TIDM41BM TIDM60KE TIDM76DO
RNS Number : 2166S
Royal London
08 March 2023
Results Announcement 2022 8 March 2023
Royal London results: Mutual boosts policy values for eligible
customers
Barry O'Dwyer, Group Chief Executive, commented:
"In 2022 we concluded our programme to simplify our business. As
a direct result, Royal London has been able to increase the value
of our long-standing customers' policies by GBP675m in total
through the consolidation of closed with-profits funds. We have
also successfully modernised many elements of our business,
introducing more efficient digital services for over four million
customers whose policies have been moved onto enhanced systems.
"During the year we have continued to see good growth,
delivering a 12% increase in new business sales in 2022. Supported
by our focus on cost efficiency as we have streamlined our
operations, this has driven a 58% increase in operating
profit."
Kevin Parry OBE, Chairman, commented:
"Our ability to share our success with customers is only
possible because we are a mutual. Our aim is to invest continually
in our business while awarding discretionary ProfitShare every
year. We have again maintained our allocation rates awarding
GBP155m to eligible customers. Our continued strength means they
are receiving ProfitShare for the seventh year in a row,
demonstrating Royal London's consistent approach.
"We also believe our role and responsibilities extend to
supporting wider-society and in 2022, charitable and social impact
initiatives benefited from over GBP2m in donations and support, the
equivalent of 1% of our operating profit. This included support for
our flagship national charity partner Turn2us, who provide guidance
and financial relief to families in crisis. In addition, we also
broadened our charitable giving to organisations who are focused on
preventing and limiting the impact of serious illnesses, including
Cancer Research UK, and we will be looking at additional
opportunities to build on this over the coming year."
Highlights
-- ProfitShare allocation rates maintained, with total ProfitShare of GBP155m (2021: GBP169m), with the reduction
attributable to market movements in eligible policies.
-- We have added a total of GBP675m over the last two years to our long-standing customers' policy values as a
result of our closed with-profits fund consolidation programme, which is now complete.
-- Our flagship Governed Range attracted net inflows of GBP3.4bn, with AUM reaching a record high of GBP53bn.
-- Investment performance of actively managed funds over three years remains strong in difficult market conditions,
with 80% of funds outperforming their three-year benchmark (2021: 99%)4
-- Launched a free online service for Workplace Pension members to assess their financial wellbeing and build
awareness of financial resilience for them and their families.
-- Enhanced support for Protection advisers through a new online dashboard providing proactive case management,
while also improving Protection customers' experience with the new MyRoyalLondon portal.
-- Completed the three-year migration of 4.3 million long-standing policies onto new technology, enhancing the
quality of customers' servicing experience.
-- Royal London Asset Management (RLAM) launched two new sustainable fund offerings, the Sustainable Growth Fund,
and the Sustainable Short Duration Corporate Bond fund, to capitalise on investment opportunities that can have a
positive influence on society and the environment.
-- Entered the individual pension market in Ireland, offering customers access to our investment range and services
to build their financial resilience, while capitalising on our strong brand and reputation with brokers.
Financials
Year ended Year ended
31 December 31 December
2022 2021
---------------- ------------------------------------ ------------- -------------
UK GAAP Operating profit before GBP210m GBP133m
tax(5)
----------------
Transfer (from)/to the GBP(162)m GBP79m
fund for future appropriations(6)
----------------
ProfitShare(3) GBP155m GBP169m
---------------- ------------------------------------ ------------- -------------
New business Life and pensions new GBP10,776m GBP9,588m
business sales(7)
---------------- ------------------------------------ ------------- -------------
Inflows Gross inflows(8) GBP26,647m GBP26,432m
----------------
Net inflows(8) GBP3,718m GBP5,287m
---------------- ------------------------------------ ------------- -------------
31 December 31 December
2022 2021
---------------- ------------------------------------ ------------- -------------
Funds Assets under management(9) GBP147bn GBP164bn
---------------- ------------------------------------ ------------- -------------
Capital(11) Regulatory View solvency GBP2.5bn GBP2.8bn
surplus(10)
(Solvency II)
======================================================
Regulatory View capital
cover ratio(10) 206% 173%
Investor View solvency GBP2.5bn GBP2.8bn
surplus(10)
Investor View capital
cover ratio(10) 213% 216%
===================================================== ============= =============
-- Operating profit before tax5 increased by 58% to GBP210m as the adverse market impacts on asset management
revenues were more than offset by the benefits from a continuing focus on cost control, growing the annuity
portfolio, and consolidating and simplifying closed funds.
