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| Name | Symbol | Market | Type |
|---|---|---|---|
| Rl Fin.bds 2 43 | LSE:41BM | London | Bond |
| Price Change | % Change | Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 113.303 | 0 | 00:00:00 |
TIDM41BM TIDM60KE TIDM76DO
RNS Number : 6252H
Royal London
05 August 2021
Interim Results Announcement 2021 5 August 2021
Positive first half performance despite continued lockdown
Financial Highlights
Hot Features
Premium
Six months ended Six months ended
30 June 2021 30 June 2020
=============== ================================== ================ ================
UK GAAP Operating profit before GBP 80 m GBP36m
tax(3)
Profit/(loss) before tax(4) GBP228m GBP(181)m
New business Life and pensions new business GBP 4,620m GBP4,747m
sales(5)
=============== ================================== ================ ================
Inflows Gross inflows(6) GBP11,987m GBP14,419m
===============
Net inflows(6) GBP405m GBP997m
=============== ================================== ================ ================
30 June 2021 31 December 2020
=============== ================================== ================ ================
Funds Assets under management(7) GBP 153 bn GBP148bn
=============== ================================== ================ ================
Capital(9) Regulatory View solvency GBP2.6bn GBP2.3bn
surplus(8)
(Solvency II)
---------------------------------------------------
Regulatory View capital
cover ratio(8, 11) 159% 147%
Investor View solvency surplus(8) GBP2.6bn GBP2.3bn
Investor View capital cover
ratio(8, 11) 204 % 190%
-------------------------------------------------- ---------------- ----------------
-- Operating profit before tax(3) increased to GBP80m (H1 2020: GBP36m), with improved contributions from the UK insurance and asset management businesses.
-- Profit before tax(4) of GBP228m (H1 2020: loss of GBP181m) due to higher returns on UK investments and yield increases during the first half of 2021.
-- Life and pensions new business sales(5) were down 3% at GBP4,620m (H1 2020: GBP4,747m). Protection products have continued to sell strongly in the UK and Ireland in the first half of the year. Pensions new business sales have recovered from the lower levels in the second half of 2020 but are below pre-pandemic levels.
-- Net inflows(6) decreased to GBP405m (H1 2020: GBP997m). Demand for our sustainable funds remains strong. Net inflows have been impacted by institutional outflows and a reduced level of internal flow from our individual pension business. 97%(10) of actively managed funds outperformed their three-year benchmark (H1 2020: 60%).
-- Assets under management(7) increased to a record high of GBP153bn (31 December 2020: GBP148bn), due to positive market movements and net inflows.
-- We have committed to reduce the emissions from our investment portfolio by 50% by 2030 as part of the transition to Net Zero by 2050(12) .
-- Our capital position remains robust, with our key capital metrics improving in the first half. Additional equity hedges have increased our solvency surplus and will help to maintain capital stability going forwards.
Barry O'Dwyer, Group Chief Executive, commented:
"During the first half of 2021, we paid claims totalling over GBP397m to families who faced a life shock, whether that was someone contracting a serious illness or dying. In the same period, we helped our pension customers to invest GBP4bn in their futures. We welcomed 86,000 new workplace pension customers to Royal London, many of whom are starting their journey in what will hopefully become a lifetime of investing.
Our strong credentials as a sustainable asset manager and an increasing societal focus on responsible investment continues to drive strong flows into our award-winning funds ranges. We believe that our reputation for investing responsibly, combined with our mutual status and the way we share our profits with eligible customers, means we have a uniquely attractive offer, helping Royal London customers to protect their families against life shocks whilst investing in a better future."
Financial calendar:
-- 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 2021 Interim Results on Thursday 5 August 2021 at 09:00. Interested parties can register at: https://cossprereg.btci.com/prereg/key.process?key=PB99HR4YK . 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/ .
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.
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. 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 UK operating profit represents the result of the RL Main Fund (including transfers to the RL Main Fund from the closed funds).
4. Profit/(loss) before tax represents the statutory 'Profit/(loss) before tax and before transfer to/(deduction from) the fund for future appropriations' in the consolidated statement of comprehensive income.
5. Life and pensions new business sales represent life and pensions business only and exclude 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 30 June 2021 swap curve provided by the Prudential Regulation Authority (PRA).
6. Gross and net inflows incorporate flows into Royal London Asset Management Limited (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.
7. Assets under management (AUM) represent the total of assets actively managed by the Group, including funds managed on behalf of third parties.
