile investment markets as a
result of the war in Ukraine, rising inflation and the
cost-of-living crisis. Investment performance of actively managed
funds remains strong, with 80% of funds outperforming their
benchmark over the three years to 30 June 2022, which is lower than
the 97% reported in respect of the three years to 30 June 2021.
Assets under management fell by 9% to GBP150bn (31 December 2021:
GBP164bn), following the falls we have seen in global equity and
fixed income markets. Equity markets have reacted to the uncertain
macro environment and we expect this volatility to continue for the
foreseeable future. Fixed income returns also continue to be
adversely impacted by high inflation and consequent tightening of
monetary policy by central banks worldwide.
Sales have remained strong despite these challenges with net
inflows in the first half of GBP2.6bn, including GBP1.5bn external
flows. In these uncertain times we are seeing the benefit of the
investment we have made to diversify our asset management
capabilities with net inflows from institutional clients in global
equities, one of our newer strategies, and sterling credit, a
traditional strength for RLAM. In wholesale, we have continued to
see net inflows into Sustainable funds, albeit at lower levels than
in recent years. This is despite their relative performance when
compared to non-sustainably managed peers, demonstrating the
ongoing demand for responsible investment solutions. In addition,
we have also had strong flows into government bond funds as a
result of the sharp increase in bond yields and our track
record.
In recognition of its performance success, RLAM recently
received multiple awards including MoneyAge Asset Manager of the
Year - over EUR100bn AUM, as well as Professional Adviser Best
Multi-Asset Fund (Sustainable) for its Royal London Sustainable
Diversified Trust. We were also awarded the Insurance Asset Risk
Investment Team of the Year (Sustainable Team) and Equity Manager
of the Year, as well as ESG Clarity's Best Global ESG Fixed Income
Fund - Active for our Global Sustainable Credit fund, as well as
Morningstar's Best GBP Bond Fund for our Corporate Bond Fund.
In April, RLAM published its Stewardship and Responsible
Investment report, together with a dedicated webpage and video to
promote awareness amongst clients. The report focuses on how RLAM
has engaged with companies and voted at AGMs to drive positive
change as well as how ESG has been integrated across asset
classes.
Ireland
The Irish business continues to perform well with Protection
sales momentum maintained from 2021, with new business sales of
GBP88m (H1 2021: GBP88m). Building on our heritage in Ireland and
enhanced brand visibility, 'Royal London Ireland' was introduced as
the new trading name earlier this year. We have continued to
improve our market-leading products this year, most recently making
significant enhancements to our Income Protection proposition.
Recent awards include Life Assurance Product Innovation at the 2022
Association of Irish Mortgage Advisors Awards and Best Mortgage
Protection at the bonkers.ie National Consumer Awards 2022.
Capitalising on our established position, we plan to replicate
the successful formula which we are known for in protection, when
we enter the Individual pensions market in Ireland in H2 2022.
Looking ahead
Our mutual status and robust capital position continue to enable
a long-term approach to decision making. The current economic
uncertainty is expected to continue over the short-term. We remain
committed to working in partnership with independent financial
advisers to deliver better outcomes to customers through this
period and beyond. The need for high quality, technology enabled
solutions to assist with the efficiency of the provision of advice
has never been clearer in protecting the standard of living of our
customers.
Despite the turbulent market conditions during the first half of
2022, we have delivered strong new business sales, higher net flows
and significantly higher operating profit. While the trading
environment remains challenging, our strategy to be an insight-led,
modern mutual growing sustainably by deepening customer
relationships continues to deliver for our members, customers and
financial adviser partners.
Financial Review
Group operating profit before tax for the six months ended 30
June 2022 increased to GBP109m (H1 2021: GBP80m) supported by
higher new business sales and lower corporate costs. Statutory loss
before tax was GBP228m (H1 2021: profit before tax GBP228m),
impacted by adverse economic experience due to equity market
volatility and negative bond market returns resulting in falls in
asset values.
Our UK business has benefited from improved sales in both
Individual and Workplace pensions, as well as in annuity products,
partially offset by a reduction in Protection sales as the UK
market has contracted towards pre-pandemic levels. Contribution
from AUM and other businesses has reduced marginally as the impact
of recent market volatility has not yet had a significant impact on
revenues. We have continued to invest in our business as our
position as a mutual allows us to take a longer term view of the
investments we make.