-- Transfer from the fund for future appropriations (FFA)6 was GBP162m (2021: transfer to FFA GBP79m), reflecting
adverse market movements, in particular the fall in equity and bond markets, outweighing benefits from increased
yields.
-- Life and pensions new business sales7 up 12% at GBP10,776m (2021: GBP9,588m), reflecting the post-pandemic
increase in both Individual and Workplace pension flows, a strong UK employment market, and the relative
performance of our Governed Range.
-- Net inflows8 remained positive at GBP3,718m (2021: GBP5,287m) supported by our strong performance track record
across our range of asset classes and despite cash outflows from some institutional clients with leveraged LDI
portfolios managed by other institutions.
-- Assets under management9 decreased to GBP147bn (2021: GBP164bn) despite the net inflows, as falls in equity and
bond markets impacted underlying asset values.
-- Capital position remains robust with the Investor View capital cover stable at 213% (2021: 216%) and the
Regulatory View capital cover ratio10 increasing to 206% (2021: 173%) following the significant increases in
yields which have reduced the closed fund capital requirements.
Investor Conference call
Royal London will hold an investor conference call to present
its 2022 Financial Results on Wednesday, 8 March 2023 at 08:30.
Interested parties can register here. A copy of the presentation to
investors is available on the Group's website.
For further information please contact:
Steve Hartley, Head of External Communications
(steven.hartley@royallondon.com, 07484 165606)
About Royal London
Royal London is the UK's largest mutual life, pensions and
investment company. We provide long-term savings, protection and
asset management products and services in the UK and Ireland. We
work with advisers and customers to protect the standard of living
of this and future generations.
Financial calendar:
-- 8 March 2023 - Financial Results for 2022
-- 6 June 2023 - Annual General Meeting
-- 4 August 2023 - Interim Financial Results
-- 6 October 2023 - RL Finance Bonds No 4 plc subordinated debt interest payment date
-- 13 November 2023 - RL Finance Bonds No 3 plc subordinated debt interest payment date
-- 29 November 2023 - 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 for funds
with a defined external benchmark. Benchmarks differ by fund and reflect their mix of assets to ensure direct
comparison. Passive funds are excluded from this calculation as, whilst they have a place as part of a balanced
portfolio, Royal London believes in the long-term value added by active management.
5. Operating profit before tax represents profit/(loss) before transfer to/(from) the fund for future appropriations
excluding: short-term investment return variances and economic assumption changes; amortisation of goodwill and
other intangibles arising from mergers and acquisitions; ProfitShare; ValueShare; tax; and one-off items of an
unusual nature that are not related to the underlying trading of the Group. Profits or losses arising within the
closed funds are held within the respective closed fund surplus; therefore operating profit represents the result
of the Royal London Main Fund (RL Main Fund).
6. Transfer (from)/to the fund for future appropriations represents the statutory UK GAAP measure '(Deduction
from)/transfer to the fund for future appropriations' in the technical account within the consolidated statement
of comprehensive income.
7. Life and pensions new business sales represent life and pensions business only and excludes Asset Management and
other lines of business. New business sales are presented as the Present Value of New Business Premiums (PVNBP),
which is the total of new single premium sales received in the 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 2021 for all new business except annuities, where instead the swap rate at the end of each prior
month is used to discount the next month's new business cashflows.