8. 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 Royal London Main Fund capital position (excluding ring-fenced funds, which are run on a standalone basis).
9. All capital figures are stated on a Group Partial Internal Model basis.
10. 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.
11. Figures presented throughout are rounded. The capital cover ratios and new business margins are calculated based on exact figures.
12. The term Net Zero means achieving a balance between the amount of greenhouse gases emitted into the atmosphere and the amount removed from it. The commitment is based on the expectation that governments and policy makers will deliver on the commitments to achieve the 1.5(o) C temperature goal of the Paris Agreement, and this action does not contravene Royal London's fiduciary duty to external investors. The commitment is based on our emissions profile of 2020. It includes assets that are controlled by RLMIS and are managed on its behalf by RLAM and excludes segregated mandates managed by RLAM on behalf of its external clients.
Business Review
The first half of 2021 has been characterised by an increased focus on strategic delivery. In April we acquired Wealth Wizards, a leading fintech advice business. We will use technology to help scale the provision of impartial advice and offer high quality solutions that mean financial advisers are confident to recommend us. Our support for customers funding their later life has been enhanced by the purchase of a 30% stake in Responsible Life and Responsible Lending (Responsible Group), which completed on 1 July. This will strengthen our participation in the growing later-life lending market.
We have continued to invest in simplifying our legacy systems. Since the beginning of 2020 we have moved over three million in-force policies onto new technology, improving the efficiency and quality of the customers' servicing experience. We expect to migrate a further 150,000 policies in the second half of the year. We have progressed the consolidation of four with-profits funds that are now closed to new business into the Royal London Main Fund. We successfully consolidated one fund in the first half of the year and, subject to policyholder and court approval, the other funds are on track to be consolidated by the end of 2021.
We changed the way we manage our UK business, aligned to our Purpose and strategy. It is now organised by customer lifestage, allowing us to offer our wide range of products to best meet the changing needs of customers at the point when they need them the most. The Group is now structured into three business units: UK, Ireland and Asset Management (which operates through the Group's asset management subsidiary, RLAM).
Through the ongoing disruption caused by the pandemic we have focused on providing our high quality service to customers and advisers while safeguarding colleagues' health and wellbeing. With many colleagues keen to return to the office, we continue to follow the latest guidance from the UK, Scottish and Irish governments. When we are able, we will implement a hybrid working approach, with most colleagues splitting their time between the office and home.
In the first half of the year we actively championed the role mutuals play in our sector and demonstrated our continued commitment to running our business solely for the benefit of our customers. Through our ProfitShare allocation, we have now shared over GBP1bn with eligible customers since its introduction in 2007. This enhancement in policy value is only available because we are a mutual.
Our mutuality underpins our ambition to protect the standard of living of this and future generations. In June we launched a campaign to call for immediate action to address the issues created by the ageing population and climate change by championing the need to build financial resilience and invest responsibly . This included committing to reducing the carbon equivalent emissions from our investment portfolio by 50% by 2030 and achieving Net Zero by 2050.
Trading performance
The ongoing impact of the Covid-19 pandemic continues to affect trading in some areas of the Group, however there are positive indicators of economic recovery.
Our pension new business sales were GBP3,819m (H1 2020: GBP4,094m), with individual pension volumes remaining below pre-pandemic levels but recovering compared to the second half of 2020. There has been a steady improvement in workplace pension sales where recruitment and scheme tender activity increased.
New business sales of our protection business have continued to perform strongly in the UK, increasing by 16% to GBP676m (H1 2020: GBP581m). Sales have also performed strongly in Ireland, increasing by 40% to GBP88m (H1 2020: GBP63m). Through our continued focus on customer service and proposition enhancements we have met the increasing customer demand for protection products.
In February we introduced a new product which allows us to offer existing customers who benefit from a Guaranteed Annuity Rate an option to take their annuity with Royal London. We expect this area of business to build over the next few years as more and more pension customers approach retirement and choose to vest their pension with us.
RLAM, which manages the funds for our customers and external clients, continued to perform well. Assets under management increased to GBP153bn (2020: GBP148bn), passing the GBP150bn milestone for the first time. RLAM's strategy of the past five years to expand into the wholesale market continues to yield success, particularly with our sustainable funds where demand remains strong. As at the end of June 2021, 97% of actively managed funds outperformed their three-year benchmark (H1 2020: 60%).
