TIDM41BM TIDM60KE TIDM76DO
RNS Number : 3719G
Royal London
17 March 2020
Year End Results 2019 17 March 2020
ROBUST TRADING IN AN UNCERTAIN ENVIRONMENT
Financial Highlights
2019 2018
================== ============================ ========== ==========
EEV (1) Life and pension sales(2) GBP10,699m GBP11,308m
Operating profit before GBP416m GBP396m
tax(3)
IFRS Profit/(loss) before tax(4) GBP436m GBP(111)m
==================
IFRS post tax transfer to GBP185m GBP5m
eligible policyholders(4)
================== ============================ ========== ==========
Flows Gross inflows(5) GBP25,131m GBP21,196m
==================
Net inflows(5) GBP9,892m GBP7,652m
================== ============================ ========== ==========
Funds Assets under management(6) GBP139bn GBP114bn
================== ============================ ========== ==========
Group capital cover ratio
Capital (Solvency (Regulatory View)(7, 8,
II) 9, 10) 159% 154%
------------------
Group capital cover ratio
(Investor View)(7, 8, 9,
10) 231% 228%
----------------------------------------------- ---------- ----------
-- EEV operating profit before tax3 5% higher driven by new business profit of GBP319m (2018: GBP301m)
-- IFRS profit before tax increased to GBP436m (2018: GBP111m loss) due to strong investment returns
-- ProfitShare of GBP140m post-tax (2018: GBP150m), 7% lower than last year reflecting the continued outlook for low
interest rates
-- Life and pensions new business sales2 5% lower reflecting an industry-wide decline in the level of defined
benefit to defined contribution pension transfers
-- Assets under management6 up 22% to a new high of GBP139bn (2018: GBP114bn)
-- Strong net asset management inflows, up 29% to GBP9,892m (2018: GBP7,652m)
-- Outstanding investment performance with 98%11 (2018: 54%) of active funds outperforming their three-year
benchmark
-- Market leader in sales of sustainable funds in 2019, with GBP1.4bn in gross flows
-- Group Regulatory View solvency capital cover ratio7 of 159% (2018: 154%) and an Investor View solvency capital
cover ratio of 231 % (2018: 228%). The Investor View includes the solvency surpluses of the closed funds.
-- Successful issuance of GBP600m of subordinated debt with a coupon rate of 4.875% to support continued investment
Barry O'Dwyer, Group Chief Executive, commented:
"Royal London had a successful 2019 despite last year's
political and economic uncertainty. Our investment performance has
been outstanding with 98% of active funds outperforming their
three-year benchmark. Together with our reputation for excellent
customer service, this has helped to attract more new business and
we have seen another year of extremely strong net inflows.
Life and pension sales are lower than the record highs seen in
recent years but our operating profit remains robust. Our mutual
status means we share these profits with our customers and, since
the introduction of ProfitShare in 2007, we have added more than
GBP1bn to the value of eligible customers' savings.
Coronavirus represents a new risk for the world economy and
therefore for our business. Our current priority is the health and
wellbeing of our colleagues so that we can continue to deliver for
customers and clients. Our robust capital position means we do not
expect the virus to have any material long-term impact on our
business."
Kevin Parry, Chairman, commented:
"In these challenging times for public health, insurance has
never been more important. We continue to meet society's needs for
high quality life insurance, investment and pension products.
As a mutual, we are member-owned. Our ProfitShare is 7% lower
than last year due to the economic outlook indicating that the low
interest rate environment will continue for some time yet. Our
strong financial performance has helped to limit the economic
impact on this year's award, allowing us to add an aggregate
GBP140m to eligible customers' savings."
Financial Review
Gross flows of GBP25,131m (2018: GBP21,196m) included record
high external gross flows of GBP15,760m (2018: GBP12,317m).
Flows Net flows of GBP9,892m (2018: GBP7,652m) also included
record high external net flows of GBP6,696m (2018: GBP4,100m).
Institutional clients such as local authorities, pension
schemes and other insurers generated net inflows of GBP3,393m
and wholesale net inflows were GBP3,303m. Inflows of GBP1,364m
in the sustainable funds were particularly strong. We were
the fourth (13) highest UK asset manager for retail gross
flows and third (13) for net flows in the year.
============= =======================================================================
High levels of uncertainty continued to drive volatility
in investment returns throughout 2019. Global factors such
Performance as US-China trade disputes as well as UK-specific issues
such as Brexit and the general election late in the year
were contributory factors. Despite the resultant volatility
in markets, 98% (2018: 54%) of active funds outperformed
their benchmark over the three year period.
