TIDM41BM TIDM60KE TIDM76DO
RNS Number : 2549R
Royal London
05 March 2021
Results Announcement 2020 5 March 2021
STRONG FLOWS INTO SUSTAINABLE FUNDS DRIVES GROWTH IN ASSETS
UNDER MANAGEMENT
Financial Highlights
Year ended Year ended
31 December 31 December 2019
2020
=============== ================================== ============ =================
UK GAAP Operating profit before GBP 41 m GBP165m
tax(1)
Profit before tax(2) GBP131m GBP414m
ProfitShare(3) GBP146m GBP140m
New business Life and pensions new business GBP 8,544 m GBP10,699m
sales(4)
Inflows Gross inflows(5) GBP 26,407 m GBP25,131m
===============
Net inflows(5) GBP 3,870 m GBP9,892m
=============== ================================== ============ =================
31 December 31 December 2019
2020
=============== ================================== ============ =================
Funds Assets under management(6) GBP 148 bn GBP139bn
=============== ================================== ============ =================
Capital Regulatory View solvency GBP2.3bn GBP2.6bn
(Solvency II) surplus(7)
---------------
Regulatory View capital
cover ratio(7) 147% 159%
Investor View solvency surplus(8) GBP2.3bn GBP2.6bn
Investor View capital cover
ratio(8) 190 % 219%
-------------------------------------------------- ------------ -----------------
-- Operating profit before tax(1) decreased to GBP41m (2019:
GBP165m), reflecting reduced new business sales and continued
investment to enhance customer service and generate long-term
growth.
-- Profit before tax(2) of GBP131m (2019: GBP414m), reflecting
reduced operating profit as well as lower relative returns on UK
investments in 2020 and further reductions in yields to historic
lows.
-- ProfitShare(3) allocation rates to eligible customers
maintained, with total ProfitShare increasing to GBP146m (2019:
GBP140m) in line with the growth in the aggregate value of eligible
policies.
-- Life and pensions new business sales(4) 20% lower impacted by
the national lockdowns.
-- Net inflows(5) were GBP3,870m in 2020 (2019: GBP9,892m) as
strong growth in demand for sustainable funds was offset by
external institutional outflows. 95%(9) of actively managed funds
outperformed their three-year benchmark (2019: 98%).
-- Assets under management(6) increased to GBP148bn (31 December
2019: GBP139bn).
-- Our capital position remains robust. This has allowed us to
continue strategic investment in our pensions business and
enhancements to our legacy systems, as well as maintaining
ProfitShare allocations.
Barry O'Dwyer, Group Chief Executive, commented:
"Our asset management business successfully navigated volatile
financial markets in 2020. Assets under management increased to
GBP148bn and we saw strong inflows into our sustainable funds.
Pensions new business sales reduced, primarily due to individuals
delaying the decision to consolidate their investments and fewer
people moving employer during these uncertain times.
Intermediated Protection performed strongly as a result of
enhancements to our product proposition and maintaining excellent
customer service. We have paid GBP13.1m in Protection claims to
families of more than 2,100 customers who sadly died from
Covid-19.
As a mutual we are able to take a long-term approach despite
short-term uncertainties. Our robust capital position has allowed
us to continue our investment in systems and service to benefit our
customers. Eligible customers will also benefit from a ProfitShare
of GBP146m, a unique feature of mutuality which enhances the value
of their savings."
Kevin Parry OBE, Chairman, commented:
"The dedication shown by colleagues across the business as they
support our customers has been exemplary and a testament to our
values as a mutual organisation. Our mutual status allows us to put
the needs of our customers above all else, focusing on the
long-term to ensure we are best placed to help customers through
the economic and societal challenges ahead.
In 2020 we demonstrated the wider role that we play in society
by working with people who we all depend on and people who need our
support. Our merger with Police Mutual allowed us to insure over
250,000 Police officers, members of the armed forces, staff and
their families.We contributed over GBP1 million to charities that
relieve poverty and counteract the impact of Covid-19.
In common with society as a whole, we look forward to a brighter
and healthier future as the vaccinations programme progresses."
About Royal London
Royal London is the UK's largest mutual insurer providing
approximately 8.8 million life, protection, pensions and savings
policies to people in the UK and Ireland. The importance of having
insurance coverage has been reinforced by the Covid-19 pandemic. We
are committed to delivering best value for our customers and
members.
Financial calendar:
-- 5 March 2021 - Financial Results for 2020 and conference
call*
-- 2 June 2021 - Annual General Meeting
-- 5 August 2021 - Interim Financial Results for 2021 and
conference call
-- 7 October 2021 - RL Finance Bonds No 4 plc subordinated debt
interest payment date
-- 13 November 2021 - RL Finance Bonds No 3 plc subordinated
debt interest payment date
-- 30 November 2021 - RL Finance Bonds No 2 plc subordinated
debt interest payment date
*Royal London will hold an investor conference call to present
its 2020 financial results on Friday 5 March 2021 at 09:00.
Interested parties can register at:
https://cossprereg.btci.com/prereg/key.process?key=PHH9PAWA8 . A
copy of the presentation to investors is available on the Group's
website at
https://www.royallondon.com/about-us/corporate-information/corporate-governance/investor-relations/
.
For further information please contact:
Meera Khanna, Corporate PR Manager, Meera.Khanna@royallondon.com
0203 272 5129 / 07919 170 502
Editor's notes
1. Operating profit before tax is represented as profit
(transfer 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
& acquisitions; ProfitShare; tax; and one-off items of an
unusual nature that are not related to the underlying trading of
the Group. Profits arising within the closed funds are held within
the respective closed fund surplus; therefore UK operating profit
represents the result of the RL Main Fund (including transfers to
RL Main Fund from the closed funds).