Looking ahead
Enabled by our robust capital position and long-term approach to decision making, we will work in partnership with financial advisers to deliver better outcomes to customers, supporting the growing need for high quality, technology-enabled solutions to help improve efficiency in adviser businesses. We will continue to be there for the increasing number of customers looking for protection products and expect to see continued growth in both UK and Irish markets. We anticipate growth in our pensions sales as economic recovery builds employer and customer confidence.
Drawing on our asset management credentials, we expect to support more customers as they seek out means to invest their money to achieve good financial returns whilst also investing responsibly to help tackle some of the big problems faced by the world, such as climate change.
We will continue to champion the need to protect the standard of living of this and future generations through building financial resilience and investing responsibly. Royal London intends to play a leading role in how we move fairly towards a sustainable world.
Financial Review
Group operating profit before tax for the six months ended 30 June 2021 increased to GBP80m (H1 2020: GBP36m), with statutory profit before tax for the period of GBP228m (H1 2020: loss of GBP181m).
Our capital position is robust. The Investor View capital cover ratio increased to 204% (31 December 2020: 190%) and the Regulatory View capital cover ratio increased to 159% (31 December 2020: 147%). The capital position improvement was driven by additional equity hedging entered into in April 2021 and increases in yields during the first half of 2021.
Group operating profit before tax
The following table shows the Group operating profit for the six months ended 30 June 2021. Further detail on changes to the Group's segmental reporting is included on pages 16-17.
Six months ended
Six months 30 June 2020
ended 30 June 2021 (Restated) [a] Change
GBPm GBPm GBPm
============================================ ===================== ================= ========
Long-term business
============================================ ===================== ================= ========
New business contribution 81 93 (12)
============================================ ===================== ================= ========
Existing business contribution 82 46 36
============================================ ===================== ================= ========
Contribution from AUM and other businesses 59 43 16
============================================ ===================== ================= ========
Business development and other costs (16) (24) 8
============================================ ===================== ================= ========
Strategic development costs (39) (43) 4
============================================ ===================== ================= ========
Result from operating segments 167 115 52
============================================ ===================== ================= ========
Corporate costs (50) (42) (8)
============================================ ===================== ================= ========
Financing costs (37) (37) -
============================================ ===================== ================= ========
Group operating profit before tax 80 36 44
============================================ ===================== ================= ========
[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 for the six months ended 30 June 2020.
New business contribution
New business contribution for long-term business reduced to GBP81m (H1 2020: GBP93m). New business contribution from Q2 2020 was impacted by a reduction in long-term business sales as economic uncertainty, stock market volatility and the national lockdowns caused disruption to the services provided by intermediaries to their clients. This also resulted in a reduction in new business margin from 2.0% for the six months ended 30 June 2020 to 1.7% for the 12 months ended 31 December 2020. The new business margin has increased to 1.8% in the first half of 2021.
New business contribution PVNBP New business margin
Six months Six months Six months Six months Six months Six months
ended 30 ended 30 ended 30 ended 30 ended 30
June 2020 June 2021 June 2020 June 2021 June 2020
ended 30 (Restated) (Restated)(b) (Restated)(b)
June [b]
2021
GBPm GBPm GBPm GBPm % %
===================== ============ ============= ========== ============== ========== ==============
Individual
pensions 43 53 2,360 2,662 1.8 2.0
Workplace pensions 15 18 1,459 1,432 1.0 1.3
Protection 21 17 676 581 3.1 2.9
Other [c] (4) - 37 9 n/a n/a
===================== ============ ============= ========== ============== ========== ==============
UK 75 88 4,532 4,684 1.7 1.9
===================== ============ ============= ========== ============== ========== ==============
Ireland (Protection) 6 5 88 63 6.8 7.9
===================== ============ ============= ========== ============== ========== ==============
81 93 4,620 4,747 1.8 2.0
===================== ============ ============= ========== ============== ========== ==============
b The prior period comparatives have been updated to align to the new Group operating structure, with the UK segment including the previous Intermediary, Consumer and Legacy business units.
c Other predominantly relates to new products which we have started to sell in 2021, including annuities. New business margin will be presented in the full year results.
UK
Individual pensions new business sales were GBP2,360m (H1 2020: GBP2,662m). Volumes have recovered compared with the second half of 2020 but remain below pre-pandemic levels. Compared with the first half of 2020, the decrease in new business sales resulted in a reduction in the new business margin to 1.8% (H1 2020: 2.0%). Following the impact on our multi-asset funds of the sharp correction in equity markets in 2020, we have re-positioned asset allocations to re-weight equity exposures from UK assets towards overseas and emerging markets and the funds have been outperforming their benchmarks so far this year. We have also launched fund versions of our Governed Portfolios to give customers more flexibility in how they diversify their assets.