Our capital position remains robust despite market volatility in
the first half of the year with the Solvency II Investor View
capital cover ratio increasing to 227% (31 December 2021: 216%)
following the significant increases in credit spreads. This has
allowed us to continue to invest in developing our propositions
both in the UK and in Ireland.
At 30 June 2022, the Solvency II Regulatory View capital cover
ratio was 202% (31 December 2021: 173%). This increase was driven
by the significant increases in yields reducing the capital
requirements of the closed funds, in particular in relation to
guaranteed annuity options.
Group operating profit before tax
The following table shows the Group operating profit for the six
months ended 30 June 2022.
Six months ended Six months ended
30 June 2022 30 June 2021 Change
GBPm GBPm GBPm
============================================ ================= ================= =======
Long-term business
============================================ ================= ================= =======
New business contribution 89 81 8
============================================ ================= ================= =======
Existing business contribution 87 82 5
============================================ ================= ================= =======
Contribution from AUM and other businesses 55 59 (4)
============================================ ================= ================= =======
Business development and other costs (19) (16) (3)
============================================ ================= ================= =======
Strategic development costs (35) (39) 4
============================================ ================= ================= =======
Result from operating segments 177 167 10
============================================ ================= ================= =======
Corporate costs (31) (50) 19
============================================ ================= ================= =======
Financing costs (37) (37) -
============================================ ================= ================= =======
Group operating profit before tax 109 80 29
============================================ ================= ================= =======
New business contribution
New business contribution increased to GBP89m (H1 2021: GBP81m),
driven by continued growth in sales of pension and annuity
products, offset by a reduction in protection business compared to
the first half of 2021 which experienced heightened demand during
the pandemic.
The Present Value of New Business Premiums increased 19% to
GBP5,494m (H1 2021: GBP4,620m). Whilst new business sales increased
across the majority of product lines, new business margin decreased
to 1.6%. The overall margin impact in the first half of 2022
reflects the reduction in protection volumes and actions are
underway to reduce costs in the second half of the year.
New business contribution PVNBP New business margin
===================== =========================== ====================== ======================
Six months
ended 30 Six months Six months Six months Six months Six months
June ended 30 ended 30 ended 30 ended 30 ended 30
2022 June 2021 June 2022 June 2021 June 2022 June 2021
GBPm GBPm GBPm GBPm % %
===================== ============= ============ ========== ========== ========== ==========
Individual pensions 48 43 2,725 2,360 1.8 1.8
Workplace pensions 18 15 2,025 1,459 0.9 1.0
Protection 12 21 569 676 2.2 3.1
Other [b] 3 (4) 87 37 3.9 n/a
UK 81 75 5,406 4,532 1.5 1.7
===================== ============= ============ ========== ========== ========== ==========
Ireland (Protection) 8 6 88 88 8.5 6.8
===================== ============= ============ ========== ========== ========== ==========
89 81 5,494 4,620 1.6 1.8
===================== ============= ============ ========== ========== ========== ==========
UK
Individual pensions new business sales increased to GBP2,725m
(H1 2021: GBP2,360m). Sales have continued to recover as
face-to-face appointments increased following the lifting of
pandemic restrictions. The number of advised sales has increased as
our Governed Range performed relatively well as asset allocations
were adjusted to take account of market uncertainty. New business
margin was consistent at 1.8%.
Workplace pensions new business sales grew by 39% to GBP2,025m
(H1 2021: GBP1,459m) reflecting the recovery in the employment
market compared to the first half of 2021 which was impacted by
lockdown restrictions. The increased confidence in the employment
market has led to an increase in new entrants to existing schemes.
Despite the increase in new business sales, new business margin
fell from 1.0% to 0.9% reflecting a change in business mix, with a
higher proportion of new schemes written in the period.
Sales of our Protection products fell to GBP569m (H1 2021:
GBP676m) reflecting an overall market contraction as customer
demand has reduced post the pandemic. New business margin decreased
from 3.1% to 2.2% as a result of the fall in sales volumes.
Other business sales increased to GBP87m (H1 2021: GBP37m)
driven by growth in our annuity product that was launched in early
2021.
Ireland
New business sales in Ireland were GBP88m (H1 2021: GBP88m) as
strong sales momentum from 2021 continued across protection
products. New business margin has increased from 6.8% to 8.5% due
to changes in product mix.
Existing business contribution
Existing business contribution increased to GBP87m (H1 2021:
GBP82m), the components of which are shown in the table below.