2. Profit before tax represents the statutory 'Profit before tax
and before transfer to the fund for future appropriations' in the
statement of comprehensive income.
3. ProfitShare is a discretionary enhancement to eligible
customers with unit-linked or with-profits policies. The allocation
is considered annually and depends on a number of factors including
financial performance, capital position, the risks and volatility
of financial markets and the Group's outlook.
4. Life and pensions new 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 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 2020 swap curve
provided by the Prudential Regulation Authority (PRA).
5. 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 (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 the Group, including funds managed on behalf of
third parties. Figures are stated as at 31 December.
7. The 'Regulatory View' capital cover ratio restricts each
closed fund's surplus to the value of the Solvency Capital
Requirement (SCR) of that fund. 2020 capital figures are
estimated.
8. The Group has changed the 'Investor View' capital cover ratio
metric in 2020 to equal the Royal London Main Fund (RL Main Fund)
capital position (excluding ring-fenced funds). The definition is
considered to be more appropriate given the RL Main Fund is the
primary source of capital for the group, and that the closed funds
are ring-fenced and run on a standalone basis. The 31 December 2019
Group Investor View comparatives have been restated, and exclude
the capital surpluses of the closed funds of GBP3.2bn reported in
2019. The 31 December 2019 Group Investor view comparatives have
been restated from GBP5,810m solvency surplus to GBP2,632m and the
capital cover ratio from 231% to 219%. All Group capital figures
are stated on a Partial Internal Model basis. 2020 capital figures
are estimated.
9. Investment performance has been calculated using a weighted
average of active assets under management. Benchmarks differ by
fund and reflect their mix of assets to ensure direct comparison.
Passive funds are excluded from this calculation as, whilst they
have a place as part of a balanced portfolio, Royal London believes
in the long-term value added by active management.
10. Figures presented throughout are rounded. The capital cover
ratios and new business margins are calculated based on exact
figures.
Review of the year
Introduction
2020 was marred by the tragic societal and economic consequences
of the pandemic. Through these difficult times, our focus has
remained on the health and well-being of our colleagues so that
they can continue to deliver, supporting our members and
customers.
The year was also one of change for Royal London. Even before
the pandemic struck, our industry was facing a period of
transformation in response to changing customer needs and demands.
To respond to emerging trends, a review of our Purpose and strategy
was initiated with the support of the Board.
Purpose
Since we opened our doors in 1861, we have helped people to help
themselves. That has been our way of thinking ever since. The
articulation of our Purpose in 2020 has been shaped by colleagues,
members, customers and our partners to reflect different
perspectives, and also to recognise the impact of our business on
wider society. We are proud to unveil our Purpose as: Protecting
today, investing in tomorrow. Together we are mutually responsible.
The words we use to describe our Purpose may have evolved, but the
sentiment behind it has always stayed true to our roots as a
mutual. Our Purpose will continue to guide our decision-making from
the way we transform our business to the positive impact we want to
have on society.
We are also changing the way we manage our business to align to
our Purpose. From the start of 2021 we will be structured into
three business units: UK, Ireland and Asset Management. Within the
UK, we will be organised by customer life stage, allowing us to
focus on offerings to meet the needs of customers at earlier and
later stages of life.
Strategic review
Royal London has many strengths: loyal members, customers and
distribution partners, fantastic people and a strong brand with
leading products. However, there is always more to be done in
building mutually beneficial relationships with our customers and
other key stakeholders. Coupled with our great service, we want to
provide our customers with unique and innovative solutions which
meet their needs at the different stages of their lives. We need to
anticipate how we can be of additional help to customers and
continuously work to improve their experience with us. To enable
this to happen, we have made some changes to our organisational
shape. After a careful review of the types of products and services
that will best meet our customers' needs, we decided to sell our
IFA investment platform business, Ascentric. We are continuing to
invest in the technology that underpins our long-term savings
products and we believe this will provide better functionality for
both customers and their advisers in the years ahead.
We have also looked for opportunities to supplement growth by
acquisition and, in October, welcomed Police Mutual into Royal
London. We continued to strengthen and broaden our propositions and
in September we entered the equity release market with an
Introducer Model whereby we offer customers the opportunity to
access impartial financial advice on later life lending from our
partner Responsible Life. We are building on strong foundations and
we are doing what every successful business does: making sure we
stay focused on what our customers want and need, selling parts of
our business that do not fit with our long-term vision and
investing in growing the capabilities that will make the most
difference to the lives of our customers.
Power of mutuality
At Royal London, we strongly believe in the benefits of
mutuality. We are uniquely positioned to put the needs of our
customers above all else and take a long-term approach despite the
short-term uncertainties. As a mutual, we can use our profits to
invest in the things we believe benefit our customers most, such as
our systems and services, as well as enhancing returns on eligible
life and pensions policies, through ProfitShare. Since the
introduction of ProfitShare in 2007, we have added more than GBP1bn
to the value of eligible customers' savings.
I am delighted to report that we have exceeded all of our target
metrics for customer service and we are seeing positive trends in
customer advocacy. We want to support our customers beyond
providing a financial payout, so we launched a financial well-being
portal on the Royal London mobile app. Our Helping Hand service
also provides our protection customers with valuable, additional
support that they may need during a life shock.
