TIDM41BM TIDM60KE TIDM76DO
RNS Number : 6131D
Royal London
04 March 2022
Results Announcement 2021 4 March 2022
Royal London continues to share profits with customers as assets
under management hit record levels
Barry O'Dwyer, Group Chief Executive, commented:
"In 1861, Royal London was established by working people to help
families to protect themselves from the shame of suffering a
pauper's funeral. Although our business has grown and developed
over the years, our purpose as a mutual has never been more
relevant. We help families in the UK and Ireland to protect what
they have today and invest in a better tomorrow. We are responsible
stewards of our customers' money. As a mutual, our customers get to
share in our success.
"2021 was a good year for Royal London. Sales and profits are
both up on last year. We have maintained very strong flows into our
asset management business, helping assets to hit record levels. Our
Governed Range remains a hugely popular choice amongst independent
financial advisers and this range alone accounts for over GBP50bn
of our customers' investments. The action we have taken to reduce
the carbon intensity of the equity investments in this range shows
that a well-run portfolio can generate excellent returns in a
responsible way."
Kevin Parry OBE, Chairman, commented:
"We are committed to our mutual status and are strong advocates
of the role mutuals play in financial services. This year we will
share GBP169m with 1.8 million eligible customers. Since we
introduced ProfitShare in 2007, Royal London has returned more than
GBP1.2bn, which is only possible because we are a mutual.
"In the last 10 days, the conflict in Ukraine has significantly
increased the human and socio-economic risks in Europe and the
World. We are closely monitoring all developments and have made an
emergency charitable donation of GBP250,000 to the British Red
Cross Ukraine Crisis Appeal that is providing humanitarian relief
in Ukraine."
Highlights
-- ProfitShare3 allocation rates maintained, with total ProfitShare increasing by 15.8% to GBP169m (2020: GBP146m)
in line with the growth in the aggregate value of eligible policies.
-- Governed Range surpassed the GBP50bn AUM milestone for the first time.
-- Consistent fund performance, with 99% of actively managed funds outperforming their three-year benchmark (2020:
95%)4.
-- Transitioned GBP23bn of indexed equities in our Governed Range to improve their carbon intensity, helping to
reduce the equity components' carbon intensity by 16% by the end of 20215.
-- 3.2 million long-standing policies now migrated onto new technology, improving the quality and ease of customers'
servicing experience.
-- Provided certainty of estate distribution for policyholders in four closed with-profits funds, consolidating them
into the Royal London Main Fund while uplifting their policy value.
-- Annuity proposition launched for long-standing customers with pension policies that have guaranteed annuity rates
enabling them to take their retirement benefits with Royal London.
-- Acquired Wealth Wizards, a market leading fintech business, to address the growing need for high quality,
technology-enabled solutions in the provision of financial advice.
Financials
Year ended Year ended
31 December 31 December 2020
2021
=============== =================================== ============ =================
UK GAAP Operating profit before GBP133m GBP41m
tax(6)
Profit before tax(7) GBP192m GBP131m
ProfitShare GBP169m GBP146m
New business Life and pensions new business GBP 9,588m GBP8,544m
sales(8)
=============== =================================== ============ =================
Inflows Gross inflows(9) GBP26,432m GBP26,407m
===============
Net inflows(9) GBP5,287m GBP3,870m
=============== =================================== ============ =================
31 December 31 December 2020
2021
=============== =================================== ============ =================
Funds Assets under management(10) GBP164bn GBP148bn
=============== =================================== ============ =================
Capital(13) Regulatory View solvency GBP2.8bn GBP2.3bn
surplus(11)
(Solvency II)
----------------------------------------------------
Regulatory View capital
cover ratio(11, 12) 173% 147%
Investor View solvency surplus(11) GBP2.8bn GBP2.3bn
Investor View capital cover
ratio(11, 12) 216 % 190%
--------------------------------------------------- ------------ -----------------
-- Operating profit before tax6 of GBP133m returned to higher levels following the impacts of Covid-19 in 2020
(2020: GBP41m) and reflects increased contributions from all of our businesses. Profit before tax7 increased to
GBP192m (2020: GBP131m).
-- Life and pensions new business sales8 were up 12% at GBP9,588m (2020: GBP8,544m), due to continued strong adviser
support for our Protection range in the UK and Ireland and growth in demand for UK Pensions, particularly in
Workplace Pensions.
-- Net inflows9 increased to GBP5,287m (2020: GBP3,870m) driven by ongoing demand for our sustainable fund range and
Institutional net new business.
-- Assets under management10 increased to a record high of GBP164bn (31 December 2020: GBP148bn), due to positive
market movements and increased net flows.
-- Capital position remains robust with key capital metrics improving and the Investor View capital cover ratio
increasing to 216% (2020: 190%) following the recovery in economic conditions and management actions taken
including additional equity hedging.
Investor Conference call
Royal London will hold an investor conference call to present
its 2021 Financial Results on Friday, 4 March 2022 at 09:00.
Interested parties can register at:
https://cossprereg.btci.com/prereg/key.process?key=P4TPV3J8X . 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, 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 pensions, protection and wealth
management products and services in the UK, and protection products
in Ireland. We work with advisers and customers to deliver
long-term growth, income and protection.
Financial calendar:
-- 4 March 2022 - Financial Results for 2021
-- 7 June 2022 - Annual General Meeting
-- 5 August 2022 - Interim Financial Results
-- 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). 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. 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. 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.
5. 16% reduction is Weighted Average Carbon Intensity (scope 1
& 2) for the equity funds. The total amount of all equity funds
managed by Royal London Asset Management (RLAM) on behalf of RLMIS
that have been "tilted" to achieve a reduced carbon intensity is
GBP23bn, as at 31 December 2021. This includes equity investments
underlying the Governed Range and other RLMIS funds. The main
equity fund used in the Governed Range, RLP Global Managed,
constituted 47% of all Governed Range assets, as at 31 December
2021.
6. Operating profit before tax represents 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 and 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 operating profit represents the result of the
Royal London Main Fund (RL Main Fund).
7. Profit before tax represents the statutory 'Profit before tax
and before transfer to the fund for future appropriations' in the
consolidated statement of comprehensive income.
8. 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 opening swap curve at 31 December 2020.
9. 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.
10. Assets under management (AUM) represent the total of assets
actively managed by the Group, including funds managed on behalf of
third parties.
11. The 'Regulatory View' solvency surplus and capital cover
ratio restricts each closed funds' surplus to the value of the
Solvency Capital Requirement (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).
12. All capital figures are stated on a Group Partial Internal
Model basis.
13. Figures presented throughout are rounded. The capital cover
ratios and new business margins are calculated based on exact
figures.