Workplace pensions new business sales were GBP1,459m (H1 2020: GBP1,432m). Total volumes increased over the first half of 2021 with a number of new scheme mandates, following many employers deferring decisions to change pension providers during 2020, as well as increasing levels of new entrants into existing schemes as recruitment started to recover, particularly in the second quarter. Despite the increase in new business sales, new business contribution decreased to GBP15m (H1 2020: GBP18m) as a result of a decrease in the rate used to discount future new business cash flows, leading to a reduction in the new business margin to 1.0% (H1 2020: 1.3%).
Sales of our protection products increased 16% to GBP676m (H1 2020: GBP581m), with growth driven by enhancements to our proposition and continued focus on providing high quality customer service throughout the Covid-19 pandemic. We have observed renewed growth in the specialist markets of business protection and income protection following the easing of lockdown restrictions. New business margin increased to 3.1% (H1 2020: 2.9%).
Ireland
New business sales increased to GBP88m (H1 2020: GBP63m), with strong demand for term assurance and mortgage protection. Despite the new business sales increase, new business margin has reduced to 6.8% (H1 2020: 7.9%) due to a decrease in the rate used to discount new business and a change in business mix.
Existing business contribution
Existing business contribution for long-term business increased to GBP82m (H1 2020: GBP46m), primarily due to positive experience variances. We continue to see positive workplace pensions persistency experience as fewer people changed employers during the lockdown period. We have retained a specific allowance in our assumptions for the expected adverse impacts on our pension business of potential higher unemployment caused by the economic slowdown and the end of the Government's furlough scheme in the second half of 2021. H1 2020 included an allowance of GBP10m for higher mortality claims expected to arise from Covid-19, and our claims experience has been in line with our expectations.
Contribution from AUM and other businesses
Contribution from AUM and other businesses increased to GBP59m (H1 2020: GBP43m) following a rise in revenues generated primarily through higher AUM. The comparative period included a trading loss of GBP4m in relation to the Ascentric business which was disposed of in September 2020.
Business development and other costs
Business development and other costs of GBP16m (H1 2020: GBP24m) include costs of investment in our products and propositions, as well as implementing product-related regulatory change. The reduction in spend in the first half of 2021 reflects the completion of a number of regulatory driven activities.
Strategic development costs
Strategic development costs of GBP39m (H1 2020: GBP43m) represent the continued investment in our pensions business to drive digital transformation and improve customer experience as well as investment in propositions and systems in our Irish and asset management businesses. The Group has also invested in enhancements to legacy systems, fund consolidation and our annuity offering, which became available to customers in early 2021.
Corporate and Financing costs
Corporate costs of GBP50m (H1 2020: GBP42m) have increased as we have restructured parts of our business and our property estate to deliver ongoing reductions in our costs. We have also continued to strengthen our IT security and resilience across the Group. Financing costs of GBP37m (H1 2020: GBP37m) represent the interest payable on the Group's subordinated debt.
Reconciliation of operating profit before tax to statutory profit/(loss) before tax
Profit/(loss) before tax for the period was GBP228m (H1 2020: loss of GBP181m), reflecting increased operating profit and positive economic movements compared to the prior period.
Six months ended Six months
30 June 2021 ended 30 June Change
GBPm 2020 GBPm
GBPm
====================================== ================= =============== =========
Group operating profit before
tax 80 36 44
====================================== ================= =============== =========
Economic movements 148 (224) 372
====================================== ================= =============== =========
Amortisation of goodwill/intangibles
d - 7 (7)
====================================== ================= =============== =========
Statutory profit/(loss) before
tax 228 (181) 409
====================================== ================= =============== =========
d Amortisation of goodwill/intangibles relates to negative goodwill (capitalised under UK GAAP) and goodwill capitalised in relation to Police Mutual which joined the group on 1 October 2020. Both are amortised on a straight-line basis over 10 years. For the six months ended 30 June 2021 it also includes fully amortised goodwill relating to Wealth Wizards of GBP2m.
Economic movements
Economic movements increased to GBP148m (H1 2020: loss of GBP224m), reflecting higher relative returns on UK investments and increases in yields during 2021, reversing the falls observed during 2020.
Assets under management
Assets under management increased to a record high of GBP153bn (31 December 2020: GBP148bn), driven predominantly by positive market movements.