8. 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
9. Assets under management (AUM) represent the total of assets actively managed by the Group, including funds
managed on behalf of third parties.
10. The capital cover ratio is calculated as the Group's Own Funds, being the regulatory capital under Solvency II,
divided by the Solvency Capital Requirement (SCR). The 'Regulatory View' solvency surplus and capital cover ratio
restricts each closed fund's surplus to the value of the SCR of that fund. The 'Investor View' equals the RL Main
Fund capital position (excluding ring-fenced funds, which are run on a standalone basis). All capital figures are
stated on a Group Partial Internal Model basis and the 2022 figure is estimated.
11. Figures presented throughout are rounded. The capital cover ratios and new business margins are calculated based
on exact figures.
Review of the Year
Our mutual status helps us to be genuinely purpose-driven. Since
it was conceived in 2020, the articulation of our Purpose -
'Protecting today, investing in tomorrow. Together we are mutually
responsible' - has truly galvanised our colleagues. It has allowed
us to successfully navigate short term challenges, while focusing
on the long term.
Clarity of purpose ensures we are very deliberate about the role
we will play and the difference we intend to make for the benefit
of our members and customers, and wider society.
While our Purpose determines our direction, our strategy to
deliver it is to be an insight-led modern mutual, growing
sustainably by deepening customer relationships. This means we will
use the information our customers share with us to help them build
their financial resilience in a sustainable way.
Sustainability is a key part of our strategy. First and
foremost, we want to help customers to maximise their financial
security but we also want to help them build the best possible
world to retire into. This is a complex area but we want to use our
customers' collective strength to best effect, influencing positive
change in the companies where we invest your money and using our
voice as the UK's largest mutual insurance group to lobby
policymakers for societal change.
We also want Royal London to be financially sustainable. That
means being careful stewards of our capital, investing sufficiently
to make sure our products and services remain competitive, managing
our costs carefully to generate the best possible value-for-money
and sharing the benefits of our success with eligible members via
ProfitShare.
Insight-led
In times of considerable uncertainty, the value of impartial
advice and guidance is clear and so is having a deep understanding
of the needs of customers, a central component of our strategy. In
2022 we began a new research series to gain better insight into how
people are coping with pressures on their finances and to help us
shape how we support our customers. As a result, we introduced a
dedicated cost of living hub with information to help people
navigate the challenges they are facing.
More generally, we use what we know about our customers to help
them build the financial resilience they need to thrive in an
ageing society. We are focused on helping customers accumulate the
wealth required to retire well. We can protect them and their
families against life shocks along the way.
Enhancing our products and services
As the increased cost of living continues to create uncertainty,
building customers' financial resilience is a key focus for us.
Following our acquisition of Wealth Wizards in 2021, we launched a
free online tool in 2022 for Workplace Pension members to assess
their financial wellbeing. We have continued to enhance many other
digital capabilities, like updating our mobile app so Workplace
Pension customers can request a transfer using a digital
signature.
As we continue to attract assets and build scale, we have been
able to consider increasingly complex fund structures for the
benefit of customers. Over 2022, RLAM has developed two tax
transparent funds which launched in March 2023. The funds will
underpin the US and Japanese equity components of the Governed
Range and deliver a more efficient investment outcome.
RLAM launched a new Sustainable Growth Fund to capitalise on
investment opportunities in companies that can have a positive
influence on society and the environment. It also introduced a
Sustainable Short Duration Corporate Bond Fund giving access to a
variety of socially impactful sectors that are often out of reach
of investors such as charities, government agencies or privately
owned businesses.
Building on our heritage in Ireland, we introduced a revised
brand, 'Royal London Ireland', enhancing our market visibility. We
have also looked to capitalise on our strong broker relations in
Ireland by introducing a value for money and competitively priced
individual pension proposition, the first life company to do so in
30 years.