Review of the Year
2021 was a year of challenge and opportunity, in which we
supported our customers as society began to emerge from the
Covid-19 pandemic.
There are several key factors influencing the retirement savings
and protection market and, over the long term, society is facing a
challenging predicament. We are facing climate change that is
damaging the world into which we will retire. The population is
ageing. Many people will be unable to support themselves adequately
in later life. Our collective response to these immense challenges
will shape the future of the world. To effect change, governments,
industry and broader society need to work together.
Responsibility for funding later life has fallen to individuals,
away from government and employers. Yet many people do not realise
how to respond to this challenge or where to get help. We aim to
help our customers to build financial resilience and to support a
fair transition to a sustainable world, protecting standards of
living now and in the future.
The COP26 UN Climate Change conference in Glasgow was a major
milestone in putting action to limit climate change centre stage.
Royal London was there, making the case for our customers. We are
guardians of substantial funds that can play a significant part in
influencing how we move fairly to a sustainable world.
Ensuring our customers are aware of the power of their pension
is the focus of our recent marketing activity. The 'Invested
Generation' campaign, which highlighted Royal London's responsible
investment approach, launched in the final quarter of 2021 and has
continued into 2022.
Our trading performance
Our strategy, built around being an insight-led modern mutual
which is focused on growing sustainably by deepening customer
relationships, continues to serve us well.
Our operating profit before tax for the year ended 31 December
2021 was GBP133m (2020: GBP41m). Trading in some areas of the Group
has been affected by the ongoing impact of Covid-19, but there were
also positive indicators of economic recovery. RLAM, which manages
the funds for our customers and external clients, has performed
well. Assets under management increased to GBP164bn (2020:
GBP148bn), passing the GBP150bn milestone for the first time.
Our Pension new business sales were GBP7,966m (2020: GBP7,190m).
Individual Pension volumes were below pre-pandemic levels, but
recovering. We have seen a steady improvement in Workplace Pensions
sales, as employers stepped up their recruitment and were more
willing to consider switching their workplace pension provider. New
business sales of our Protection business have performed strongly
in the UK and Ireland, increasing by 5% to GBP1,251m (2020:
GBP1,192m) in the UK and by 35% to GBP185m (2020: GBP137m) in
Ireland.
Our capital base has remained robust throughout the year with an
Investor View capital cover ratio of 216% at 31 December 2021
(2020: 190%).
Improving our customer offer
We have continued to enhance our propositions to meet customer
needs. Over 2021, we introduced new products across all three
business units. We launched our Global Sustainable Credit Fund and
introduced a new product for existing customers who benefit from a
guaranteed annuity rate to take their annuity with Royal London. We
also launched Investment Pathways - a range of solutions aimed at
non-advised customers who are moving their pension into income
drawdown. In addition, we progressed the consolidation of four
with-profits funds, already closed to new business, into the Royal
London Main Fund, with an uplift in policy value for all eligible
policyholders.
In 2021, we received over 100,000 calls in relation to
bereavements across protection and pension products, paying out
GBP25m in Covid-19-related claims. During the year we paid out
protection claims totalling GBP596m in the UK, helping
approximately 80,000 customers.
Our initiatives to help build financial resilience included the
launch of 'How to Die Well: a practical guide to Death, Dying and
Loss', which was part of our 'Lost for Words' campaign. This book
features practical, emotional and financial guidance for people
dealing with bereavement.
Investing for the future
We are investing in programmes to simplify and modernise our
infrastructure and have progressed our Legacy Simplification
programme. By focusing on fund consolidation and system migration,
we have created a more efficient and de-risked operating model,
improving the quality and ease of customers' servicing
experience.
As well as building our UK business organically, we are open to
opportunities that broaden our solutions. We have taken a 30% stake
in Responsible Group, the later-life lending and product
specialist. This investment builds our profile in a significant
growth market.
We recognise the need to continue to build on our digital
capabilities, as through data-driven insights we can better
understand and anticipate customer needs and behaviour. Together
with increasing digital capabilities, this insight helps us support
advisers more efficiently. To this end, we acquired Wealth Wizards,
a digital platform for financial advisers with market-leading
technology to help improve efficiency in the provision of
advice.
Looking ahead
Enabled by our robust capital position and long-term approach to
decision making, we will continue to work in partnership with
financial advisers across the UK and Ireland to deliver better
outcomes to customers.
We will be broadening our offering for Irish brokers and their
customers by launching into the Individual Pensions market during
2022.
Within our asset management business we are focused on expanding
our reach into Europe. We will also continue to support customers
seeking to achieve good financial returns while investing
responsibly to help tackle some of the world's biggest challenges,
such as climate change.
Royal London plays an important role in how society moves fairly
towards a sustainable world. Our customers are not simply investing
for the future - they are invested in it.
UK
Operating profit increased to GBP227m (2020: GBP126m) as new
business sales recovered following the reduction in 2020 and the
successful delivery of key initiatives.
New business sales increased to GBP9,403m (2020: GBP8,407m),
largely due to Workplace Pensions volumes where the market saw some
recovery towards pre-pandemic levels. The new business performance
also reflects continued investment in the business, putting
customers at the heart of our proposition developments.
We have delivered key milestones in our strategic change
programmes following the long-term investments we have made over
the last few years. This included the launch of our annuity
proposition, delivering both in year benefits as well as a new
future revenue stream, and a one-off benefit arising from the
consolidation of four closed funds into the Royal London Main Fund
as part of the ongoing Legacy Simplification programme.
Pensions
Pensions new business sales increased to GBP7,966m (2020:
GBP7,190m) primarily driven by Workplace Pensions, which grew by
30% to GBP3,200m (2020: GBP2,457m). This increase reflects a
general recovery of the UK economy post-Covid, in which we saw
active recruitment driving growth in new entrants to existing
schemes. We also experienced more employers reviewing their
existing pension provider driving growth in secondary market
mandates on top of higher levels of new company scheme set ups.
Whilst transfer activity was comparable to 2020, regular
contributions from existing scheme members were up 37%. We made a
number of exciting Workplace propositional changes in 2021, making
it easier to consolidate pensions with us, both digitally (as a new
feature through our pensions app) and offline. Continuing to be
easy to do business with is a key focus for us. Digitalisation of a
number of key servicing processes took place resulting in growth in
digital customer engagement in 2021.
Individual Pensions new business sales have increased to
GBP4,766m (2020: GBP4,733m), albeit trading levels remained below
pre-pandemic levels across the year. Growth was curtailed by the
slower recovery in the smaller/mid-sized adviser market, where we
mainly participate. We continued to focus and build upon our key
strengths in our investment proposition and value for money, by
removing our charge for entering income drawdown. This is all while
ensuring that we continue to deliver a quality customer experience.