External net outflows decreased to GBP1m in H1 2021 (H1 2020: GBP534m), driven by a lower level of institutional outflows compared with H1 2020 and continued high demand for sustainable funds. In H1 2021 there was a large institutional outflow, which was replaced by a larger reinvestment of GBP2.1bn in early July. Internal net inflows reduced to GBP0.4bn in H1 2021 (H1 2020: GBP1.5bn) due to higher outflows in our individual pensions business.
Gross inflows Net inflows
--------------- ------------------------------------------------- --------------------------------------------------
Six months ended 30 Six months ended 30 June Six months ended 30 June Six months ended 30 June
June 2021 2020 2021 2020
---------------
GBPm GBPm GBPm GBPm
--------------- ----------------------- ------------------------ ------------------------ ------------------------
Internal flows 4,165 4,325 406 1,531
External flows 7,822 10,094 (1) (534)
=============== ======================= ======================== ======================== ========================
Total 11,987 14,419 405 997
=============== ======================= ======================== ======================== ========================
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 30 June 2021 31 December 2020
------------------------- ------------ ----------------
Regulatory View solvency GBP2,601m GBP2,258m
surplus
------------------------- ------------ ----------------
Regulatory View capital
cover ratio 159% 147%
------------------------- ------------ ----------------
Investor View solvency GBP2,601m GBP2,258m
surplus
------------------------- ------------ ----------------
Investor View capital
cover ratio 204% 190%
------------------------- ------------ ----------------
At 30 June 2021, the Solvency II Investor View capital cover ratio was 204% (31 December 2020: 190%) and the Solvency II Regulatory View capital cover ratio was 159% (31 December 2020: 147%). Solvency surplus on both an Investor and Regulatory View was GBP2,601m (31 December 2020: GBP2,258m).
The Investor View capital position has improved during H1 2021 primarily due to additional equity hedges entered into in April 2021, which have operated as intended and will help to maintain capital stability going forwards.
The Regulatory View capital position improved in part due to an increase in yields during the first half of 2021, reversing the falls observed during 2020. The Regulatory View capital position has also benefitted from the additional equity hedging.
Balance Sheet
Our balance sheet position remains robust. Our total investment portfolio, including investment property, increased to GBP110.3bn (31 December 2020: GBP107.9bn), primarily driven by positive returns on equity securities, as sectors heavily impacted by the pandemic recovered.
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, 90% (31 December 2020: 91%) of our non-linked debt securities and 80% (31 December 2020: 81%) of our non-linked corporate bonds had a credit rating of A or better at 30 June 2021. There have been no significant defaults in our corporate bond portfolio.
Acquisitions
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 acquired 30% stakes in Responsible Life Limited and Responsible Lending Limited. The consideration paid (including transaction costs) was GBP20m. The transaction is a non-adjusting post balance sheet event and will be accounted for and disclosed in the 2021 Annual Report and Accounts.
Principal risks and uncertainties
The principal risks and uncertainties facing the Group have not changed materially from those 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/ ). 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 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; 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 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 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 . None of Royal London, its advisors or its employees accept or assume responsibility to any other person and any such responsibility or liability is expressly disclaimed to the extent not prohibited by law.
The Royal London Mutual Insurance Society Limited is registered in England and Wales (99064) at 55 Gracechurch Street, London, EC3V 0RL.