Six months ended Six months ended
30 June 2022 30 June 2021 Change
GBPm GBPm GBPm
======================== ================ ================ ======
Expected return 54 58 (4)
======================== ================ ================ ======
Experience variances
and assumption changes 6 25 (19)
======================== ================ ================ ======
Modelling and other
changes 27 (1) 28
87 82 5
======================== ================ ================ ======
Experience variances were GBP6m (H1 2021: GBP25m). In H1 2021,
we saw positive Workplace pensions persistency experience as fewer
people changed employers during the lockdown period. There were no
changes to long-term assumptions in H1 2022.
The benefit in modelling and other changes largely results from
the transfer in April of GBP100m of deferred annuities into our
ring-fenced annuity portfolio. A one-off benefit of GBP18m arose
due to an increase in the discount rate used to value these
liabilities in order to reflect the illiquidity premium relating to
the backing assets.
Contribution from AUM and other businesses
Contribution from AUM and other businesses decreased marginally
to GBP55m (H1 2021: GBP59m). In spite of the recent market
volatility impacting AUM, profitability levels have not been
significantly impacted in the short-term.
Business development and other costs
Business development and other costs of GBP19m (H1 2021: GBP16m)
include costs of investment in our products and propositions, as
well as implementing product-related regulatory change. We have
continued to focus on the delivery of proposition enhancements
including the Wealth Wizards financial wellbeing proposition and
the Adviser Dashboard.
Strategic development costs
Strategic development costs of GBP35m (H1 2021: GBP39m)
represent the ongoing investment we are continuing to make in our
pensions business. Other costs relate to further policy migration
activity completed as part of our Legacy Simplification programme,
investing in the core infrastructure and systems of our Asset
Management business as well as developments towards the launch of
our new pensions proposition in Ireland later this year.
Corporate and Financing costs
Corporate costs of GBP31m (H1 2021: GBP50m) have decreased
following the completion of the integration of the Police Mutual
business. Financing costs of GBP37m (H1 2021: GBP37m) represent the
interest payable on the Group's subordinated debt, which has not
changed during the period.
Reconciliation of operating profit before tax to statutory
(loss)/profit before tax
Statutory loss before tax was GBP228m (H1 2021: profit before
tax GBP228m), driven primarily by adverse economic movements for
the period.
Six months Six months
ended ended 30 June Change
30 June 2022 2021 GBPm
GBPm GBPm
================================== ============== =============== =========
Group operating profit before
tax 109 80 29
================================== ============== =============== =========
Economic movements (338) 148 (486)
================================== ============== =============== =========
Amortisation of goodwill arising
from mergers and acquisitions 1 - 1
================================== ============== =============== =========
Statutory (loss) / profit before
tax (228) 228 (456)
================================== ============== =============== =========
Economic movements were a charge of GBP338m (H1 2021: credit of
GBP148m), reflecting adverse economic experience as falls in equity
and bond markets led to investment portfolio returns below the
longer term expected return assumptions we apply to assets backing
the life funds.
Assets under management
Assets under management decreased to GBP150bn (31 December 2021:
GBP164bn), with net inflows offset by negative market movements as
a result of the war in Ukraine, increasing inflation impacted by
interruptions to global supply chains and heightened expectations
of a further economic slowdown.
Gross inflows Net inflows
--------------- ---------------------------------- ----------------------------------
Six months ended Six months ended Six months ended Six months ended
30 June 2022 30 June 2021 30 June 2022 30 June 2021
---------------
GBPm GBPm GBPm GBPm
--------------- ---------------- ---------------- ---------------- ----------------
External flows 7,898 7,822 1,468 (1)
Internal flows 10,282 4,165 1,110 406
=============== ================ ================ ================ ================
Total 18,180 11,987 2,578 405
=============== ================ ================ ================ ================
External net inflows increased to GBP1,468m (H1 2021: net
outflow of GBP1m) driven by institutional inflows as well as
ongoing demand for sustainable products in both equity and fixed
income, despite their underperformance against their benchmarks. H1
2021 included a large institutional outflow, which was replaced by
a linked and larger reinvestment of GBP2.1bn in early July
2021.
Internal net inflows increased to GBP1,110m (H1 2021: GBP406m)
due to higher inflows in our Pensions business.
Strength of our capital base
The strength of our capital base is essential to our business,
both to ensure we have the capital to fund further growth and to
give peace of mind to our customers that we can meet our
commitments to them.