We have focused on engagement with customers, to ensure they have
the support needed to achieve good financial outcomes. We also
launched our financial wellbeing hub, which provides support on a
range of topics.
We re-positioned asset allocations in the Governed Range in the
first half of 2021 following underperformance of UK equities in
2020, rebalancing asset allocations to re-weight equity exposures
from UK assets towards overseas and emerging markets. Our core
propositions in the Governed Range have all outperformed their
benchmarks in 2021, with assets of GBP51bn surpassing the GBP50bn
milestone for the first time. Our belief in the value of
diversification has aided our returns over the last year and this
puts us in a strong position as we enter a future with increased
inflationary risks.
Service standards have remained strong throughout the year, and
we have won awards for 5* Pension service for the 13th year in a
row.
Our pension mobile app reached over 156,000 registrations (2020:
77,000), more than doubling users in the last 12 months with some
of the highest user scores of any pension app in the UK. We have
continued enhancing content and functionality in our app, including
the ability to add and view a nominated beneficiary (with over
12,000 completed applications), along with ability to transfer
pensions to us (with over 4,000 requests made since the app
launched in 2020). This is in addition to over 75,000 downloads of
our new Wellbeing guides and articles which are available through
the app. As a result, we have seen over 75% of externally
registered users logging in at least once in the last three
months.
Protection
Sales of our Protection products grew 5% to GBP1,251m (2020:
GBP1,192m), reflecting continued momentum in helping customers put
cover in place for themselves and their families. The pandemic has
focused customers' appreciation for cover, and we continue to
support advisers in helping their clients convert intent into
action. We were delighted to be able to remove underwriting
restrictions that were necessary during the earlier phase of the
Covid-19 pandemic and completed a successful retender of our
mortality reinsurance arrangements in the second half of the
year.
We continued to provide advisers with support to help them
respond to this increased demand, and ran a campaign to help
educate consumers on the different types of protection and dispel
some myths surrounding them. In the first quarter we launched our
'Value of Menu' tool, making it easier for advisers to demonstrate
the benefits of their advice in improving customer coverage using
our Menu proposition. This helped increase momentum in Income
Protection business, a cover that most customers need but too few
put in place. We followed this up with well-attended adviser
webinars and an 'Income Protection for tenants and their
families'campaign to highlight the risks that renters (not just
mortgage holders) face if they become too ill to work, and how the
right cover can help.
We introduced a new approach called 'Underwrite Later' for
Business Protection. This enables cover to be put in place
immediately while the remainder of the underwriting process
completes, thereby removing one of the key barriers to completion.
The innovation also led to specific awards - an I Mark for
innovation from Protection Review and Outstanding Business
Protection award at the Cover Excellence Awards 2021. There were
several other developments designed to enhance how we support
customers. For example, we improved our mental health questions (in
line with Association of British Insurers standards) to be more
empathetic to customer situations and delivered a new underwriting
approach and web journey for direct applications.
We paid out GBP596m in claims for approximately 80,000 customers
and their families across all Protection business. Over and above
these financial pay-outs, we provided access to counselling and
other services through our Helping Hand proposition and delivered a
campaign to help customers and families to be prepared for death -
emotionally, practically and financially.
New business volumes have been proactively managed in the year
against a challenging low interest rate environment. We have
performed a review of which segments we will participate in going
forward to ensure we provide value for customers alongside writing
profitable business.
Annuities
We successfully launched our new annuity proposition to provide
a Royal London annuity to long-standing customers invested in the
Royal London (CIS) Sub-Fund with pension policies that have
guaranteed annuity rates. New business sales were GBP162m,
contributing GBP3m in new business contribution. Retaining these
customers as they move into retirement also retains the associated
value allowing us to invest and further grow the business. We see
the annuity market as an area in which value can be generated
whilst providing the security of a stable income through a
customer's retirement and we will be exploring further
opportunities in this area.
Value Enhancement
In line with our aim of providing value for money through
efficient operational and capital management, we delivered a series
of changes to modernise and simplify our processes for the benefit
of our long-standing customers.
We successfully completed a consultation process with the
with-profits policyholders in four of our with-profits funds that
are closed to new business, to merge these funds into the Royal
London Main Fund, our largest with-profits fund. We implemented the
changes for the Refuge Assurance Industrial Branch Fund on 30 June
2021 and the three remaining funds (United Friendly Industrial
Branch Fund, United Friendly Ordinary Branch Fund and the Scottish
Life Fund) on 31 December 2021. The changes were implemented
following resounding approval from eligible policyholders as well
as High Court approval. These changes sped up the distribution of
surplus to those with-profits policyholders through immediate
uplifts to policy values.
Through our Legacy Simplification programme, we are also
migrating legacy books of business from older mainframe systems
onto a single more modern IT system to reduce risk and improve
services to customers. Two system migrations were completed in
2021, moving over 171,000 policies. This work builds on the
migrations completed in 2020 and brings the total number of
migrated policies to 3.2 million. We expect to migrate more than
one million additional policies in 2022 and 2023 to simplify our IT
estate further.
Asset Management
We delivered good financial performance despite a difficult
market backdrop with operating profit of GBP71m, in line with the
prior year (GBP71m). Increased revenue, which was driven by strong
net inflows and market growth, was offset by cost increases as we
continued to invest in the business to strengthen our operating
model and ensure we are well positioned for future growth.
Delivering investment performance above the relevant benchmark
for our clients is key to our success. The percentage of our
clients' assets under management outperforming its stated
comparative over a three-year period was 99% (2020: 95%). This
increase reflects consistent outperformance by our investment teams
across our fund range.
Alongside continued strong investment performance, we also saw
flows into a wide range of strategies, reflecting both consistency
of performance and the client focus that we have put into the
development of our product range in recent years. This, alongside
market gains over 2021, led to record assets under management of
GBP164bn (2020: GBP148bn).
The success of the business in recent years has been evident,
but in a very competitive market we continue to look for ways to
improve our capabilities to service our clients. We have invested
in our teams and are currently reviewing our technology operating
model.
Flows and funds
External net inflows increased to GBP4,372m in 2021 (2020:
GBP1,665m) driven by a lower level of institutional outflow
compared with 2020 and continued high demand for sustainable funds.
Our sustainable range has enjoyed huge success over the past two
years - reflecting very good performance and growing interest in
this type of investing.
Despite the trend away from UK focused investment styles, we
believe that we are competitive in this area, with a notable
highlight winning a sterling credit mandate for over GBP2bn from
Brunel Pension Partnership - one of eight pooled Local Government
Pension Scheme funds.
We are looking to take our services to a wider audience and have
started the process to expand into Europe in 2022. We completed an
extensive search process to find a distribution partner based in
Luxembourg that will help ease the regulatory burden from taking
our services further into the EU.