www.royallondon.com
Interim Financial Statements
Consolidated statement of comprehensive income (unaudited)
For the period ended 30 June 2021
Group
==========================================
Technical account - long-term business Six months Six months
ended ended Year ended
31 December
30 June 2021 30 June 2020 2020
(unaudited) (unaudited)
GBPm GBPm GBPm
-------------------------------------------------------------------------- ------------- ------------- ------------
Gross premiums written 575 492 1,018
-------------------------------------------------------------------------- ------------- ------------- ------------
Outwards reinsurance premiums 62 (425) (541)
-------------------------------------------------------------------------- ------------- ------------- ------------
Earned premiums, net of reinsurance 637 67 477
-------------------------------------------------------------------------- ------------- ------------- ------------
Investment income 1,905 1,916 5,447
-------------------------------------------------------------------------- ------------- ------------- ------------
Unrealised gains on investments 1,918 - -
-------------------------------------------------------------------------- ------------- ------------- ------------
Other income 297 262 548
-------------------------------------------------------------------------- ------------- ------------- ------------
Total income 4,757 2,245 6,472
-------------------------------------------------------------------------- ------------- ------------- ------------
Claims paid
-------------------------------------------------------------------------- ------------- ------------- ------------
* Gross claims paid (1,430) (1,319) (2,657)
-------------------------------------------------------------------------- ------------- ------------- ------------
* Reinsurers' share 271 245 505
-------------------------------------------------------------------------- ------------- ------------- ------------
Change in provision for claims
-------------------------------------------------------------------------- ------------- ------------- ------------
* Gross amount (19) (14) 77
-------------------------------------------------------------------------- ------------- ------------- ------------
* Reinsurers' share (3) 3 (6)
-------------------------------------------------------------------------- ------------- ------------- ------------
Claims incurred, net of reinsurance (1,181) (1,085) (2,081)
-------------------------------------------------------------------------- ------------- ------------- ------------
Change in long-term business provision, net of reinsurance
-------------------------------------------------------------------------- ------------- ------------- ------------
* Gross amount 1,711 (1,661) (1,522)
-------------------------------------------------------------------------- ------------- ------------- ------------
* Reinsurers' share (466) 455 243
-------------------------------------------------------------------------- ------------- ------------- ------------
1,245 (1,206) (1,279)
-------------------------------------------------------------------------- ------------- ------------- ------------
Change in technical provision for linked liabilities, net of reinsurance (4,317) 2,737 (1,426)
-------------------------------------------------------------------------- ------------- ------------- ------------
Change in technical provisions, net of reinsurance (3,072) 1,531 (2,705)
-------------------------------------------------------------------------- ------------- ------------- ------------
Change in non-participating value of in-force business 308 (46) 140
-------------------------------------------------------------------------- ------------- ------------- ------------
Net operating expenses (330) (298) (619)
-------------------------------------------------------------------------- ------------- ------------- ------------
Investment expenses and charges (112) (118) (222)
-------------------------------------------------------------------------- ------------- ------------- ------------
Unrealised losses on investments - (2,283) (597)
-------------------------------------------------------------------------- ------------- ------------- ------------
Other charges (142) (127) (257)
-------------------------------------------------------------------------- ------------- ------------- ------------
Total operating expenses (584) (2,826) (1,695)
-------------------------------------------------------------------------- ------------- ------------- ------------
Profit/(loss) before tax and before transfer to/(deduction from) the fund
for future appropriations 228 (181) 131
-------------------------------------------------------------------------- ------------- ------------- ------------
Tax attributable to long-term business (51) 8 (51)
-------------------------------------------------------------------------- ------------- ------------- ------------
Transfer to/(deduction from) the fund for future appropriations 177 (173) 80
-------------------------------------------------------------------------- ------------- ------------- ------------
Balance on technical account - long-term business - - -
-------------------------------------------------------------------------- ------------- ------------- ------------
Other comprehensive income, net of tax:
-------------------------------------------------------------------------- ------------- ------------- ------------
Remeasurement of defined benefit pension schemes 171 (29) (71)
-------------------------------------------------------------------------- ------------- ------------- ------------
Foreign exchange rate movements on translation of group entities 27 10 (36)
-------------------------------------------------------------------------- ------------- ------------- ------------
Transfer to/(deduction from) the fund for future appropriations 198 (19) (107)
-------------------------------------------------------------------------- ------------- ------------- ------------
Other comprehensive income for the period, net of tax - - -
-------------------------------------------------------------------------- ------------- ------------- ------------
Total comprehensive income for the period - - -
-------------------------------------------------------------------------- ------------- ------------- ------------
As a mutual company, all earnings are retained for the benefit of participating policyholders and are carried forward within the fund for future appropriations. Accordingly, the total comprehensive income for the period is always GBPnil after the transfer to or deduction from the fund for future appropriations.