Managing our capital base effectively is a key priority for us.
In common with others in the industry, we present two views of our
capital position: an Investor View for analysts and investors in
our subordinated debt, and a Regulatory View where the closed
funds' surplus is excluded as a restriction to Own Funds.
The table below sets out the capital position and key Solvency
II metrics on a Partial Internal Model basis for the Group.
Key metrics 30 June 2022 31 December 2021
---------------------------- --------------------- --------------------
Regulatory View solvency GBP3,002m GBP2,817m
surplus
---------------------------- --------------------- --------------------
Regulatory View capital
cover ratio 202% 173%
---------------------------- --------------------- --------------------
Investor View solvency GBP3,002m GBP2,817m
surplus
---------------------------- --------------------- --------------------
Investor View capital
cover ratio 227% 216%
---------------------------- --------------------- --------------------
Our capital ratios have improved following the significant
increases in yields and credit spreads in the first half of 2022,
with the Regulatory View ratio increasing in particular due to the
increase in yields reducing the capital requirements of the closed
funds, in particular in relation to guaranteed annuity options
.
We continue to monitor closely our capital position given the
market volatility as a result of the war in Ukraine. Scenario
testing performed as part of our regular capital management
activities demonstrates that our capital position remains robust
under a number of plausible but extreme market scenarios.
Balance sheet
Our balance sheet position remains robust. Our total investment
portfolio reduced in value to GBP106.3bn (31 December 2021:
GBP118.1bn), primarily driven by fair value reductions across
equities and bonds and interest rate increases reducing the value
of derivatives. At 30 June 2022, GBP499m of assets were ring-fenced
(31 December 2021: GBP452m) to back annuitant liabilities of
GBP462m (31 December 2021: GBP427m). The ring-fenced portfolio of
assets includes a mix of corporate bonds and commercial real estate
loans.
Our financial investment portfolio remains well diversified
across a number of financial instrument classes, with the majority
invested in equity securities and fixed income assets.
A significant portion of our debt securities portfolio is in
high-quality assets with a credit rating of 'A' or above. In our
non-linked portfolio, 82% (31 December 2021: 85%) of our non-linked
debt securities and 70% (31 December 2021: 71%) of our non-linked
corporate bonds had a credit rating of A or better at 30 June 2022.
There have been no significant defaults in our corporate bond
portfolio.
The Group had no significant exposure to securities issued by
Russian, Belarusian or Ukrainian companies or governments at 30
June 2022.
Statement of directors' responsibilities
The Interim Results Announcement, including the Interim
Financial Statements, is the responsibility of, and has been
approved by the directors.
In preparing the Interim Financial Statements, the
directors:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable United Kingdom Generally Accepted
Accounting Practice (UK GAAP) has been followed, subject to any
material departures disclosed and explained in the Interim
Financial Statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the Interim Financial Statements on the going concern
basis unless it is inappropriate to presume that the Company will
continue in business.
They are responsible for such internal controls as they
determine are necessary to enable the preparation of Interim
Financial Statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for
taking such steps as are reasonably open to them to safeguard the
assets of the Company and the Group and to prevent and detect fraud
and other irregularities.
The directors are also responsible for keeping adequate
accounting records that are sufficient to show and explain the
Group's transactions and disclose with reasonable accuracy at any
time the financial position of the Group.
Principal risks and uncertainties
The principal risks and uncertainties facing the Group were
reviewed by the Board in March 2022 when the 2021 Annual Report and
Accounts (ARA) was published and took account of the evolving
conflict in Ukraine and the economic environment. The Board
considers that they have not changed significantly from those set
out in the 'Principal risks and uncertainties' section of the
Strategic Report within the 2021 ARA (
royallondon.com/about-us/corporate-information/corporate-governance/investor-relations/
).
The risks and uncertainties continue to be monitored and managed
through our risk management system, including those related to
geopolitics and the UK political and economic environment.