As our product range grows and we look to offer that range in
more places, we need to make it easier for existing and prospective
clients to gain insights into our strategies. Following the
re-launch of our website in late 2020, we have posted more articles
and blog posts than ever before, backed by multiple online
webinars, culminating in our annual investment conference. Our
online format allowed us to host over 20 sessions featuring live
Q&As, with clients able to view on demand as well, meaning that
we had over 800 attendees across the five days.
Responsible investment
Responsible investment is no longer just about having specialist
ranges of focused funds, although there is still a market for that.
Asset managers are expected to have ESG factors embedded across all
processes.
The market for sustainable funds is growing rapidly and many
competitors have looked to launch similar products. We are a clear
leader in this area and have a track record measured over decades
rather than months. We added further to our range in 2021, with the
launch of a Global Sustainable Credit fund, complementing the
Global Sustainable Equity fund launched in 2020.
We also took our tracker fund range and integrated carbon
'tilts' aimed at building cost-effective, broad market portfolios,
which are also a key building block in the Governed Portfolio range
that supports Royal London's pension proposition. Our level of
engagement on responsible investment has increased throughout: with
the companies in whom we invest, with external bodies and
regulators, with the adviser community and with customers.
Ireland
Our Irish business had a very successful year, recording our
highest ever new business sales and achieving market leader status
in the Irish broker protection market. New business sales increased
to GBP185m (2020: GBP137m) on a PVNBP basis, reflecting a
significant outperformance against the market.
Our growth was driven by strong demand across all our products,
in particular for mortgage protection and term assurance. We
undertook a successful reinsurance tender at mid-year, which
further boosted our margins and demonstrated reinsurance confidence
in the quality of our underwriting.
We also made significant traction in the income protection
market during 2021. We believe income protection is paramount in
good financial planning and, alongside reviewing and planning
further product enhancements, we implemented a successful price
discount which generated significant business volumes whilst
ensuring margins remained within targeted range.
The strong new business performance has led to an increase in
operating profit to GBP16m (2020: GBP12m). This was against the
backdrop of an increased level of strategic investments, made to
develop the business in Ireland further.
Protection
Throughout 2021, we have continued to improve processes
incrementally whilst recruiting talented colleagues to ensure we
retained our strong service provision at higher levels of market
share. Our culture of empowering our people and a customer-first
approach means we deliver a 'one and done' service which bolsters
our strong relationship with Financial Brokers.
We were delighted to win three awards in the prestigious Brokers
Ireland Excellence Awards for 2021. This is testament to our team
in Ireland and the proactive and positive culture created that has
service and customer outcomes at its heart. These awards followed
our third consecutive award for our Mortgage Protection product in
the National Consumer Awards. It also recognises the continued work
to innovate and improve our product proposition to ensure our
customers continue to get great value and strong products. This
included improvements to our Specified Serious Illness offering,
expanding the illnesses we cover.
We continued to focus on raising consumer awareness of financial
resilience issues, including stay-at-home parents and first-time
home buyers, through regular PR activity and while promoting the
value of advice. Leveraging the Royal London sponsorship activity
and launching the Changemakers programme in Ireland also helped to
promote our brand and Purpose. All of this activity provided
financial brokers with consistent support to help them in their
protection conversations, aimed at ensuring customers have robust
plans in place to optimise their financial future. We also made
incremental improvements to our digital provision for brokers,
including a new multi-application feature and improved business
management functionality. We supported this activity with regular
virtual meetings with brokers and our consultants, and with
technical and sales focused webinars, the last one for 2021 being
on 'the value of advice'. On average, more than a thousand brokers
registered to attend each event, with 93% of attendees giving a
very good or excellent rating and 100% confirming future
attendance.
Pensions
In 2022, we will be broadening our solutions for customers and
providing additional valuable choice and competitive options in the
Individual Pensions market. We plan on replicating our successful
formula of market leading service, compelling products and very
strong broker support, which Royal London is now known for in
protection, as we enter a new area of the Irish broker market.
We have developed a compelling offering, built with direct input
from financial brokers and strengthened with the recruitment of
specialised capabilities. The result is a holistic and customer
centric offering, designed to be transparent, easy to understand
and competitively priced. We will implement a phased delivery to
market in 2022.
Our success in 2021 provides an excellent foundation to launch
this new proposition and we are confident of a positive reception
and continued growth of our business in Ireland.
Financial Review
Group operating profit before tax of GBP133m (2020: GBP41m) for
the year ended 31 December 2021 is returning to higher levels
following the impacts of Covid-19 in 2020. Statutory profit before
tax for the year increased to GBP192m (2020: GBP131m). Despite the
pandemic, we have continued to invest in our business for the
benefit of our customers as our position as a mutual allows us to
take a longer-term view of the investments we make.
Our Protection new business contribution grew strongly in both
the UK and Ireland, whilst Pensions reduced slightly on 2020, as a
recovery in Workplace Pensions was more than offset by a reduction
in Individual Pensions which is recovering more slowly after the
pandemic. The growth in contribution from AUM and other businesses
has been driven by higher assets under management of GBP164bn at 31
December 2021 (31 December 2020: GBP148bn), driven by market
movements and a continued strong demand for sustainable funds.
The Group's result in 2021 has benefited from two significant
items totalling GBP58m. Following the successful launch of our
annuity proposition, we have invested in higher yielding long-term
assets allowing us to recognise a gain of GBP32m from the change to
the rate used to discount the liabilities. There has also been a
GBP26m contribution from the closed funds to the Royal London Main
Fund (Main Fund), representing compensation for providing capital
support for transferred business following the successful
consolidation of four with-profits funds into the Main Fund.
ProfitShare allocation rates were maintained, with total
ProfitShare for 2021 increasing to GBP169m (2020: GBP146m) in line
with the growth in the aggregate value of eligible policies.
Our capital position remains robust, with our key capital
metrics improving. This has allowed us to continue our investments
in our UK Pensions business, and develop new propositions and
systems in our Irish and asset management businesses. At 31
December 2021, the Solvency II Investor View capital cover ratio
was 216% (31 December 2020: 190%) and the Solvency II Regulatory
View capital cover ratio was 173% (31 December 2020: 147%). Both
capital ratios have increased following the recovery in economic
conditions in 2021, in particular due to strong equity and property
returns as well as rises in yields, supplemented by additional
equity hedges taken out during the year.
Group operating profit before tax
The following table shows the Group operating profit for the
year ended 31 December 2021. Further detail on the Group's
segmental reporting is included on pages 21-22.