Consolidated Balance Sheet (unaudited)
As at 30 June 2021
Group
=============================================
30 June 2021 30 June 2020
(unaudited) (unaudited) 31 December 2020
GBPm GBPm GBPm
--------------------------------------------------- ------------ ------------ -----------------
ASSETS
--------------------------------------------------- ------------ ------------ -----------------
Intangible assets
--------------------------------------------------- ------------ ------------ -----------------
Goodwill 27 - 28
--------------------------------------------------- ------------ ------------ -----------------
Negative goodwill (49) (58) (52)
--------------------------------------------------- ------------ ------------ -----------------
(22) (58) (24)
--------------------------------------------------- ------------ ------------ -----------------
Other intangible assets 70 70 70
--------------------------------------------------- ------------ ------------ -----------------
48 12 46
--------------------------------------------------- ------------ ------------ -----------------
Non participating value of in-force business 2,537 2,043 2,229
--------------------------------------------------- ------------ ------------ -----------------
Investments
--------------------------------------------------- ------------ ------------ -----------------
Land and buildings 160 165 168
--------------------------------------------------- ------------ ------------ -----------------
Other financial investments 44,490 46,651 47,502
--------------------------------------------------- ------------ ------------ -----------------
44,650 46,816 47,670
--------------------------------------------------- ------------ ------------ -----------------
Assets held to cover linked liabilities 65,608 54,749 60,229
--------------------------------------------------- ------------ ------------ -----------------
Reinsurers' share of technical provisions
--------------------------------------------------- ------------ ------------ -----------------
Long-term business provision 4,712 5,383 5,181
--------------------------------------------------- ------------ ------------ -----------------
Claims outstanding 93 94 93
--------------------------------------------------- ------------ ------------ -----------------
Technical provisions for linked liabilities (46) (15) (50)
--------------------------------------------------- ------------ ------------ -----------------
4,759 5,462 5,224
--------------------------------------------------- ------------ ------------ -----------------
Debtors
--------------------------------------------------- ------------ ------------ -----------------
Debtors arising out of direct insurance operations 43 140 192
--------------------------------------------------- ------------ ------------ -----------------
Debtors arising out of reinsurance operations 52 34 41
--------------------------------------------------- ------------ ------------ -----------------
Other debtors 808 395 493
--------------------------------------------------- ------------ ------------ -----------------
903 569 726
--------------------------------------------------- ------------ ------------ -----------------
Other assets
--------------------------------------------------- ------------ ------------ -----------------
Tangible assets 22 18 25
--------------------------------------------------- ------------ ------------ -----------------
Cash at bank and in hand 767 677 851
--------------------------------------------------- ------------ ------------ -----------------
789 695 876
--------------------------------------------------- ------------ ------------ -----------------
Prepayments and accrued income
--------------------------------------------------- ------------ ------------ -----------------
Deferred acquisition costs on investment contracts 149 179 163
--------------------------------------------------- ------------ ------------ -----------------
Other prepayments and accrued income 46 41 35
--------------------------------------------------- ------------ ------------ -----------------
195 220 198
--------------------------------------------------- ------------ ------------ -----------------
Pension scheme asset 258 137 128
--------------------------------------------------- ------------ ------------ -----------------
Total assets 119,747 110,703 117,326
--------------------------------------------------- ------------ ------------ -----------------
Consolidated Balance Sheet (continued)
Group
=====================================================================
30 June 2021 - unaudited 30 June 2020- unaudited
GBPm GBPm 31 December 2020
GBPm
----------------------------------------------- ------------------------ ----------------------- ------------------
LIABILITIES
----------------------------------------------- ------------------------ ----------------------- ------------------
Subordinated liabilities 1,333 1,332 1,332
----------------------------------------------- ------------------------ ----------------------- ------------------
Fund for future appropriations 4,048 3,509 3,673
----------------------------------------------- ------------------------ ----------------------- ------------------
Technical provisions
----------------------------------------------- ------------------------ ----------------------- ------------------
Long-term business provision 40,412 41,651 42,181
----------------------------------------------- ------------------------ ----------------------- ------------------
Claims outstanding 276 343 259
----------------------------------------------- ------------------------ ----------------------- ------------------
40,688 41,994 42,440
----------------------------------------------- ------------------------ ----------------------- ------------------
Technical provisions for linked liabilities 65,410 54,567 60,059
----------------------------------------------- ------------------------ ----------------------- ------------------
Provisions for other risks
----------------------------------------------- ------------------------ ----------------------- ------------------
Deferred taxation 200 103 140
----------------------------------------------- ------------------------ ----------------------- ------------------
Other provisions 277 268 282
----------------------------------------------- ------------------------ ----------------------- ------------------
477 371 422
----------------------------------------------- ------------------------ ----------------------- ------------------
Creditors
----------------------------------------------- ------------------------ ----------------------- ------------------
Creditors arising out of direct insurance
operations 255 208 237
----------------------------------------------- ------------------------ ----------------------- ------------------
Creditors arising out of reinsurance operations 2,612 2,965 2,871
----------------------------------------------- ------------------------ ----------------------- ------------------
Amounts owed to credit institutions 72 78 72
----------------------------------------------- ------------------------ ----------------------- ------------------
Other creditors including taxation and social
security 4,756 5,555 6,055
----------------------------------------------- ------------------------ ----------------------- ------------------
7,695 8,806 9,235
----------------------------------------------- ------------------------ ----------------------- ------------------
Pension scheme liability - 5 44
----------------------------------------------- ------------------------ ----------------------- ------------------
Accruals and deferred income 96 119 121
----------------------------------------------- ------------------------ ----------------------- ------------------
Total liabilities 119,747 110,703 117,326
----------------------------------------------- ------------------------ ----------------------- ------------------
Notes to the Interim Financial Statements
1. Basis of preparation
The Group has prepared the Interim Financial Statements in accordance with UK accounting standards, including Financial Reporting Standard (FRS) 102, 'The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland' and FRS 103, 'Insurance contracts'. The accounting policies applied in the Interim Financial Statements are the same as those applied in the Group's 2020 ARA. The full UK GAAP accounting policies
can be found in the Group's 2020 ARA on the Royal London website at ( royallondon.com/about-us/corporate-information/corporate-governance/investor-relations/ ).