This year more than ever we have all seen how financial hardship
can happen to anyone, at any time, and a life shock can turn into a
deep crisis for people who do not have a financial cushion to fall
back on. In 2020, we launched our first strategic partnership with
Turn2us, a charity which is at the forefront of the fight against
UK poverty. Through our work we help people who help themselves,
but through this charity partnership we want to help provide a
safety net for people who cannot help themselves because of a life
shock.
After years of campaigning by Royal London on funeral poverty,
the Government announced a 43% increase in the funeral grant paid
to low-income families, effective from April 2020. We will continue
to campaign for the grants to be increased annually, at least in
line with inflation, and call for the Government to take urgent
action on introducing minimum standards for public health
funerals.
We have redirected our brand spend in support of our Purpose. We
often see families when they are at their most vulnerable, having
just lost a loved one. We know the difference it can make to a
grieving family to have had some basic discussions about death
before it happens. We ran a successful campaign, Lost for Words, in
partnership with renowned photographer Rankin, which was created to
inspire an open conversation about death, grief and how to be more
prepared for it.
The pandemic may have dominated the news, but we will not lose
sight of the environmental issues facing the world. We listen to
our members and we know that you want to make a collective
difference to the climate challenge. Royal London Asset Management
(RLAM) has an outstanding track record in sustainable investment,
recognised by winning five awards in this space in 2020. We have
also evolved our investment framework to put environment, social
and governance (ESG) issues at the heart of our investment
decisions. We are committed to achieving net zero by 2050 across
our investments and are signatories to the Institutional Investors
Group on Climate Change Net Zero Commitment.
Covid-19 and our colleagues
We successfully transitioned to 98% of our colleagues working
from home during the lockdowns of 2020, which enabled us to
continue to provide our normal high level of service to customers.
Our colleagues' professionalism meant that we stayed open for
business without needing to ask customers to delay interactions
with us. When the Covid-19 pandemic first struck, we committed to
pay all colleagues 100% of their salary regardless of their
situation and we made the decision not to furlough anyone.
Our trading performance
2020 has no doubt been a uniquely challenging year and our
operating profit before tax for the year ended 31 December 2020 was
lower at GBP41m (2019: GBP165m).
RLAM, which manages the funds for our customers and external
clients, has successfully navigated the volatile financial markets.
Assets under management increased to GBP148bn (31 December 2019:
GBP139bn), driven by positive market movements and net inflows of
GBP3.9bn, due to growth in sustainable funds in the wholesale
market which mitigated outflows from institutional investors. Our
investment performance remained strong with 95% (2019: 98%) of
actively managed funds outperforming their benchmark over three
years.
In 2020, we increased sales across our intermediated protection
products in the UK and Ireland, with present value of new business
premiums (PVNBP) increasing by 18% to GBP962m (2019: GBP815m).
Whilst the virus may have brought home to society the importance of
life insurance, critical illness cover and income protection, our
success was driven by high-quality propositions, strong service and
excellent underwriting capabilities. As a result, our market share
in the UK and Ireland intermediated protection business has
increased to 14% (2019: 11%) and 23% (2019: 22%) respectively.
Our pension sales fell in 2020, with PVNBP reducing by 24% to
GBP7,206m as economic uncertainty, market volatility and the
national lockdowns caused disruption to the services provided by
intermediaries to their customers. Consequently, individual
pensions sales have decreased, with PVNBP reducing by 25% to
GBP4,753m. Workplace pension volumes were also lower as companies
deferred decisions to move scheme providers.
Sales in our Consumer division have been impacted by the
national lockdowns and declined to GBP376m (2019: GBP423m). Margins
were also impacted by the ultra-low interest rate environment.
Despite the slowdown in the market, we have continued our
investment in digital infrastructure as customers and advisers want
to deal with us more online. Our pensions mobile app has seen an
increase in registration, doubling over 2020.
Our outstanding propositions and service performance was
recognised by winning a number of awards in 2020, including the
Company of the Year 2020 from Money Marketing (including the
individual award of Protection Provider of the Year 2020), Best
Underwriting Team from the COVER Customer Care awards, Provider of
the Year 2019 at the Simply Biz Group Annual Partnership Event 2020
and Best Mortgage Protection award at the 2020 National Consumer
Awards in Ireland.
Looking ahead
We made good progress against our strategic agenda in 2020.
There is more to do in 2021 but we have all the ingredients to
succeed. Royal London has been around for almost 160 years and our
foundations are incredibly strong. Our robust capital position
provides us with the flexibility to pursue growth opportunities and
to continue to invest in digital innovation and technology.
Underpinning our success in 2020 is the loyalty and hard work of
our colleagues. The whole Board joins me in thanking colleagues
across the Group. They faced many operational changes arising from
the pandemic but their continued high levels of engagement and
focus on supporting our customers throughout demonstrated
commitment to seizing every opportunity available to make Royal
London a purpose-led modern mutual.
Covid-19 has undoubtedly had an impact on new business
prospects. However, it is a stark reminder that our purpose is
wider than the generation of short-term profits. As we embark on
the next chapter in the Royal London story, our success will be our
part in society's success.
Financial Review
2020 has been an unprecedented financial year. Covid-19 has
caused extensive global economic impacts including significant
volatility in financial markets. In this context, we have been
disciplined in our management of the business whilst continuing to
invest.