2021 2020 [a] Change
GBPm GBPm GBPm
============================================ ====== ========= =======
Long-term business
============================================ ====== ========= =======
New business contribution 164 149 15
============================================ ====== ========= =======
Existing business contribution 125 99 26
============================================ ====== ========= =======
Contribution from AUM and other businesses 124 95 29
============================================ ====== ========= =======
Business development and other costs (37) (42) 5
============================================ ====== ========= =======
Strategic development costs (62) (92) 30
============================================ ====== ========= =======
Result from operating segments 314 209 105
============================================ ====== ========= =======
Corporate costs (106) (93) (13)
============================================ ====== ========= =======
Financing costs (75) (75) -
============================================ ====== ========= =======
Group operating profit before tax 133 41 92
============================================ ====== ========= =======
New business contribution
New business contribution increased to GBP164m (2020: GBP149m),
driven by sales of intermediated protection products in the UK and
Ireland which have seen strong demand from a heightened customer
awareness of the value of protection through the pandemic as well
as proposition enhancements we have made in 2021.
New business sales across all product lines increased, with the
Present Value of New Business Premiums, increasing 12% to GBP9,588m
(2020: GBP8,544m). Whilst new business sales have increased,
margins across our business are flat at 1.7% (2020: 1.7%) as we
have incurred higher ongoing costs to maintain our service levels
throughout the pandemic.
New business contribution PVNBP New business margin
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm % %
===================== ============= ============ ===== ===== ========== =========
Individual
pensions 78 85 4,766 4,733 1.6 1.8
Workplace pensions 30 27 3,200 2,457 0.9 1.1
Protection 39 27 1,251 1,192 3.1 2.3
Other - (2) 186 25 (0.1) (8.8)
===================== ============= ============ ===== ===== ========== =========
UK 147 137 9,403 8,407 1.6 1.6
===================== ============= ============ ===== ===== ========== =========
Ireland (Protection) 17 12 185 137 9.2 8.8
===================== ============= ============ ===== ===== ========== =========
164 149 9,588 8,544 1.7 1.7
===================== ============= ============ ===== ===== ========== =========
UK
Individual Pensions new business sales increased to GBP4,766m
(2020: GBP4,733m). Whilst sales are below pre-pandemic levels, we
have seen a steady recovery during the year as our customers have
had more confidence in saving for their retirement. New business
margin reduced slightly from 1.8% to 1.6% as costs have increased
due to inflation and higher ongoing costs to meet regulatory
requirements.
Workplace Pensions new business sales grew by 30% to GBP3,200m
(2020: GBP2,457m) as higher levels of recruitment activity
increased new entrants into existing schemes, more companies
changed scheme provider and there were increased levels of new
company scheme set ups. Despite the increase in new business sales,
new business margin fell from 1.1% to 0.9%, reflecting a change in
business mix, with a higher proportion of lower margin new schemes
written in the year.
Sales of our Protection products grew 5% to GBP1,251m (2020:
GBP1,192m) due to the continued emphasis customers are placing on
ensuring they have an appropriate level of cover in place as well
as enhancements to our propositions. New business margin increased
from 2.3% to 3.1% following the increase in sales volumes.
Other business includes our annuity product that was launched in
early 2021 as well as other saving products.
Ireland
New business sales in Ireland increased to GBP185m (2020:
GBP137m) driven by continued strong demand across all products, in
particular term assurance and mortgage protection products. New
business margin has increased from 8.8% to 9.2% due to improved
reinsurance rates on our term assurance products, alongside changes
in product mix.
Existing business contribution
Existing business contribution increased to GBP125m (2020:
GBP99m), the components of which are shown in the table below.
2021 2020 Change
GBPm GBPm GBPm
============================================ ===== ===== ======
Expected return 117 117 -
============================================ ===== ===== ======
Experience variances and assumption changes (56) 4 (60)
============================================ ===== ===== ======
Modelling and other
changes 64 (22) 86
125 99 26
============================================ ===== ===== ======
Experience variances and assumption changes were a charge of
GBP(56)m (2020: GBP4m credit).
The positive persistency experience of 2020 has not been
repeated as a higher number of pension policies have transferred
out or converted to paid up status as the economy re-opened up
following Covid-19 restrictions. The reduction in positive
persistency has been partially offset by higher than expected
regular premiums into Workplace Pensions. Given rising levels of
inflation and the potential impact that this may have on our
customers' ability to save for their retirement, we have retained
the specific allowance first recognised in 2020 of GBP30m for
potential adverse impacts on our Pensions business caused by the
impact of Covid-19.
We have recognised a charge of GBP76m to reflect higher ongoing
costs of running our pensions business, driven by higher inflation
in third party IT contract costs, the cost of maintaining service
levels during Covid-19 and increased regulatory costs.
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 modelling changes. In
2021, the benefit of these changes was GBP6m (2020: charge of
GBP22m). 2021 also benefited from two significant other items:
-- In February we introduced a new product which allows us to offer existing pensions customers with policies in the
Royal London (CIS) Fund who benefit from a Guaranteed Annuity Rate an option to take their annuity with Royal
London. A ring-fenced portfolio of assets has been established to back this annuity business as well as our
annuities in payment. As a result of creating this portfolio, the discount rate used to value these annuitant
liabilities has been increased to reflect the illiquidity premium relating to the backing assets, resulting in a
GBP32m benefit.
-- Following the consolidation into the Main Fund of four with-profits funds that are closed to new business, the
closed funds paid a contribution of GBP26m to compensate the Main Fund for providing capital support for the
transferred business.
Contribution from AUM and other businesses
Contribution from AUM and other businesses increased to GBP124m
(2020: GBP95m), driven by increased revenue from higher assets
under management, following positive market movements and continued
net inflows into our sustainable fund range.
The comparative period included a trading loss of GBP7m in
relation to the Ascentric business which was disposed of in
September 2020.
Business development and other costs
Business development and other costs of GBP37m (2020: GBP42m)
include costs of investment in our products and propositions, as
well as implementing product-related regulatory change. The
reduction in spend in 2021 reflects the completion of a number of
projects and regulatory driven activities.
Strategic development costs
Strategic development costs of GBP62m (2020: GBP92m) represent
the investment we have continued to make throughout the pandemic in
our pensions business. This investment has helped to drive digital
transformation and improve customer experience as well as
enhancements to our legacy systems. It also includes costs relating
to the consolidation of four with-profits funds into the Main Fund,
the launch of our annuity offering, which became available to
customers in early 2021 and spend on developing and launching our
new Pensions proposition to the Irish intermediated market in
2022.
Corporate and Financing costs
Corporate costs of GBP106m (2020: GBP93m) have increased
reflecting higher restructuring costs as we have reorganised parts
of our business and continuing investment to strengthen our
information technology security and resilience. Financing costs of
GBP75m (2020: GBP75m) are unchanged as they represent the interest
payable on the Group's subordinated debt, which has not changed
during the year.