The Interim Financial Statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The comparative results for the full year 2020 have been taken from the Group's 2020 ARA. The Group's 2020 ARA has been filed with the Registrar of Companies.
The Interim Financial Statements have been prepared on a going concern basis under the historical cost convention, as modified by the inclusion of certain assets and liabilities at fair value as permitted or required by FRS 102. The 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 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, Ireland and Asset Management. The 2020 comparatives have been restated to reclassify segments on this basis. There is no change to the total Group operating profit for the six months ended 30 June 2020 and 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.
Ireland
The Ireland business was previously shown within the 'Other' segment and comprises the Group's Irish subsidiary, Royal London Insurance Designated Authority Company (RLI DAC). It provides intermediated protection products to individuals in the Republic of Ireland.
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.
Segmental profit
A key measure used by the Company's Board of Directors to monitor performance is operating profit, which is classed as an APM. 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 in the Group's operating profit has been updated in 2021 to allocate both income and expenses, where relevant into the operating segments. Specifically:
-- '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.
The operating profit by operating segment is shown in the following table.
Six months ended 30 June 2021 Six months ended 30 June 2020 (Restated)
================= ================================================= ============================================
Asset Asset
UK Ireland Management Total UK Ireland Management Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ========= ============ ============= ========= ======= ========== ============= ========
Long-term
business
================= ========= ============ ============= ========= ======= ========== ============= ========
New business
contribution 75 6 - 81 88 5 - 93
================= ========= ============ ============= ========= ======= ========== ============= ========
Existing
business
contribution 81 1 - 82 46 - - 46
================= ========= ============ ============= ========= ======= ========== ============= ========
Contribution
from AUM and
other
businesses 21 - 38 59 10 - 33 43
================= ========= ============ ============= ========= ======= ========== ============= ========
Business
development and
other costs (9) - (7) (16) (15) - (9) (24)
================= ========= ============ ============= ========= ======= ========== ============= ========
Strategic
development
costs (34) (3) (2) (39) (42) (1) - (43)
================= ========= ============ ============= ========= ======= ========== ============= ========
Result from
operating
segments 134 4 29 167 87 4 24 115
================= ========= ============ ============= ========= ======= ========== ============= ========
Corporate costs (50) (42)
================= ========= ============ ============= ========= ======= ========== ============= ========
Financing costs (37) (37)
================= ========= ============ ========= ======= ========== ============= ========
Group operating
profit before
tax 80 36
================= ======================= ============= ========= ======= ========== ============= ========
Year ended 31 December 2020 (Restated)
============================================ =============================================
Asset
UK Ireland Management Total
GBPm GBPm GBPm GBPm
============================================ ======== =========== ============ ========
Long-term business
============================================ ======== =========== ============ ========
New business contribution 137 12 - 149
============================================ ======== =========== ============ ========
Existing business contribution 96 3 - 99
============================================ ======== =========== ============ ========
Contribution from AUM and other businesses 8 - 87 95
============================================ ======== =========== ============ ========
Business development and other costs (26) - (16) (42)
============================================ ======== =========== ============ ========
Strategic development costs (89) (3) - (92)
============================================ ======== =========== ============ ========
Result from operating segments 126 12 71 209
============================================ ======== =========== ============ ========
Corporate costs (93)
============================================ ======== =========== ============ ========
Financing costs (75)
============================================ ======== =========== ============ ========
Group operating profit before tax 41
============================================ ======== =========== ============ ========
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END
IR KZLFBFVLZBBD
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