Group operating profit before tax for the year ended 31 December
2020 was lower at GBP41m (2019: GBP165m), with statutory profit
before tax for the year of GBP131m (2019: GBP414m). Our pension new
business volumes were impacted by the uncertain economic
environment and disruption to services provided by intermediaries,
however protection sales grew through enhancements to our
proposition and service delivery. Operating profit on assets under
management (AUM) increased driven by revenue growth from higher
assets under management of GBP148bn at 31 December 2020 (31
December 2019: GBP139bn), including strong performance in
sustainable funds.
Our capital position remains robust. This has allowed us to
continue our investments in our pensions business and new
propositions. ProfitShare allocation rates were maintained, with
total ProfitShare for 2020 increasing to GBP146m (2019: GBP140m) in
line with the growth in the aggregate value of eligible policies.
Maintaining the level of allocation demonstrates Royal London's
resilience in difficult times and our commitment to delivering
value.
Financial Performance
Group operating profit before tax
Group operating profit before tax of GBP41m (2019: GBP165m) was
lower in 2020, impacted by a lower contribution from new business,
reduced experience variances and assumption changes compared to the
prior year and higher financing costs. These items more than offset
higher profitability in our AUM businesses and lower levels of
losses on other businesses following the disposal of Ascentric.
Group Operating Profit 2020 2019 Change
GBPm GBPm GBPm
======================================== ====== ====== =======
Contribution from new business 149 217 (68)
======================================== ====== ====== =======
Profits from existing business 117 194 (77)
======================================== ====== ====== =======
- Expected return 116 102 +14
======================================== ====== ====== =======
- Experience variances and assumption
changes 22 92 (70)
======================================== ====== ====== =======
- Modelling and other changes (21) - (21)
======================================== ====== ====== =======
Operating profit on assets under
management businesses 80 66 +14
======================================== ====== ====== =======
Operating loss on other businesses (6) (24) +18
======================================== ====== ====== =======
Strategic development costs and
other items (including amortisation
and impairment of other intangibles) (224) (232) +8
======================================== ====== ====== =======
Financing costs (75) (56) (19)
======================================== ====== ====== =======
Group operating profit before
tax 41 165 (124)
======================================== ====== ====== =======
Contribution from new business reduced to GBP149m (2019:
GBP217m) due to a reduction in sales of new life and pension
business as economic uncertainty, stock market volatility and the
national lockdowns caused disruption to the services provided by
intermediaries to their clients. Life and pensions new business
margin reduced to 1.7% (2019 restated: 2.0%) as a result of lower
sales volumes, mitigated in part by cost management measures taken
whilst ensuring levels of customer service were maintained.
New business PVNBP New business
contribution margin
=================== ================ ============= ====================
2020 2019 2020 2019 2020 2019
(Restated (Restated(a)
[a] ) )
GBPm GBPm GBPm GBPm % %
=================== ==== ========== ===== ====== ===== =============
Pensions 111 166 7,206 9,461 1.5 1.8
31 33 825 678 3.8 4.9
Intermediated
Protection 13 137 9.5
Ireland Protection 12 137 8.8
Consumer (5) 5 376 423 (1.3) 1.2
------------------- ---- ---------- ----- ------ ----- -------------
Life and pensions
business 149 217 8,544 10,699 1.7 2.0
------------------- ---- ---------- ----- ------ ----- -------------
a New business contribution and margin for 2019 have been
restated to reflect the removal of the tax gross up of 19% on
transition to UK GAAP, which was applied in EEV reporting.
Pensions
Our Pensions sales fell in 2020 as economic uncertainty, stock
market volatility and the national lockdowns caused disruption to
the services provided by intermediaries to their clients. Due to
the fall in sales, Pensions new business margin reduced to 1.5%
(2019: 1.8%).
Individual Pensions new business sales decreased by 25% to
GBP4,753m (2019: GBP6,334m). The reduction was mainly due to
individuals delaying the decision to consolidate their pension
holdings and advisers having to work to adapt their business models
early in the pandemic. We remain a market leader in drawdown and
our strengths in the individual pension market continue to be the
quality of the customer experience and investment proposition, the
strong service we provide and our sales distribution strategy.
Workplace Pensions new business sales also decreased by 21% to
GBP2,453m (2019: GBP3,127m). Volumes were lower as companies
deferred decisions to move scheme providers and fewer people moved
employer, resulting in lower new entrants to existing schemes. New
regular contributions from existing members were comparable to
2019, but transfer activity was lower. New scheme activity was
significantly reduced, although it did show signs of improvement in
the period following the initial lockdown as the economy slowly
recovered. Our strength in the workplace pensions market comes from
the service experience we provide to scheme members, employers and
advisers and the support we provide through people, with
implementation managers responsible for each scheme.
Intermediated Protection
Sales of our intermediated protection products grew 22% to
GBP825m (2019: GBP678m), following market share increases due to
enhancements to our proposition, alongside maintaining strong
customer service throughout the Covid-19 pandemic. Despite the
growth in sales, a strengthening of mortality assumptions resulted
in a reduced new business margin of 3.8% (2019: 4.9%).
To help our protection customers during the pandemic, we made a
number of temporary changes to our protection proposition. This
included the introduction of a premium deferral option to help
customers retain their cover and increased underwriting non-medical
limits, so that more customers could obtain protection without
medical evidence, hence avoiding placing any additional burden on
the NHS. We are also offering free access to mental and physical
well-being apps, as well as discounted will-writing services to all
customers through the Helping Hand service.
Ireland Protection
Our Irish business performed well, gaining further market share
as we continued to innovate with enhanced propositions. Despite
this, due to the market severely contracting over 2020 and policy
cover sizes reducing, new business sales remained stable at GBP137m
(2019: GBP137m). New business margin has decreased from 9.5% to
8.8%.