Through our Simplification programme, we continued to move
long-standing customers onto a modern IT system to improve the
service we offer while reducing risk. We successfully migrated 1.1
million policies onto new technology in 2022, bringing the total
number to over four million since 2020. We also consolidated a
further two closed with-profits funds, simplifying their services
and our corporate fund structure. This finalised a four-year
consolidation programme, with long-standing customers' policy
values uplifted by a total of GBP675m.
During 2022 we took the difficult decision to withdraw from the
Over 50s life insurance market as a result of the combination of a
shrinking market and the rising cost of reinsurance. We remain
committed to serving our existing Over 50s customers.
This year will see the introduction of the FCA's new Consumer
Duty which aims to deliver higher standards of care across the
industry. Royal London will fulfil the requirements of the Duty
when it is brought in and our programme of work is well underway.
In addition to this, we have been working with financial advisers
to ensure they understand what is required to evolve their business
practices to be compliant.
Looking ahead
A key focus for 2023 will be the enhancement of our technology
across Royal London, to make it easier for customers and clients to
deal with us. In Royal London Asset Management, we will broaden
asset classes while extending our international footprint. We will
continue to invest in our pensions and protection offerings both in
the UK and Ireland, as well as developing additional 'later life'
services to support longer-term financial planning.
2023 will be another demanding year, with ongoing geopolitical
uncertainty and cost pressures at home. We are adapting to this
challenging environment and, like our customers and members,
responding with renewed focus on cost efficiency, so we can
continue to provide great value products and services.
While the outlook remains challenging, our robust capital
position means we are well-positioned to continue to take a
long-term approach to decision-making. Driven by our Purpose, we
are focused on how we enhance our offering to meet the needs of
members and customers to support and protect their standard of
living now and in the future.
UK
Market overview
Financial uncertainty has featured heavily for many throughout
the year with disposable income levels being squeezed against the
backdrop of climbing energy prices and spiralling food costs.
The market for Protection new business was broadly flat in 2022
as a result of these pressures, with almost one in ten customers
saying they anticipated reducing, or stopping, their protection
premiums [a] . This meant customer reassurance was key - ensuring
that decisions being made did not lead to further financial
insecurity.
However, the low level of UK unemployment seen across the year
has driven a higher level of workplace participation, reflecting
increased confidence as Covid-19 restrictions were lifted. The
turbulence in many investment markets throughout the year
underlined the value of broad diversification in our Governed Range
portfolios to improve resilience to such market shocks.
The ethical and social risks of complex supply chains have been
highlighted by the war in Ukraine, bringing our sustainability and
responsible investment commitments into sharp focus. 2022 saw our
continued commitment to invest the money in our care responsibly,
increasing our industry's ability to influence those who can make
the biggest difference.
Business performance
Our Pensions business performed well over 2022, with our
continued focus on core service proposition and investment
performance allowing us to capitalise on the continued recovery in
the UK employment market. Our total number of members increased to
over 2 million (2021: 1.8 million).
Protection new business sales reduced, as customers experienced
rising inflation and cost of living pressures, with our own
research indicating over 80% of our customers have changed their
spending habits to some degree. Our customers are generally more
resilient than the broader UK population, but they still face
significant financial pressures. This throws an even sharper focus
on the importance of helping our customers build financial
resilience.
Throughout the year, we have improved key processes, customer
support and product solutions that specifically help customers make
better decisions and achieve good outcomes. These include
simplifying pensions consolidation, improving the protection claims
experience, offering wellbeing support and increasing access to
advice by helping advisers reach more clients.
Whole of Life customers can now nominate beneficiaries, we offer
a broader range of protection options and we have continued to
develop our annuity offering. We have started to define a support
and guidance service for our later life customers, introduced a
referral service for advisers to source lending products for their
clients and made changes to our funeral plan product that support
regulatory objectives to create a fairer market that meets customer
needs.