============= =======================================================================
We welcome the increased certainty that comes with the
EU withdrawal agreement having been enacted, and look forward
to the Government facilitating the advancement of the economically
Outlook important insurance and asset management industries in
the UK in a well-regulated environment. The last five years
have been characterised by unprecedented growth in our
markets, helped by legislative and regulatory change. We
are now at a more mature stage post the introduction of
auto-enrolment and pension freedoms. Consequently, growth
in our markets is likely to return to long-term trend levels.
In the short term, the uncertainty surrounding the impact
of coronavirus is expected to prolong market volatility
and impact consumer confidence. As a result, trading conditions
in 2020 are likely to be difficult.
============= =======================================================================
Group
----------------------------- ----------------------
Key metrics GBPm 31 December 1 January
2019(9) 2019(10)
Restated
----------------------------- ----------- ---------
Solvency surplus (Regulatory GBP2,632m GBP2,094m
View)(7)
Capital cover ratio
(Regulatory View)(7,
Capital 8) 159% 154%
Solvency surplus (Investor GBP5,810m GBP4,926m
View)(7)
Capital cover ratio
(Investor View)(7,
8) 231% 228%
----------------------------- ----------- ---------
In September 2019, the PRA approved the use of our Internal
Model to calculate the capital requirements of the Group
with effect from 1 October 2019. Our Irish business remains
on a Standard Formula basis.
The Group had an estimated Regulatory View solvency surplus
of GBP2,632m (1 January 2019 restated: GBP2,094m) and an
estimated Regulatory View capital cover ratio of 159% at
31 December 2019 (1 January 2019 restated: 154%). Our capital
position remains strong with a Solvency II Group Investor
View capital cover ratio of 231% (2018: 228%).
Our solvency surplus has improved due to a subordinated
debt issuance of GBP600m, positive economic conditions
and assumption changes, offset by the capital used to write
new business in the year, the allocation to ProfitShare
and our continued strategic investment in the Group.
============= =======================================================================
UK GAAP reporting will replace IFRS and EEV reporting for
the Group with effect from 1 January 2020. We consider
Financial UK GAAP to be a more suitable financial reporting basis
Reporting for a UK mutual than IFRS, allowing transparency of our
financial performance and being widely recognised and understood
by readers of accounts. Our 2020 interim results announcement
will provide further information about the transitional
changes, including restatement of comparatives.
============= =======================================================================
Life and Pensions
Life and Pension new business sales on a PVNBP basis decreased
5% to GBP10,699m in 2019 (2018: GBP11,308m), reflecting reduced
individual pension sales as defined benefit transfer volumes
declined across the industry.
Life and Pension new business margins were stable at 2.5% (2018:
2.5%). Reduced pension margins due to a change in the business mix
between individual and workplace pensions were offset by increases
in UK and Ireland Protection margins due to improved management of
the quality of new business.
New business PVNBP(2) New business margin(8)
contribution(12)
================ ======================================= ================================== ========================
2019 2018 2019 2018 2019 2018
GBPm GBPm GBPm GBPm %%
================ ============== ======================= ================ ================ ========== ===========
Pensions 206 239 9,461 10,042 2.2 2.4
UK Protection 40 32 678 735 5.9 4.4
Ireland
Protection 17 13 137 112 12.4 11.6
Consumer 6 (3) 423 419 1.4 (0.8)
---------------- -------------- ----------------------- ---------------- ---------------- ---------- ------------
Life and pension
business 269 281 10,699 11,308 2.5 2.5
---------------- -------------- ----------------------- ---------------- ---------------- ---------- ------------
Pensions
-- Workplace pension new business sales were robust with PVNBP down 1% to GBP3,096m (2018: GBP3,131m). The market
remains competitive and the quality of service demonstrated through auto-enrolment has underpinned our ability to
win new scheme tenders. Despite intense competition, we won 873 new employer schemes in 2019.
-- Individual pension new business sales decreased by 7% to GBP6,334m (2018: GBP6,818m), primarily due to reduced
defined benefit transfer activity across the market.
-- The reputation of our Pensions business was recognised by the award of "Best Pension Provider 2019" by Money
Marketing, and "Best Decumulation Proposition" category by Corporate Adviser. This is alongside 11 years of 5
star service awards and "Company of the Year" recognition by FT Adviser for the second year in a row.
UK Protection
-- Our UK protection new business sales were 8% lower at GBP678m (2018: GBP735m). In 2019, we focused on improving
profitability through improved management of the quality of business written. This resulted in the new business
margin increasing from 4.4% to 5.9%. The UK new business contribution increased to GBP40m (2018: GBP32m).
-- We were awarded "Best Online Service" at the COVER Customer Care Awards 2019, reflecting the improvements to our
online service for advisers. We are the only company to have won five-star awards for service six years in a row.
Ireland Protection
-- Protection new business sales in Ireland grew strongly by 22% to GBP137m (2018: GBP112m). New business
contribution increased to GBP17m (2018: GBP13m) and performance was strong across all products, particularly
Mortgage Protection and Term Assurance.