Forward-looking statements
Royal London may make verbal or written 'forward-looking
statements' within this announcement, with respect to certain
plans, its current goals and expectations relating to its future
financial condition, performance, results, operating environment,
strategy and objectives. Statements that are not historical facts,
including statements about Royal London's beliefs and expectations
and including, without limitation, statements containing the words
'may', 'will', 'should', 'continue', 'aims', 'estimates',
'projects', 'believes', 'intends', 'expects', 'plans', 'seeks' and
'anticipates', and words of similar meaning, are forward-looking
statements. The statements are based on plans, estimates and
projections as at the time they are made and involve unknown risks
and uncertainties. These forward-looking statements are therefore
not guarantees of future performance and undue reliance should not
be placed on them.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances,
some of which will be beyond Royal London's control. Royal London
believes factors could cause actual financial condition,
performance or other indicated results to differ materially from
those indicated in forward-looking statements in the announcement.
Potential factors include but are not limited to: the ongoing
effects of the Covid-19 pandemic; the war in Ukraine; UK and
Ireland economic and business conditions; future market-related
risks such as rising interest rates; increasing levels of inflation
and the performance of financial markets generally; the policies
and actions of governmental and regulatory authorities (for example
new government initiatives); the impact of competition; the effect
on Royal London's business and results from, in particular,
mortality and morbidity trends, lapse rates and policy renewal
rates; and the timing, impact and other uncertainties of future
mergers or combinations within relevant industries. These and other
important factors may, for example, result in changes to
assumptions used for determining results of operations or
re-estimations of reserves for future policy benefits.
As a result, Royal London's future financial condition,
performance and results may differ materially from the plans,
estimates and projections set forth in Royal London's
forward-looking statements. Royal London undertakes no obligation
to update the forward-looking statements in this announcement or
any other forward-looking statements Royal London may make.
Forward-looking statements in this announcement are current only at
the date on which such statements are made. This report has been
prepared for the members of Royal London and no one else. None of
Royal London, its advisers or its employees accept or assume
responsibility to any other person and any such responsibility or
liability is expressly disclaimed to the extent not prohibited by
law.
The Royal London Mutual Insurance Society Limited is registered
in England and Wales (99064) at 55 Gracechurch Street, London, EC3V
0RL. www.royallondon.com
Interim Financial Statements
Consolidated Statement of comprehensive income (unaudited)
For the period ended 30 June 2022
Group
======================================================
Technical account - long-term business Six months ended Six months ended Year ended
30 June 2022 30 June 2021 31 December 2021
(unaudited) (unaudited)
GBPm GBPm
GBPm
-------------------------------------------------------------- ----------------- ---------------- -----------------
Gross premiums written 580 575 1,156
-------------------------------------------------------------- ----------------- ---------------- -----------------
Outwards reinsurance premiums 287 62 (82)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Earned premiums, net of reinsurance 867 637 1,074
-------------------------------------------------------------- ----------------- ---------------- -----------------
Investment income 951 1,905 4,196
-------------------------------------------------------------- ----------------- ---------------- -----------------
Unrealised gains on investments - 1,918 4,875
-------------------------------------------------------------- ----------------- ---------------- -----------------
Other income 328 297 659
-------------------------------------------------------------- ----------------- ---------------- -----------------
Total income 2,146 4,757 10,804
-------------------------------------------------------------- ----------------- ---------------- -----------------
Claims paid
-------------------------------------------------------------- ----------------- ---------------- -----------------
-- Gross claims paid (1,395) (1,430) (2,806)
-------------------------------------------------------------- ----------------- ---------------- -----------------
-- Reinsurers' share 273 271 531
-------------------------------------------------------------- ----------------- ---------------- -----------------
Change in provision for claims
-------------------------------------------------------------- ----------------- ---------------- -----------------
-- Gross amount (20) (19) (64)
-------------------------------------------------------------- ----------------- ---------------- -----------------
-- Reinsurers' share 3 (3) 21
-------------------------------------------------------------- ----------------- ---------------- -----------------
Claims incurred, net of reinsurance (1,139) (1,181) (2,318)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Change in long-term business provision, net of reinsurance
-------------------------------------------------------------- ----------------- ---------------- -----------------
-- Gross amount 6,205 1,711 1,327
-------------------------------------------------------------- ----------------- ---------------- -----------------
-- Reinsurers' share (774) (466) (599)
-------------------------------------------------------------- ----------------- ---------------- -----------------
5,431 1,245 728
-------------------------------------------------------------- ----------------- ---------------- -----------------
Change in technical provision for linked liabilities, net of