Pensions
Workplace Pensions saw a significant increase in both new
entrants to existing schemes and new employers choosing Royal
London, leading to new business sales increasing by 29% to
GBP4,114m. We continued our focus on Workplace Pensions
consolidation process improvements. More and more customers are now
making these requests digitally via the mobile app and we
introduced a fast-track question-set, reducing the time taken to
complete transfers by removing the need to contact the previous
provider for over a quarter of customer requests.
We have streamlined our approach to scheme eligibility, with
over 90% of applications we receive being accepted at the outset
without the need for physical evidence from the adviser or previous
provider. We are also continuing to invest in the digital
experience of customers, with the implementation of a fully digital
consolidation experience which went live in January 2023.
Our Individual Pensions new business sales increased by 10% to
GBP5,219m supported by the relative investment performance from our
flagship Governed Range, alongside positive communication around
our investment range to advisers and customers through our app. We
have continued to focus on highlighting Royal London's approach to
responsible investment and raising awareness among customers about
the power their pension investments can have in making a
difference. Our service teams continued to work towards providing
faster responses to customers, and we have seen the effect of this
in customer feedback.
We focused on the future of advice, promoting the value of
financial advice for customers, and have provided dashboards to
advisers allowing them to manage their client portfolios more
effectively. Our work in this area has resulted in more customers
taking guidance from Pensions Wise in 2022.
Protection
Sales of our Protection products fell 17% to GBP1,037m, as we
saw increasing competition in a broadly flat market. We continue to
manage the mix of our business to ensure we write profitable
business through advisers and distributors who will deliver good
customer outcomes. Part of the reduction in sales is a result of
our decision to exit the Over 50s life insurance market at the end
of 2022, following the shrinkage in the market whilst the cost of
reinsurance has increased. We paid out GBP590m in protection claims
supporting approximately 74,000 customers and their families.
Through the year we have continued to enhance our support for
advisers, to help them operate efficiently and focus their time
where it adds most value to customers. We delivered a dashboard to
provide online, proactive updates to advisers and reduce demand on
our servicing teams and as at the end of January 2023 we have had
over 140,000 uses of the online service. We have provided thought
leadership around the impact of the FCA's new Consumer Duty,
encouraging advisers to focus on the customer outcome and value
rather than purely on price, and encouraging them to ensure
protection cover is considered as a key part of building financial
resilience and avoiding foreseeable harm.
We have also focused on improving experience and engagement for
our customers, with the launch of the MyRoyalLondon portal for
Protection customers. This portal enables customers to see the
progress of their applications online and provides a platform for
ongoing regular communication.
We continuously seek to improve our overall proposition,
delivering incremental changes regularly to ensure we continue to
meet customers' needs. This year we broadened our Critical Illness
definitions to increase coverage for certain heart conditions and
to improve children's cover. We also extended the use of our
successful 'Underwrite Later' approach to cover more products and
sums assured, enabling immediate cover for customers whilst
underwriting is carried out and widened our capturing of nominated
beneficiaries for Whole of Life customers, helping claims to be
paid more quickly. We were also able to improve our underwriting
approach for mental health disclosures, allowing decisions to be
made more swiftly or cover to be provided in more situations.
Annuities
Our annuity proposition was launched in 2021 and provides a
Royal London annuity to long-standing customers invested in the
Royal London (CIS) Sub-Fund with pension policies that have
guaranteed annuity rates. Over 2022 we have continued to expand our
annuities portfolio (called a Matching Adjustment portfolio) to
create value for our members. As well as providing an option for
long-standing customers to remain with Royal London, we transferred
GBP112m of Scottish Life deferred annuities and GBP233m of Royal
London (CIS) annuities in payment into the Royal London Main Fund
Matching Adjustment portfolio. Total annuities new business volumes
increased by 17% to GBP190m, despite the significant rise in bond
yields over the second half of 2022 reducing the average value of
customers' pots at retirement.
Value enhancement
In line with our aim of providing value for money through
efficient operational and capital management, we have delivered a
series of further changes to modernise and simplify our processes
for the benefit of our long-standing customers.