Consumer
New business sales were down by 11% to GBP376m (2019: GBP423m)
in our Consumer division. This impacted new business contribution,
which reduced to GBP(5)m (2019: GBP5m), as despite action taken to
reduce variable costs, fixed acquisition costs were spread across
fewer policies and the low interest rate environment impacted
margins. However, there were still more than 50,000 new direct
customers to the Group in 2020.
Profit from existing business reduced to GBP117m (2019:
GBP194m). The expected return on the in-force book increased
reflecting the growth in the book and a higher proportion of
surplus assets invested in higher yielding corporate bonds, offset
by the impact of lower risk-free rates compared to 2019.
Experience variances and assumption changes reduced to GBP22m
(2019: GBP92m), primarily as positive expense effects from high new
business sales in prior years have not repeated. We have seen
positive persistency experience variances in 2020 as fewer people
changed employers and transferred policies during the lockdown
period. We expect this trend to reverse in 2021 and therefore have
made specific allowance in our assumptions of GBP30m for the
expected adverse impacts on our pensions business of higher
unemployment caused by the economic slowdown and the end of the
government's furlough scheme. We have also provided GBP7m at 31
December 2020 for higher mortality claims expected to arise from
Covid-19.
As part of our ongoing activities to ensure our actuarial models
remain as reliable as possible and take account of the most recent
experience data, we continue to make minor modifications and
modelling changes, particularly to our legacy protection books of
business. In 2020, the effect was a charge of GBP21m.
Operating profit on AUM businesses increased to GBP80m (2019:
GBP66m) following a rise in revenues generated primarily through
higher assets under management of GBP148bn (31 December 2019:
GBP139bn), dampened by higher operating costs as a result of the
continued growth of and investment in the RLAM team. Sustainable
funds in particular performed strongly during 2020.
Strategic development costs and other items (including
amortisation and impairment of other intangibles) were broadly
maintained at GBP224m (2019: GBP232m).
Strategic development costs and 2020 2019
other items GBPm GBPm
================================= ====== ======
Strategic development costs (90) (135)
================================= ====== ======
Corporate and other development
costs (134) (97)
================================= ====== ======
Total (224) (232)
================================= ====== ======
Strategic development costs of GBP90m (2019: GBP135m) represent
investments that we believe are important for our future
competitiveness and we expect will deliver good returns in the
future. This includes investment in our pensions business to drive
digital transformation and improve our customer experience. We have
also continued our investment in enhancements to legacy systems and
migrated a substantial proportion of customers to a better platform
during 2020. The Group has also invested to develop the capability
to provide customers with guaranteed annuity rates with a Royal
London Annuity, a proposition which became available in early
2021.
Corporate and other development costs of GBP134m (2019: GBP97m)
included costs to realise efficiencies in our cost base, the costs
of developments arising from regulatory change, the costs to
strengthen IT security, the cost of rectifications from past sales
and other corporate activity.
Financing costs increased to GBP75m (2019: GBP56m), with 2020
reflecting a full year of interest costs following the issuance of
GBP600m of subordinated debt in October 2019.
Reconciliation of operating profit before tax to statutory
profit before tax
Profit before tax
Profit before tax for the year was GBP131m (2019: GBP414m)
impacted by the reduction in operating profit and lower economic
effects compared to the prior year.
Reconciliation of Operating Profit 2020 2019 Change
to Statutory Profit Before Tax GBPm GBPm GBPm
=================================== ====== ====== =======
Group operating profit before
tax 41 165 (124)
=================================== ====== ====== =======
Economic movements 210 378 (168)
=================================== ====== ====== =======
Amortisation of goodwill arising
from mergers and acquisitions 12 11 +1
=================================== ====== ====== =======
Profit on sale of subsidiaries 14 - +14
=================================== ====== ====== =======
ProfitShare (146) (140) (6)
=================================== ====== ====== =======
Statutory profit before tax 131 414 (283)
=================================== ====== ====== =======
Economic movements reduced to GBP210m reflecting lower relative
returns on UK investments in 2020 and further reductions in yields
during 2020 to historic lows which increased liability valuations.
A significant amount of the 2020 yield movement has been offset by
the effective operation of hedges in place.
Amortisation of goodwill arising from mergers and acquisitions
of GBP12m (2019: GBP11m) relates to negative goodwill (capitalised
under UK GAAP) being amortised over its estimated useful life. This
occurs where the fair value of net assets acquired in an
acquisition exceeds the fair value of consideration paid.
Profit on sale of subsidiaries of GBP14m was generated from the
disposal of the Ascentric platform. The business was sold on 1
September 2020 to M&G plc for total cash consideration of
GBP86m.
ProfitShare allocation rates were maintained, with total
ProfitShare increasing to GBP146m (2019: GBP140m) in line with the
growth in the aggregate value of eligible policies. The
enhancements to qualifying policies from ProfitShare were 1.2% for
with-profits policies and 0.15% for unit-linked policies (2019:
1.2% and 0.15% respectively). Maintaining the level of allocations
demonstrates Royal London's resilience in difficult times and our
commitment to delivering value.
Assets under management
2020 was another good year for Royal London Asset Management
(RLAM). In an uncertain period, we maintained our consistent record
of successfully navigating financial markets and safeguarding
clients' funds. Our position at the forefront of the fast-growing
ethical and sustainable investment sector was a key source of
success. Assets under management grew to GBP148.4bn (31 December
2019: GBP138.9bn) driven by net inflows of GBP3.9bn, the inclusion
of GBP0.7bn of assets under management from Police Mutual, and
GBP4.9bn of positive market movements.