reinsurance 5,288 (4,317) (7,953)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Change in technical provisions, net of reinsurance 10,719 (3,072) (7,225)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Change in non-participating value of in-force business 72 308 104
-------------------------------------------------------------- ----------------- ---------------- -----------------
Net operating expenses (264) (330) (623)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Investment expenses and charges (145) (112) (275)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Unrealised losses on investments (11,481) - -
-------------------------------------------------------------- ----------------- ---------------- -----------------
Other charges (136) (142) (275)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Total operating expenses (12,026) (584) (1,173)
-------------------------------------------------------------- ----------------- ---------------- -----------------
(Loss)/profit before tax and before transfer to the fund for
future appropriations (228) 228 192
-------------------------------------------------------------- ----------------- ---------------- -----------------
Tax attributable to long-term business 179 (51) (113)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Transfer (from)/to the fund for future appropriations (49) 177 79
-------------------------------------------------------------- ----------------- ---------------- -----------------
Balance on technical account - long-term business - - -
-------------------------------------------------------------- ----------------- ---------------- -----------------
Other comprehensive income, net of tax:
-------------------------------------------------------------- ----------------- ---------------- -----------------
Remeasurement of defined benefit pension schemes 14 171 267
-------------------------------------------------------------- ----------------- ---------------- -----------------
Foreign exchange rate movements on translation of Group
entities 4 27 (10)
-------------------------------------------------------------- ----------------- ---------------- -----------------
Transfer to the fund for future appropriations 18 198 257
-------------------------------------------------------------- ----------------- ---------------- -----------------
Other comprehensive income for the period, net of tax - - -
-------------------------------------------------------------- ----------------- ---------------- -----------------
Total comprehensive income for the period - - -
-------------------------------------------------------------- ----------------- ---------------- -----------------
The Company has taken advantage of the exemption under section
408 of the Companies Act 2006 not to include a Company statement of
comprehensive income. As a mutual company, all earnings are
retained for the benefit of participating policyholders and are
carried forward within the fund for future appropriations.
Accordingly, the total comprehensive income for the period is
always GBPnil after the transfer to or deduction from the fund for
future appropriations.
Consolidated Balance sheet (unaudited)
As at 30 June 2022
Group
==============================================
30 June 2022 30 June 2021
(unaudited) (unaudited) 31 December 2021
GBPm GBPm GBPm
------------------------------------------------------- ------------- ------------ -----------------
ASSETS
------------------------------------------------------- ------------- ------------ -----------------
Intangible assets
------------------------------------------------------- ------------- ------------ -----------------
Goodwill 24 27 25
------------------------------------------------------- ------------- ------------ -----------------
Negative goodwill (42) (49) (44)
------------------------------------------------------- ------------- ------------ -----------------
(18) (22) (19)
------------------------------------------------------- ------------- ------------ -----------------
Other intangible assets 107 70 96
------------------------------------------------------- ------------- ------------ -----------------
89 48 77
------------------------------------------------------- ------------- ------------ -----------------
Non participating value of in-force business 2,405 2,537 2,333
------------------------------------------------------- ------------- ------------ -----------------
Investments
------------------------------------------------------- ------------- ------------ -----------------
Land and buildings 152 160 149
------------------------------------------------------- ------------- ------------ -----------------
Other financial investments 36,816 44,490 45,293
------------------------------------------------------- ------------- ------------ -----------------
36,968 44,650 45,442
------------------------------------------------------- ------------- ------------ -----------------
Assets held to cover linked liabilities 69,352 65,608 72,697
------------------------------------------------------- ------------- ------------ -----------------
Reinsurers' share of technical provisions
------------------------------------------------------- ------------- ------------ -----------------
Long-term business provision 3,807 4,712 4,579
------------------------------------------------------- ------------- ------------ -----------------
Claims outstanding 128 93 125
------------------------------------------------------- ------------- ------------ -----------------
Technical provisions for linked liabilities (48) (46) (53)
------------------------------------------------------- ------------- ------------ -----------------
3,887 4,759 4,651
------------------------------------------------------- ------------- ------------ -----------------
Debtors
------------------------------------------------------- ------------- ------------ -----------------
Debtors arising out of direct insurance operations 53 43 46
------------------------------------------------------- ------------- ------------ -----------------
Debtors arising out of reinsurance operations 68 52 56
------------------------------------------------------- ------------- ------------ -----------------
Other debtors 1,157 808 499
------------------------------------------------------- ------------- ------------ -----------------
1,278 903 601