-- Royal London in Ireland won the "2019 Service Excellence Award" at the Brokers Ireland Excellence Awards, as well
as "Best Value Mortgage Protection" and "Best Value Term Insurance" awards at both the National Consumer Awards
2019 and the Association of Irish Mortgage Advisors Awards 2019.
Consumer
-- New business sales (PVNBP) increased 1% to GBP423m. New business margin was 1.4%, up from (0.8)% in 2018, driven
by sales of our unit-linked funeral plan product launched in 2018.
-- Ours is the only Over-50s life product to have consistently maintained a five-star Fairer Finance rating since
its inception, demonstrating the value for money and quality of the product.
Royal London Asset Management (RLAM)
Gross inflows (5) Net inflows (5)
--------- ------------------- -----------------
2019 2018 2019 2018
---------
GBPm GBPm GBPm GBPm
--------- --------- -------- -------- -------
Internal
flows 9,371 8,879 3,196 3,552
External
flows 15,760 12,317 6,696 4,100
--------- --------- -------- -------- -------
Total 25,131 21,196 9,892 7,652
--------- --------- -------- -------- -------
-- Assets under management increased to GBP139bn at 31 December 2019 (31 December 2018: GBP114bn), due to a
combination of market growth and total net inflows of GBP9,892m (2018: GBP7,652m).
-- Total net inflows increased due to external inflows of GBP6,696m (2018: GBP4,100m) from large institutional
scheme wins and strong performance in the wholesale channel. RLAM won its first major global equity mandate
during the year, a key milestone in delivering the long term business strategy.
-- Net internal inflows were lower at GBP3,196m (2018: GBP3,552m) following reduced gross inflows from individual
pension sales and higher outflows on workplace pension schemes than the same period in 2018.
-- Investment performance in 2019 was outstanding, with 98%11 (2018: 54%) of active funds outperforming their
benchmark over a three year period.
-- RLAM won a number of major industry awards during the year, including Lipper "Overall Group of the Year (Large
Company)".
-- RLAM continues to work with clients to deliver strategies that meet their needs, demonstrated through the broad
range of products offered such as our established strategies of sustainable equities, sterling credit and the
cash fund range, and selectively adding to existing capabilities in areas such as high yield bonds, multi-asset
credit, and global equities.
-- We were the market leader in sales of sustainable funds in 2019, with GBP1.4bn in new business.
Investment Funds Direct Limited (IFDL)
-- IFDL is the Group's wrap platform, supporting c. 1,500 financial advisers in managing c. 90,000 customers'
pensions and savings in tax-efficient wrappers.
-- Assets Under Administration increased 12% to GBP16.2bn (31 December 2018: GBP14.5bn) primarily due to market
growth.
-- We are exploring a number of options to help inform our future strategy.
Non-adjusting events after the balance sheet date
2020 has begun with the spread of a new strain of coronavirus,
with confirmed cases in more than 50 countries. The virus has
caused disruption to businesses and economic activity which has
precipitated substantial daily fluctuations in interest rates and
global stock markets. This has reduced the Group Regulatory View
capital cover ratio from 159% to an estimated 150%(14) as at 13
March 2020, and the Group Investor View capital cover ratio from
231% to an estimated 223%(14) . The Group Regulatory View solvency
surplus has reduced from GBP2.6bn to an estimated GBP2.4bn(14) as
at 13 March 2020, and the Group Investor View solvency surplus has
increased from GBP5.8bn to an estimated GBP5.9bn(14) . Our capital
management approach ensures that our solvency surplus remains
stable in times of markets falling. Whilst the decreases in cover
ratios are significant, the relatively small reduction of GBP0.2bn
in the Group Regulatory View solvency surplus and GBP0.1bn increase
in Group Investor View solvency surplus illustrates the
effectiveness of our equity and interest rate hedging strategies.
The Group remains very well capitalised and we will continue to
take action to protect our capital position as appropriate.
For further information please contact:
Mona Patel, Group Head of External Communications
Mona.Patel@royallondon.com
0203 272 5133 / 07919 171 964
Meera Khanna, Corporate PR Manager
Meera.Khanna@royallondon.com
0203 272 5129 / 07919 170 502
Editor's notes
1. The results in this announcement are prepared on two bases:
International Financial Reporting Standards (IFRS) and European
Embedded Value (EEV) and are prepared in accordance with the
Accounting Policies as set out in the 2019 Annual Report and
Accounts. The results prepared under IFRS form the basis of the
Group's statutory financial statements. The supplementary EEV basis
results have been prepared in accordance with the amended European
Embedded Value Principles dated April 2016 prepared by the European
Insurance CFO Forum.