For the past five years we have placed a strategic emphasis on
expanding into the wholesale market, to platforms, independent
financial advisers and wealth managers. During 2020, this strategy
has been very successful, providing a strong source of sales, with
our sustainable funds proving attractive to investors.
Gross inflows Net inflows
--------- --------------- -------------
2020 2019 2020 2019
---------
GBPm GBPm GBPm GBPm
--------- ------- ------ ------ -----
Internal
flows 8,089 9,371 2,205 3,196
--------- ------- ------ ------ -----
External
flows 18,318 15,760 1,665 6,696
--------- ------- ------ ------ -----
Total 26,407 25,131 3,870 9,892
--------- ------- ------ ------ -----
Internal net inflows reduced to GBP2.2bn in 2020 (2019:
GBP3.2bn) due to reduced pension new business. External net inflows
reduced to GBP1.7bn in 2020 (2019: GBP6.7bn) driven primarily by
net outflows from institutional investors which was partly due to
the overall decline in defined benefit pension funds. The outflows
were mitigated by inflows into the sustainable fund range in the
wholesale channel.
Financial stress caused by the pandemic also led to a reduction
in cash holdings by organisations such as universities and
charities. As a result, we saw a reduction in the cash funds we
manage on their behalf. We were also affected by the trend towards
global credit products, as many institutional investors moved away
from sterling-based credit products. Although we have expanded into
global credit, it will take time to establish the three-year track
record buyers look for to then see results in this area. This is
the same process we have been through with strategies such as
global equities and multi-asset credit - two areas in which we are
now seeing strong sales.
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 commitments to
them.
Managing our capital base effectively is a key priority for us.
In common with the rest of 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 for the Group at 31 December 2020.
Group
---------------------------------- ------------------------
Key metrics 31 December 31 December
2020 2019
---------------------------------- ----------- -----------
Regulatory solvency surplus(7) GBP2,258m GBP2,632m
---------------------------------- ----------- -----------
Regulatory capital cover ratio(7) 147% 159%
---------------------------------- ----------- -----------
Investor view solvency surplus(8) GBP2,258m GBP2,632m
---------------------------------- ----------- -----------
Investor view capital cover
ratio(8) 190% 219%
---------------------------------- ----------- -----------
At 31 December 2020, the estimated Solvency II Group Investor
View capital cover ratio was 190% (31 December 2019 restated: 219%)
and solvency surplus was GBP2,258m (31 December 2019 restated:
GBP2,632m). The estimated Solvency II Regulatory View capital cover
ratio was 147% at 31 December 2020 (31 December 2019: 159%).
The Group solvency surplus (Investor View) has reduced from
GBP2,632m at 31 December 2019 to GBP2,258m at 31 December 2020. The
2019 capital position included the issuance of GBP600m of
subordinated debt in October 2019. The reduction in 2020 reflects
the continued strategic investment in our pensions business and
enhancements to our legacy systems, as well as maintaining
ProfitShare allocations. We also invested in a matching adjustment
portfolio ahead of the launch of our annuity proposition, which has
led to a short-term increase in capital requirements pending
regulatory approval. Economic variances have been in line with
expectations, with our equity and interest rate hedging strategies
operating as intended through the market volatility in the
year.
Balance Sheet
Our balance sheet position remains robust. Our total investment
portfolio, including investment property, increased to GBP107.9bn
(2019: GBP99.4bn), driven through low yields which increase the
value of bonds, net external inflows (mainly from strong inflows on
the sustainable funds) and recovery in equity markets, particularly
outside the UK, during the year. Increases in investment asset
values have been offset in the balance sheet by an increase in
policyholder liabilities through low risk-free rates used to
discount liabilities.
Our financial investment portfolio remains well diversified
across a number of financial instruments, with the majority
invested in equity securities and fixed income assets.
A significant portion of our investment portfolio is in high
quality assets with a credit rating of 'A' or above. In our
non-linked portfolio, 91% of our non-linked debt securities and 81%
of our non-linked corporate bonds had a credit rating of A or
better at 31 December 2020. There have been no significant defaults
in our corporate bond portfolio.
Principal risks and uncertainties
The principal risks and uncertainties facing the Group are set
out in the 'Principal risks and uncertainties'
section of the strategic report in Royal London's 2020 Annual Report and Accounts (ARA) ( royallondon.com/about-us/corporate-information/corporate-governance/investor-relations/ ). The effects of Covid-19 continue to impact global economies and investment markets, increasing uncertainty and in particular market risk, insurance risk (including assumptions in relation to mortality and persistency) and operational risk. These risks and uncertainties continue to be monitored and mitigated through our risk management system.
Forward-looking statements
Royal London may make verbal or written, 'forward-looking
statements', including 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. These statements are based on plans,
estimates and projections as at the time they are made, and
therefore 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
which are beyond Royal London's control. Royal London believes
factors that could cause actual financial condition, performance or
other indicated results to differ materially from those indicated
in forward-looking statements in the announcement include, among
others , the ongoing effects of the Covid-19 pandemic; UK and
Ireland economic and business conditions; future market-related
risks such as fluctuations in interest rates, the continuance of a
sustained low-interest rate environment, and the performance of
financial markets generally; the policies and actions of
governmental and regulatory authorities, including, for example,
new government initiatives; the political, legal and economic
effects of the UK's withdrawal from the European Union; 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 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 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 fo r
the members and bondholders of Royal London and no one else . Royal
London, its employees, or advisers do not accept or assume
responsibility to any other person to whom this document is shown
or into whose hands it may come, and any such responsibility or
liability is expressly disclaimed.