------------------------------------------------------- ------------- ------------ -----------------
Other assets
------------------------------------------------------- ------------- ------------ -----------------
Tangible assets 16 22 18
------------------------------------------------------- ------------- ------------ -----------------
Cash at bank and in hand 623 767 622
------------------------------------------------------- ------------- ------------ -----------------
639 789 640
------------------------------------------------------- ------------- ------------ -----------------
Prepayments and accrued income
------------------------------------------------------- ------------- ------------ -----------------
Deferred acquisition costs on investment contracts 100 149 113
------------------------------------------------------- ------------- ------------ -----------------
Other prepayments and accrued income 47 46 36
------------------------------------------------------- ------------- ------------ -----------------
147 195 149
------------------------------------------------------- ------------- ------------ -----------------
Pension scheme asset 362 258 357
------------------------------------------------------- ------------- ------------ -----------------
115,127 119,747 126,947
------------------------------------------------------- ------------- ------------ -----------------
LIABILITIES
------------------------------------------------------- ------------- ------------ -----------------
Subordinated liabilities 1,334 1,333 1,333
------------------------------------------------------- ------------- ------------ -----------------
Fund for future appropriations 3,978 4,048 4,009
------------------------------------------------------- ------------- ------------ -----------------
Technical provisions
------------------------------------------------------- ------------- ------------ -----------------
Long-term business provision 34,588 40,412 40,802
------------------------------------------------------- ------------- ------------ -----------------
Claims outstanding 342 276 321
------------------------------------------------------- ------------- ------------ -----------------
34,930 40,688 41,123
------------------------------------------------------- ------------- ------------ -----------------
Technical provisions for linked liabilities 69,183 65,410 72,499
------------------------------------------------------- ------------- ------------ -----------------
Provisions for other risks
------------------------------------------------------- ------------- ------------ -----------------
Deferred taxation 46 200 228
------------------------------------------------------- ------------- ------------ -----------------
Other provisions 199 277 250
------------------------------------------------------- ------------- ------------ -----------------
245 477 478
------------------------------------------------------- ------------- ------------ -----------------
Creditors
------------------------------------------------------- ------------- ------------ -----------------
Creditors arising out of direct insurance operations 280 255 264
------------------------------------------------------- ------------- ------------ -----------------
Creditors arising out of reinsurance operations 2,045 2,612 2,535
------------------------------------------------------- ------------- ------------ -----------------
Amounts owed to credit institutions 97 72 42
------------------------------------------------------- ------------- ------------ -----------------
Other creditors including taxation and social security 2,970 4,756 4,562
------------------------------------------------------- ------------- ------------ -----------------
5,392 7,695 7,403
------------------------------------------------------- ------------- ------------ -----------------
Accruals and deferred income 65 96 102
------------------------------------------------------- ------------- ------------ -----------------
Total liabilities 115,127 119,747 126,947
------------------------------------------------------- ------------- ------------ -----------------
Notes to the Interim Financial Statements
1. Basis of preparation
The Group has prepared the Interim Financial Statements in
accordance with UK accounting standards, including Financial
Reporting Standard (FRS) 102, 'The Financial Reporting Standard
applicable in the United Kingdom and the Republic of Ireland' and
FRS 103, 'Insurance contracts'. The accounting policies applied in
the Interim Financial Statements are the same as those applied in
the Group's 2021 ARA. The full UK GAAP accounting policies can be
found in the Group's 2021 ARA on the Royal London website at (
royallondon.com/about-us/corporate-information/corporate-governance/investor-relations/
).
The Interim Financial Statements do not constitute statutory
accounts as defined in Section 434 of the Companies Act 2006. The
comparative results for the full year 2021 have been taken from the
Group's 2021 ARA. The Group's 2021 ARA has been filed with the
Registrar of Companies.
The Interim Financial Statements have been prepared on a going
concern basis under the historical cost convention, as modified by
the inclusion of certain assets and liabilities at fair value as
permitted or required by FRS 102.
The Group regularly performs sensitivities and stress testing on
a range of severe but plausible scenarios and stress testing has
been performed on the capital position for severe adverse economic
and demographic impacts arising over the short to medium term.
There are a range of actions available to the Directors in stress
scenarios which could also be considered if there were a
deterioration in the capital position of the Group. The capital
position remains sufficient to cover capital requirements in these
scenarios. Ongoing monitoring is in place over the liquidity
coverage ratios and matching of asset and liability maturity
profiles, and cash flow forecasts are also stressed under severe
but plausible scenarios to ensure adequate levels of liquid assets
are available to fund claims and other expenses. Having considered
these matters, the Directors have concluded that no material
uncertainty exists over the going concern assumption.