2. 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 31 December 2019 swap curve
calculated in accordance with specification provided by the
European Insurance and Occupational Pensions Authority (EIOPA).
3. 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, and certain
items which are included in EEV but not recognised in IFRS. Most
notably, EEV operating profit includes the revaluation of the Value
of In-Force business (VIF) arising on the asset management and
service subsidiaries, and IFRS operating profit includes accounting
amounts such as amortisation of intangible assets which are
excluded under EEV as they are not permitted to be recognised for
regulatory purposes.
4. IFRS profit before tax is 'Result before tax and before
transfer to the unallocated divisible surplus' (UDS) in the
statement of comprehensive income. IFRS post tax transfer to
eligible policyholders is 'Transfer to the unallocated divisible
surplus' in the statement of comprehensive income, and represents
the IFRS result after tax for the period before taking into account
other comprehensive income (OCI). OCI comprises actuarial gains and
losses from changes to actuarial assumptions in the valuation of
the Group pension schemes. As a mutual, the transfer to the UDS is
a key measure of accumulation of funds available for us to share,
at our discretion, with eligible policyholders.
5. Gross and net inflows incorporate flows into RLAM from
external clients and internal flows from The Royal London Mutual
Insurance Society Ltd (RLMIS). 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 (net of reinsurance). Given its nature, non-linked
Protection business is not included.
6. Assets under management represent the total of assets
actively managed by, or on behalf of, the Group, including funds
managed on behalf of third parties. Figures are stated as at 31
December, and exclude assets administered through IFDL, our
platform business.
7. The 'Investor View' includes the surplus in the closed funds.
The 'Regulatory View' restricts the closed funds' surplus to the
value of the Solvency Capital Requirement (SCR). Group capital
figures are stated on an Internal Model basis, and prior year
comparatives have been restated on an Internal Model basis to allow
better comparison. Comparative figures are stated as at 1 January
2019 as Royal London became an insurance Group for Solvency II
purposes with effect from 1 January 2019.
8. Figures presented in tables throughout are rounded. The
capital cover ratios and new business margins are calculated based
on exact figures.
9. 31 December 2019 Group capital figures are based on an
estimated 2019 position. The Single Group SFCR will be available on
our website by 19 May 2020.
10. The Group capital position at 1 January 2019 has been
restated on an Internal Model basis to provide a more meaningful
comparison. At 1 January 2019, the Standard Formula Group
Regulatory View solvency surplus was GBP1,761m and capital cover
ratio was 139%. The 1 January 2019 Standard Formula position would
have been restated for a revised capital add-on during 2019,
increasing the Group Regulatory View solvency surplus to GBP1,817m
and capital cover ratio to 144%. The increase from the Group
Regulatory View solvency surplus and capital cover ratio amounts of
GBP1,817m and 144% to GBP2,094m and 154% respectively is the impact
of the move to the Internal Model.
11. Investment performance has been calculated using a weighted
average of our active assets under management. Benchmarks differ by
fund and reflect their mix of assets to ensure we are comparing
like with like. Passive funds are excluded from this calculation
as, whilst they have a place as part of a balanced portfolio, we
are believers in the long-term value that active management can
add.
12. The new business contribution has been grossed up for tax at
19% (2018: 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% (2018: 19%).
13. Source: Q4 2019 Pridham Report
14. The estimated capital cover ratios and solvency surplus on
both the Group Regulatory and Group Investor View basis as at 13
March 2020 assume the recalculation of the Transitional Measure on
Technical Provisions for material changes in risk free rates
arising in Q1 2020, which is subject to regulatory approval.
About us:
Royal London is the UK's largest mutual life insurance, pensions
and investment company. We're committed to meeting the needs of all
our customers.
Financial calendar:
-- 17 March 2020 - Financial Results for 2019 and conference call*
-- 3 June 2020 - Annual General Meeting (1pm at One Whitehall Place, Westminster, London SW1A 2HE)
-- 10 August 2020 - Interim Financial Results for 2020 and conference call
-- 7 October 2020 - RL Finance Bonds No 4 plc subordinated debt interest payment date
-- 13 November 2020 - RL Finance Bonds No 3 plc subordinated debt interest payment date
-- 30 November 2020 - RL Finance Bonds No 2 plc subordinated debt interest payment date
*Royal London will hold an investor conference call to present
its 2019 Financial Results on Tuesday 17 March 2020 at 09:00.
Interested parties can register at:
https://cossprereg.btci.com/prereg/key.process?key=PA4MCVKLC
Forward-looking statements:
This document may contain forward-looking statements with
respect to certain 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 and
Ireland 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;
and 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.
The Royal London Mutual Insurance Society Limited is registered
in England and Wales (99064) at 55 Gracechurch Street, London, EC3V
0RL
www.royallondon.com
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END
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