The Royal London Mutual Insurance Society Limited is registered
in England and Wales (99064) at 55 Gracechurch Street, London, EC3V
0RL.
www.royallondon.com
Financial Statements
Consolidated statement of comprehensive income
For the year ended 31 December 2020
Group
================
Technical account - long-term business 2020 2019
GBPm GBPm
---------------------------------------------------------------------------- ------- -------
Gross premiums written 1,018 1,009
---------------------------------------------------------------------------- ------- -------
Outwards reinsurance premiums (541) (333)
---------------------------------------------------------------------------- ------- -------
Earned premiums, net of reinsurance 477 676
---------------------------------------------------------------------------- ------- -------
Investment income 5,447 5,184
---------------------------------------------------------------------------- ------- -------
Unrealised gains on investments - 6,012
---------------------------------------------------------------------------- ------- -------
Other income 548 505
---------------------------------------------------------------------------- ------- -------
Total income 6,472 12,377
---------------------------------------------------------------------------- ------- -------
Claims paid
---------------------------------------------------------------------------- ------- -------
* Gross claims paid (2,657) (2,984)
---------------------------------------------------------------------------- ------- -------
* Reinsurers' share 505 524
---------------------------------------------------------------------------- ------- -------
Change in provision for claims
---------------------------------------------------------------------------- ------- -------
* Gross amount 77 (2)
---------------------------------------------------------------------------- ------- -------
* Reinsurers' share (6) (13)
---------------------------------------------------------------------------- ------- -------
Claims incurred, net of reinsurance (2,081) (2,475)
---------------------------------------------------------------------------- ------- -------
Change in long-term business provision, net of reinsurance
---------------------------------------------------------------------------- ------- -------
* Gross amount (1,522) (2,291)
---------------------------------------------------------------------------- ------- -------
* Reinsurers' share 243 (57)
---------------------------------------------------------------------------- ------- -------
(1,279) (2,348)
---------------------------------------------------------------------------- ------- -------
Change in technical provision for linked liabilities, net of reinsurance (1,426) (6,434)
---------------------------------------------------------------------------- ------- -------
Change in technical provisions, net of reinsurance (2,705) (8,782)
---------------------------------------------------------------------------- ------- -------
Change in non-participating value of in-force business 140 388
---------------------------------------------------------------------------- ------- -------
Net operating expenses (619) (756)
---------------------------------------------------------------------------- ------- -------
Investment expenses and charges (222) (179)
---------------------------------------------------------------------------- ------- -------
Unrealised losses on investments (597) -
---------------------------------------------------------------------------- ------- -------
Other charges (257) (159)
---------------------------------------------------------------------------- ------- -------
Total operating expenses (1,695) (1,094)
---------------------------------------------------------------------------- ------- -------
Profit before tax and before transfer to the fund for future appropriations 131 414
---------------------------------------------------------------------------- ------- -------
Tax attributable to long-term business (51) (171)
---------------------------------------------------------------------------- ------- -------
Transfer to the fund for future appropriations 80 243
---------------------------------------------------------------------------- ------- -------
Balance on technical account - long-term business - -
---------------------------------------------------------------------------- ------- -------
Other comprehensive income, net of tax:
---------------------------------------------------------------------------- ------- -------
Remeasurement of defined benefit pension schemes (71) (36)
---------------------------------------------------------------------------- ------- -------
Foreign exchange rate movements on translation of group entities (36) (4)
---------------------------------------------------------------------------- ------- -------
Deduction from the fund for future appropriations (107) (40)
---------------------------------------------------------------------------- ------- -------
Other comprehensive income for the year, net of tax - -
---------------------------------------------------------------------------- ------- -------
Total comprehensive income for the year - -
---------------------------------------------------------------------------- ------- -------
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 year is always nil after the transfer
to or deduction from the fund for future appropriations.