Reconciliation of operating profit before tax to statutory
profit before tax
Statutory profit before tax increased to GBP192m (2020:
GBP131m), driven by the increase in operating profit before tax.
ProfitShare allocated to eligible customers has grown in line with
the growth in the aggregate value of policies. 2020 also included a
one-off profit on the sale of the Ascentric business.
2021 2020 Change
GBPm GBPm GBPm
================================== ====== ====== =======
Group operating profit before
tax 133 41 92
================================== ====== ====== =======
Economic movements 225 210 15
================================== ====== ====== =======
Amortisation of goodwill arising
from mergers and acquisitions 3 12 (9)
================================== ====== ====== =======
Profit on sale of subsidiaries - 14 (14)
================================== ====== ====== =======
ProfitShare (169) (146) (23)
================================== ====== ====== =======
Statutory profit before tax 192 131 61
================================== ====== ====== =======
Economic movements
Economic movements were GBP225m (2020: GBP210m), reflecting
higher than expected investment returns particularly on UK,
overseas and private equity and property assets and increases in
yields reducing the cost of providing guarantees.
Amortisation of goodwill arising from mergers and
acquisitions
Amortisation of goodwill arising from mergers and acquisitions
of GBP3m (2020: GBP12m) includes the amortisation charge of
positive goodwill of GBP3m (2020: nil) following the acquisition of
Police Mutual in 2020 and the fully amortised goodwill charge
relating to the acquisition of Wealth Wizards in April of GBP2m.
This is offset by an amortisation credit of negative goodwill of
GBP8m (2020: GBP12m) relating to historic acquisitions.
ProfitShare
ProfitShare allocation rates were maintained, with total
ProfitShare increasing to GBP169m (2020: GBP146m) 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 (2020:
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 to eligible customers.
Assets under management
Assets under management increased to a record high of GBP164bn
(31 December 2020: GBP148bn), driven predominantly by positive
market movements and net inflows.
Gross inflows Net inflows
--------------- --------------- -------------
2021 2020 2021 2020
---------------
GBPm GBPm GBPm GBPm
--------------- ------- ------ ------ -----
External flows 17,910 18,318 4,372 1,665
Internal flows 8,522 8,089 915 2,205
=============== ======= ====== ====== =====
Total 26,432 26,407 5,287 3,870
=============== ======= ====== ====== =====
External net inflows increased to GBP4,372m (2020: GBP1,665m)
driven by a lower level of institutional outflow compared with 2020
and continued high demand into our sustainable funds.
Internal net inflows decreased to GBP915m in 2021 (2020:
GBP2,205m) due to relatively higher outflows in our Individual
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.
Group
------------------------- ----------------------------------
Key metrics 31 December 2021 31 December 2020
------------------------- ---------------- ----------------
Regulatory View solvency GBP2,817m GBP2,258m
surplus
------------------------- ---------------- ----------------
Regulatory View capital
cover ratio 173% 147%
------------------------- ---------------- ----------------
Investor View solvency GBP2,817m GBP2,258m
surplus
------------------------- ---------------- ----------------
Investor View capital
cover ratio 216% 190%
------------------------- ---------------- ----------------
At 31 December 2021, the estimated Solvency II Group Investor
View capital cover ratio was 216% (31 December 2020: 190%) and the
Solvency II Group Regulatory View capital cover ratio was 173% (31
December 2020: 147%). Estimated solvency surplus on both the Group
Investor and Regulatory View was GBP2,817m (31 December 2020:
GBP2,258m).
The Investor View and Regulatory View capital ratios have
increased, primarily due to favourable economic movements in 2021
driven by positive equity and property returns as well as rises in
yields, supplemented by management actions including additional
equity hedges being taken out during the year, de-risking of
certain credit assets and the effect of fund consolidations.
We continue to monitor our capital position given current market
volatility as a result of the war in Ukraine. Scenario testing
performed as part of our regular capital management activities
(including the ORSA) demonstrates that our capital position remains
robust under a number of plausible but extreme market
scenarios.
Our capital position is sensitive to changes in economic and
non-economic assumptions. The table below sets out various
sensitivities of the Investor View capital cover ratio and the
Investor View solvency surplus based on possible different
scenarios. The results of the sensitivity analysis show that the
Group capital position is not materially impacted even in the event
of significant external market volatility.
Scenario [b] Capital cover ratio (%) Impact on solvency surplus
(GBPbn)
----------------------------- ----------------------- --------------------------
Base scenario: 31 December
2021 216 2.8
----------------------------- ----------------------- --------------------------
25% decrease in equity
investments (8) (0.3)
----------------------------- ----------------------- --------------------------
15% decrease in property
prices (4) (0.1)
----------------------------- ----------------------- --------------------------
100bps rise in interest
rates [c] (1) (0.1)
----------------------------- ----------------------- --------------------------
100bps fall in interest
ratesc (6) 0.0
----------------------------- ----------------------- --------------------------
25bps increase in government
bond yields [d] (2) 0.0
----------------------------- ----------------------- --------------------------
200bps widening in credit
spreads [e] 10 0.2
----------------------------- ----------------------- --------------------------
15% fall in GBP exchange
rates [f] 1 0.1
----------------------------- ----------------------- --------------------------
Balance sheet
Our balance sheet position remains robust. Our total investment
portfolio, including investment property, increased to GBP118.1bn
(31 December 2020: GBP107.9bn), primarily driven by positive
returns on equity securities held by our OEIC investment funds. At
31 December 2021, GBP452m of assets are ring-fenced and are backing
annuitant liabilities of 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 investment portfolio is in
high-quality assets with a credit rating of 'A' or above. In our
non-linked portfolio, 85% (31 December 2020: 91%) of our non-linked
debt securities and 71% (31 December 2020: 81%) of our non-linked
corporate bonds had a credit rating of A or better at 31 December
2021. There have been no significant defaults in our corporate bond
portfolio.
As at 24 February 2022, we held approximately GBP90m in
securities issued by Russian or Ukrainian companies, of which
approximately 74% is held in unit-linked portfolios. This
represents less than 0.1% of our investment portfolio.
Corporate transactions
On 1 April 2021 the Group acquired Wealth Wizards Limited and
its subsidiaries for nominal consideration. Net liabilities
acquired were GBP2m and the goodwill arising of GBP2m was fully
amortised in the period.
On 1 July 2021 the Group purchased 30% stakes in Responsible
Life Limited and Responsible Lending Limited. The consideration
paid (including transaction costs) was GBP20m and the investment is
accounted for as an associate.
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 2021 Annual Report and Accounts (ARA) ( royallondon.com/about-us/corporate-information/corporate-governance/investor-relations/ ). These risks and uncertainties continue to be monitored and managed through our risk management system.