2. Segmental information
Operating segments
The operating segments reflect the level within the Group at
which key strategic and resource allocation decisions are made and
the way in which operating performance is reported internally to
the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been
identified as the Company's Board of Directors.
The activities of each operating segment are described
below:
UK
The UK business provides pensions and other retirement products
to individuals and to employer pension schemes and protection
products to individuals in the UK.
Asset Management
The Asset Management segment comprises Royal London Asset
Management Holdings Limited and its subsidiaries. RLAM provides
investment management services to the other entities within the
Group and to external clients, including pension funds, local
authorities, universities, and charities, as well as
individuals.
Ireland
The Ireland business comprises the Group's Irish subsidiary,
Royal London Insurance DAC (RLI DAC). It provides intermediated
protection products to individuals in the Republic of Ireland.
Operating profit
A key measure used by the Company's Board of Directors to
monitor performance is operating profit, which is classed as an
Alternative Performance Measure. The Company's Board of Directors
considers this measure provides a more meaningful indication of the
underlying trading of the Group than statutory profit.
The operating profit by operating segment is shown in the
following table.
Six months ended 30 June 2022 Six months ended 30 June 2021
(unaudited) (unaudited)
================= ========================================== ===================================================
Asset Asset
UK Management Ireland Total UK Management Ireland Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======= =============== ========== ========== ======= ================ ========== ==========
Long-term
business
================= ======= =============== ========== ========== ======= ================ ========== ==========
New business
contribution 81 - 8 89 75 - 6 81
================= ======= =============== ========== ========== ======= ================ ========== ==========
Existing
business
contribution 86 - 1 87 81 - 1 82
================= ======= =============== ========== ========== ======= ================ ========== ==========
Contribution
from AUM and
other
businesses 21 34 - 55 21 38 - 59
================= ======= =============== ========== ========== ======= ================ ========== ==========
Business
development and
other costs (12) (7) - (19) (9) (7) - (16)
================= ======= =============== ========== ========== ======= ================ ========== ==========
Strategic
development
costs (26) (6) (3) (35) (34) (2) (3) (39)
================= ======= =============== ========== ========== ======= ================ ========== ==========
Result from
operating
segments 150 21 6 177 134 29 4 167
================= ======= =============== ========== ========== ======= ================ ========== ==========
Corporate costs (31) (50)
================= ======= =============== ========== ========== ======= ================ ========== ==========
Financing costs (37) (37)
================= ======= =============== ========== ========== ======= ================ ========== ==========
Group operating
profit before
tax 109 80
================= ======= =============== ========== ========== ======= ================ ========== ==========
Year ended 31 December 2021
============================================ ============================================
Asset
UK Management Ireland Total
GBPm GBPm GBPm GBPm
============================================ ======= ============= ========== ========
Long-term business
============================================ ======= ============= ========== ========
New business contribution 147 - 17 164
============================================ ======= ============= ========== ========
Existing business contribution 118 - 7 125
============================================ ======= ============= ========== ========
Contribution from AUM and other businesses 29 95 - 124
============================================ ======= ============= ========== ========
Business development and other costs (20) (17) - (37)
============================================ ======= ============= ========== ========
Strategic development costs (47) (7) (8) (62)
============================================ ======= ============= ========== ========
Result from operating segments 227 71 16 314
============================================ ======= ============= ========== ========
Corporate costs (106)
============================================ ======= ============= ========== ========
Financing costs (75)
============================================ ======= ============= ========== ========
Group operating profit before tax 133
============================================ ======= ============= ========== ========
[a] The term Net Zero means achieving a balance between the
amount of greenhouse gases emitted into the atmosphere and the
amount removed from it. The commitment is based on the expectation
that governments and policymakers will deliver on the commitments
to achieve the 1.5 C temperature goal of the Paris Agreement and
this action does not contravene Royal London's fiduciary duty to
external investors. The commitment is based on our emissions
profile of 2020. It includes assets that are controlled by RLMIS
and are managed on its behalf by RLAM and excludes segregated
mandates managed by RLAM on behalf of its external clients.
[b] Other includes annuities as well as other savings products.
As the annuity product was launched part way through H1 2021, new
business margin for the comparative period has not been
presented.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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END
IR FZLLBLVLXBBL
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