Balance Sheets
As at 31 December 2020
Group Company
================ ================
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
-------------------------------------------- ------- ------- ------- -------
ASSETS
-------------------------------------------- ------- ------- ------- -------
Intangible assets
-------------------------------------------- ------- ------- ------- -------
Goodwill 28 - 28 -
-------------------------------------------- ------- ------- ------- -------
Negative goodwill (52) (64) (9) ( 14 )
-------------------------------------------- ------- ------- ------- -------
(24) (64) 19 ( 14 )
-------------------------------------------- ------- ------- ------- -------
Other intangible assets 70 70 69 69
-------------------------------------------- ------- ------- ------- -------
46 6 88 55
-------------------------------------------- ------- ------- ------- -------
Non participating value of in-force
business 2,229 2,089 2,229 2,089
-------------------------------------------- ------- ------- ------- -------
Investments
-------------------------------------------- ------- ------- ------- -------
Land and buildings 168 169 168 169
-------------------------------------------- ------- ------- ------- -------
Investments in group undertakings - - 16,322 13,201
-------------------------------------------- ------- ------- ------- -------
Other financial investments 47,502 43,620 31,735 31,060
-------------------------------------------- ------- ------- ------- -------
47,670 43,789 48,225 44,430
-------------------------------------------- ------- ------- ------- -------
Assets held to cover linked liabilities 60,229 55,605 60,229 55,605
-------------------------------------------- ------- ------- ------- -------
Reinsurers' share of technical provisions
-------------------------------------------- ------- ------- ------- -------
Long-term business provision 5,181 4,925 5,138 4,889
-------------------------------------------- ------- ------- ------- -------
Claims outstanding 93 99 87 95
-------------------------------------------- ------- ------- ------- -------
Technical provisions for linked liabilities (50) (17) (50) (17)
-------------------------------------------- ------- ------- ------- -------
5,224 5,007 5,175 4,967
-------------------------------------------- ------- ------- ------- -------
Debtors
-------------------------------------------- ------- ------- ------- -------
Debtors arising out of direct insurance
operations 192 108 48 33
-------------------------------------------- ------- ------- ------- -------
Debtors arising out of reinsurance
operations 41 35 33 30
-------------------------------------------- ------- ------- ------- -------
Other debtors 493 266 433 230
-------------------------------------------- ------- ------- ------- -------
726 409 514 293
-------------------------------------------- ------- ------- ------- -------
Other assets
-------------------------------------------- ------- ------- ------- -------
Tangible assets 25 18 - -
-------------------------------------------- ------- ------- ------- -------
Cash at bank and in hand 851 706 633 337
-------------------------------------------- ------- ------- ------- -------
876 724 633 337
-------------------------------------------- ------- ------- ------- -------
Prepayments and accrued income
-------------------------------------------- ------- ------- ------- -------
Deferred acquisition costs on investment
contracts 163 194 163 194
-------------------------------------------- ------- ------- ------- -------
Other prepayments and accrued income 35 36 - -
-------------------------------------------- ------- ------- ------- -------
198 230 163 194
-------------------------------------------- ------- ------- ------- -------
Pension scheme asset 128 169 128 169
-------------------------------------------- ------- ------- ------- -------
Total assets 117,326 108,028 117,384 108,139
-------------------------------------------- ------- ------- ------- -------
Balance Sheets (continued)
Group Company
================ ================
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
-------------------------------------------- ------- ------- ------- -------
LIABILITIES
-------------------------------------------- ------- ------- ------- -------
Subordinated liabilities 1,332 1,331 1,332 1,331
-------------------------------------------- ------- ------- ------- -------
Fund for future appropriations 3,673 3,700 3,993 4,005
-------------------------------------------- ------- ------- ------- -------
Technical provisions
-------------------------------------------- ------- ------- ------- -------
Long-term business provision 42,181 40,016 42,245 40,077
-------------------------------------------- ------- ------- ------- -------
Claims outstanding 259 326 234 307
-------------------------------------------- ------- ------- ------- -------
42,440 40,342 42,479 40,384
-------------------------------------------- ------- ------- ------- -------
Technical provisions for linked liabilities 60,059 55,392 60,059 55,392
-------------------------------------------- ------- ------- ------- -------
Provisions for other risks
-------------------------------------------- ------- ------- ------- -------
Deferred taxation 140 179 144 192
-------------------------------------------- ------- ------- ------- -------
Other provisions 282 286 273 270
-------------------------------------------- ------- ------- ------- -------
422 465 417 462
-------------------------------------------- ------- ------- ------- -------
Creditors
-------------------------------------------- ------- ------- ------- -------
Creditors arising out of direct insurance
operations 237 228 216 217
-------------------------------------------- ------- ------- ------- -------
Creditors arising out of reinsurance
operations 2,871 2,729 2,869 2,731
-------------------------------------------- ------- ------- ------- -------
Amounts owed to credit institutions 72 67 72 56
-------------------------------------------- ------- ------- ------- -------
Other creditors including taxation
and social security 6,055 3,617 5,828 3,470
-------------------------------------------- ------- ------- ------- -------
9,235 6,641 8,985 6,474
-------------------------------------------- ------- ------- ------- -------
Pension scheme liability 44 - 44 -
-------------------------------------------- ------- ------- ------- -------
Accruals and deferred income 121 157 75 91
-------------------------------------------- ------- ------- ------- -------
Total liabilities 117,326 108,028 117,384 108,139
-------------------------------------------- ------- ------- ------- -------
Basis of preparation
The financial statements of the Group and the Company ('the
financial statements') have been prepared 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 full UK GAAP accounting policies that have been applied in
the preparation of the 2020 results can be found
on the Royal London website at ( royallondon.com/about-us/corporate-information/corporate-governance/investor-relations/ ).
The results announcement for the year ended 31 December 2020
does not constitute statutory accounts as defined in Section 434 of
the Companies Act 2006. The financial information in this results
announcement has been derived from the Group financial statements
within the Group's 2020 ARA. The Group's 2019 ARA has been filed
with the Registrar of Companies, and the 2020 ARA will be filed in
due course. The results on a UK GAAP basis for full year 2020 and
2019 have been audited by PricewaterhouseCoopers LLP (PwC). PwC has
reported on the ARA in 2020 and 2019. Both their reports were (i)
unqualified, (ii) did not include a reference to any matters to
which they drew attention by way of emphasis without qualifying
their report, and (iii) did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The results 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 emerging and potential impacts on the
Group's performance, liquidity and capital position from Covid-19
and the associated market uncertainty have been considered. The
Group regularly performs sensitivities and stress testing on a
range of severe but plausible scenarios, including but not limited
to global pandemics, 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 was deterioration in the capital
position of the Group. The capital position remains sufficient to
cover capital requirements in these scenarios, and the Directors
have therefore concluded that no material uncertainty exists over
the going concern assumption.
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