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 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 (for example new government
initiatives); the impact of competition; the effect o
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
Financial Statements
Consolidated statement of comprehensive income
For the year ended 31 December 2021
Technical account - long-term business 2021 2020
GBPm GBPm
---------------------------------------------------------------------------- ------- -------
Gross premiums written 1,156 1,018
---------------------------------------------------------------------------- ------- -------
Outwards reinsurance premiums (82) (541)
---------------------------------------------------------------------------- ------- -------
Earned premiums, net of reinsurance 1,074 477
---------------------------------------------------------------------------- ------- -------
Investment income 4,196 5,447
---------------------------------------------------------------------------- ------- -------
Unrealised gains on investments 4,875 -
---------------------------------------------------------------------------- ------- -------
Other income 659 548
---------------------------------------------------------------------------- ------- -------
Total income 10,804 6,472
---------------------------------------------------------------------------- ------- -------
Claims paid
---------------------------------------------------------------------------- ------- -------
* Gross claims paid (2,806) (2,657)
---------------------------------------------------------------------------- ------- -------
* Reinsurers' share 531 505
---------------------------------------------------------------------------- ------- -------
Change in provision for claims
---------------------------------------------------------------------------- ------- -------
* Gross amount (64) 77
---------------------------------------------------------------------------- ------- -------
* Reinsurers' share 21 (6)
---------------------------------------------------------------------------- ------- -------
Claims incurred, net of reinsurance (2,318) (2,081)
---------------------------------------------------------------------------- ------- -------
Change in long-term business provision, net of reinsurance
---------------------------------------------------------------------------- ------- -------
* Gross amount 1,327 (1,522)
---------------------------------------------------------------------------- ------- -------
* Reinsurers' share (599) 243
---------------------------------------------------------------------------- ------- -------
728 (1,279)
---------------------------------------------------------------------------- ------- -------
Change in technical provision for linked liabilities, net of reinsurance (7.953) (1,426)
---------------------------------------------------------------------------- ------- -------
Change in technical provisions, net of reinsurance (7,225) (2,705)
---------------------------------------------------------------------------- ------- -------
Change in non-participating value of in-force business 104 140
---------------------------------------------------------------------------- ------- -------
Net operating expenses (623) (619)
---------------------------------------------------------------------------- ------- -------
Investment expenses and charges (275) (222)
---------------------------------------------------------------------------- ------- -------
Unrealised losses on investments - (597)
---------------------------------------------------------------------------- ------- -------
Other charges (275) (257)
---------------------------------------------------------------------------- ------- -------
Total operating expenses (1,173) (1,695)
---------------------------------------------------------------------------- ------- -------
Profit before tax and before transfer to the fund for future appropriations 192 131
---------------------------------------------------------------------------- ------- -------
Tax attributable to long-term business (113) (51)
---------------------------------------------------------------------------- ------- -------
Transfer to the fund for future appropriations 79 80
---------------------------------------------------------------------------- ------- -------
Balance on technical account - long-term business - -
---------------------------------------------------------------------------- ------- -------
Other comprehensive income, net of tax:
---------------------------------------------------------------------------- ------- -------
Remeasurement of defined benefit pension schemes 267 (71)
---------------------------------------------------------------------------- ------- -------
Foreign exchange rate movements on translation of Group entities (10) (36)
---------------------------------------------------------------------------- ------- -------
Transfer to/(deduction from) the fund for future appropriations 257 (107)
---------------------------------------------------------------------------- ------- -------
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.
Balance sheets
As at 31 December 2021
Group Company
================ ================
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
--------------------------------------------------- ------- ------- ------- -------
ASSETS
--------------------------------------------------- ------- ------- ------- -------
Intangible assets
--------------------------------------------------- ------- ------- ------- -------
Goodwill 25 28 25 28
--------------------------------------------------- ------- ------- ------- -------
Negative goodwill (44) (52) (8) (9)
--------------------------------------------------- ------- ------- ------- -------
(19) (24) 17 19
--------------------------------------------------- ------- ------- ------- -------
Other intangible assets 96 70 95 69
--------------------------------------------------- ------- ------- ------- -------
77 46 112 88
--------------------------------------------------- ------- ------- ------- -------
Non-participating value of in-force business 2,333 2,229 2,333 2,229
--------------------------------------------------- ------- ------- ------- -------
Investments
--------------------------------------------------- ------- ------- ------- -------
Land and buildings 149 168 149 168
--------------------------------------------------- ------- ------- ------- -------
Investment in Group undertakings - - 17,684 16,322
--------------------------------------------------- ------- ------- ------- -------
Other financial investments 45,293 47,502 28,160 31,735
--------------------------------------------------- ------- ------- ------- -------
45,442 47,670 45,993 48,225
--------------------------------------------------- ------- ------- ------- -------
Assets held to cover linked liabilities 72,697 60,229 72,697 60,229
--------------------------------------------------- ------- ------- ------- -------
Reinsurers' share of technical provisions
--------------------------------------------------- ------- ------- ------- -------
Long-term business provision 4,579 5,181 4,529 5,138
--------------------------------------------------- ------- ------- ------- -------
Claims outstanding 125 93 111 87
--------------------------------------------------- ------- ------- ------- -------
Technical provisions for linked liabilities (53) (50) (53) (50)
--------------------------------------------------- ------- ------- ------- -------
4,651 5,224 4,587 5,175
--------------------------------------------------- ------- ------- ------- -------
Debtors
--------------------------------------------------- ------- ------- ------- -------
Debtors arising out of direct insurance operations 46 192 45 48
--------------------------------------------------- ------- ------- ------- -------
Debtors arising out of reinsurance operations 56 41 48 33
--------------------------------------------------- ------- ------- ------- -------
Other debtors 499 493 381 433
--------------------------------------------------- ------- ------- ------- -------
601 726 474 514
--------------------------------------------------- ------- ------- ------- -------
Other assets
--------------------------------------------------- ------- ------- ------- -------
Tangible assets 18 25 - -
--------------------------------------------------- ------- ------- ------- -------
Cash at bank and in hand 622 851 392 633
--------------------------------------------------- ------- ------- ------- -------
640 876 392 633
--------------------------------------------------- ------- ------- ------- -------
Prepayments and accrued income
--------------------------------------------------- ------- ------- ------- -------
Deferred acquisition costs on investment contracts 113 163 113 163
--------------------------------------------------- ------- ------- ------- -------
Other prepayments and accrued income 36 35 - -
--------------------------------------------------- ------- ------- ------- -------
149 198 113 163
--------------------------------------------------- ------- ------- ------- -------
Pension scheme asset 357 128 357 128
--------------------------------------------------- ------- ------- ------- -------
Total assets 126,947 117,326 127,058 117,384
--------------------------------------------------- ------- ------- ------- -------
Balance Sheets (continued)
Group Company
================ ================
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
------------------------------------------------------- ------- ------- ------- -------
LIABILITIES
------------------------------------------------------- ------- ------- ------- -------
Subordinated liabilities 1,333 1,332 1,333 1,332
------------------------------------------------------- ------- ------- ------- -------
Fund for future appropriations 4,009 3,673 4,329 3,993
------------------------------------------------------- ------- ------- ------- -------
Technical provisions
------------------------------------------------------- ------- ------- ------- -------
Long-term business provision 40,802 42,181 40,863 42,245
------------------------------------------------------- ------- ------- ------- -------
Claims outstanding 321 259 291 234
------------------------------------------------------- ------- ------- ------- -------
41,123 42,440 41,154 42,479
------------------------------------------------------- ------- ------- ------- -------
Technical provisions for linked liabilities 72,499 60,059 72,499 60,059
------------------------------------------------------- ------- ------- ------- -------
Provisions for other risks
------------------------------------------------------- ------- ------- ------- -------
Deferred taxation 228 140 241 144
------------------------------------------------------- ------- ------- ------- -------
Other provisions 250 282 241 273
------------------------------------------------------- ------- ------- ------- -------
478 422 482 417
------------------------------------------------------- ------- ------- ------- -------
Creditors
------------------------------------------------------- ------- ------- ------- -------
Creditors arising out of direct insurance operations 264 237 252 216
------------------------------------------------------- ------- ------- ------- -------
Creditors arising out of reinsurance operations 2,535 2,871 2,526 2,869
------------------------------------------------------- ------- ------- ------- -------
Amounts owed to credit institutions 42 72 42 72
------------------------------------------------------- ------- ------- ------- -------
Other creditors including taxation and social security 4,562 6,055 4,400 5,828
------------------------------------------------------- ------- ------- ------- -------
7,403 9,235 7,220 8,985
------------------------------------------------------- ------- ------- ------- -------
Pension scheme liability - 44 - 44
------------------------------------------------------- ------- ------- ------- -------
Accruals and deferred income 102 121 41 75
------------------------------------------------------- ------- ------- ------- -------
Total liabilities 126,947 117,326 127,058 117,384
------------------------------------------------------- ------- ------- ------- -------
Notes to the Financial Statements
1. 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 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 Results Announcement for the year ended 31 December 2021
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 2021 ARA. The Group's 2020 ARA has been filed
with the Registrar of Companies, and the 2021 ARA will be filed in
due course. The results on a UK GAAP basis for full year 2021 and
2020 have been audited by PricewaterhouseCoopers LLP (PwC). PwC has
reported on the ARA in 2021 and 2020. 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 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 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 Group's segmental reporting has been updated in 2021 to
align the operating segments to the new Group operating structure.
As a result, the new reporting segments are UK, Asset Management
and Ireland. The 2020 results have been restated on this basis.
There is no change to the total Group operating profit for the year
ended 31 December 2020.
The activities of each operating segment are described
below:
UK
The UK segment includes the previous Intermediary, Consumer and
Legacy segments. 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 was previously shown within the 'Other'
segment and 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 presentation of certain items to arrive at the Group's
operating profit has been updated in 2021 to allocate both income
and expenses, where relevant, into the operating segments. These
changes to presentation have been made to better reflect how the
business is managed and to provide improved granularity of the
costs the business incurs. Costs are now presented under the
following three headings:
-- 'Business development and other costs' are those costs that relate to the enhancement of current or creation of
new customer products, including product related regulatory change.
-- 'Strategic development costs' are costs that relate to major strategic projects that are expected to deliver
value for the Group by improving operations, delivering significant new product lines or enhancing the structure
or capital efficiency of the Group.
-- 'Corporate costs' relate to Group-wide activities and hence are not allocated to operating segments. These
include central management and brand costs, pensions, corporate development activities and Group-wide change
activities, such as IT security.
Prior year comparatives have been restated so they are presented
on a consistent basis to 2021, although the overall operating
profit before tax is unchanged.
The operating profit by operating segment is shown in the
following table.
Group - 2021 Group - 2020
================= ===================================== ==========================================================
Asset Asset Management
UK Management Ireland Total UK GBPm Ireland Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======= ================ ========== ======== ======= ================= ========== ========
Long-term
business
================= ======= ================ ========== ======== ======= ================= ========== ========
New business
contribution 147 - 17 164 137 - 12 149
================= ======= ================ ========== ======== ======= ================= ========== ========
Existing
business
contribution 118 - 7 125 96 - 3 99
================= ======= ================ ========== ======== ======= ================= ========== ========
Contribution
from AUM and
other
businesses 29 95 - 124 8 87 - 95
================= ======= ================ ========== ======== ======= ================= ========== ========
Business
development and
other costs (20) (17) - (37) (26) (16) - (42)
================= ======= ================ ========== ======== ======= ================= ========== ========
Strategic
development
costs (47) (7) (8) (62) (89) - (3) (92)
================= ======= ================ ========== ======== ======= ================= ========== ========
Result from
operating
segments 227 71 16 314 126 71 12 209
================= ======= ================ ========== ======== ======= ================= ========== ========
Corporate costs (106) (93)
================= ======= ================ ========== ======== ======= ================= ========== ========
Financing costs (75) (75)
================= ======= ================ ========== ======== ======= ================= ========== ========
Group operating
profit before
tax 133 41
================= ======= ================ ========== ======== ======= ================= ========== ========
[a] Following the introduction of the new Group operating
structure, we have updated the presentation of Group operating
profit. The prior period comparatives have been restated
accordingly, with no change to total Group operating profit.
[b] Sensitivities include movements in the Transitional Measure
on Technical Provisions (TMTP), which was formally recalculated at
YE21. The economic sensitivities presented reflect 1-in-20-year
events. For equity and interest rate sensitivities, these stresses
are consistent with the PRA's SS7/17: Solvency II: Data collection
of market risk sensitivities, which is available at bankofengland.
co.uk/pra/Documents/publications/ss/2017/ss717.pdf
[c] Interest rate sensitivities assume that government and other
bond yields and risk-free rates all move by the same amount.
Interest rates are allowed to be negative.
[d] The government bond yield sensitivity assumes risk-free
rates and other yields remain constant. The Volatility Adjustment
has been reassessed in the stressed scenario.
[e] The widening in credit spreads stress assumes a widening in
all ratings and an associated increase in the discount rate for the
Royal London Group Pension Scheme and Liver pension schemes at 25%
of the asset spread stress. The Volatility Adjustment has been
reassessed in the stressed scenario.
[f] The fall in GBP exchange rates stress assumes an increase to
the value of assets held in currencies other than GBP by 15% in GBP
terms.
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