During 2022 we successfully completed a consultation process
with our with-profits policyholders in two of the 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 Phoenix Life Assurance Limited
(PLAL) Fund and the Royal Liver Fund on 31 December 2022, the
latter following resounding approval from eligible policyholders,
as well as from the UK High Court and the Irish High Court. These
changes sped up the distribution of surplus to those with-profits
policyholders through immediate uplifts to policy values of 5.6%
and 23.1% for PLAL and Royal Liver policyholders respectively.
Our successes in 2022 built upon our extensive programme of
work, which has previously seen the Refuge Assurance Industrial
Branch Fund, United Friendly Industrial Branch Fund, United
Friendly Ordinary Branch Fund, and the Scottish Life Fund merged
into the Royal London Main Fund. We have now reduced the number of
funds in our UK business structure from eight in 2020 to just two
at the end of 2022.
In addition to the immediate benefits for these long-standing
customers, our Legacy Simplification programme has reduced the
complexity in our systems and processes, helping us to deliver
better customer outcomes. By completing the three-year migration of
4.3 million long-standing policies from older mainframe systems
onto new technology, we have improved the quality of customers'
servicing experience.
Asset Management
Market overview
High inflation at the end of 2021, driven by the Covid-19
pandemic and supply chain constraints, increased further in 2022
and was exacerbated by the war in Ukraine. The conflict triggered
the sharpest increase in bond yields since 1994, a strong sell-off
across most equity market sectors and an energy crisis that has
driven double-digit inflation rates in the second half of the year.
Alongside this, there has been an increased level of instability as
a result of the changing composition of the UK Government and its
fiscal policy. The surge in inflation meant that central banks have
been forced to intervene, raising interest rates whilst signalling
that further rises are likely. The hike in rates globally has made
for a more challenging economic environment for returns across all
asset classes.
Growth, both domestically and globally, has slowed during the
year and there is a threat of a recession in the UK in 2023. As a
result, fiscal policy changes are now at the forefront as
governments intervene to limit the impacts of an economic downturn
and central banks flex monetary policy to wrestle with high and
persistent inflation.
Within the investment management sector, the trends we
identified in recent years have continued to affect investor
behaviour and preferences. For example, when looking at product
type, the move into globally focused strategies has continued, with
clients moving away from more narrow UK equity and fixed income
strategies. Responsible investment and the interest in sustainable
investing continues to gather momentum - partly driven by
regulatory change but more notably, due to underlying client
interest, as investors increasingly want to know and understand the
impact of their holdings on issues such as climate change.
Business performance
Operating profit reduced to GBP32m (2021: GBP71m), driven by
lower performance fees as a result of the challenging investment
environment and increased investment in core infrastructure as we
embark on the implementation of the BlackRock Aladdin enterprise
solution. In response to the market backdrop, costs have been
closely managed and we have taken a controlled approach to hiring
throughout the year.
In spite of challenging market conditions, we are continuing to
invest in our strategic priority to build RLAM's systems, product
and people capabilities for the longer term. We continue to focus
on growth in Global Equities and Global Credit capabilities, whilst
investment in our Property capability remains a key focus with
several senior individuals joining in the year to support our
investment plans.
Delivering investment performance above the relevant benchmark
for our clients is key to our success. Even though conditions faced
by investment teams in the year have been difficult, our three-year
performance track record remains strong across our fund range in
2022 with 80% of our actively managed funds outperforming their
benchmark over the three years to 31 December 2022 (2021: 99%).
Peer rankings remain positive for key open-ended investment
companies (OEICs) for the three years to 31 December 2022. Over the
three-year period, 85% (2021: 89%) of funds were in the top two
quartiles, with two Sustainable funds remaining in the top decile
of their respective peer groups, despite a difficult 2022.
Flows and funds
Falls in asset values led to a decline of GBP20.3bn in assets
under management. The decrease was partially offset by positive
overall net flows of GBP3.7bn, resulting in assets under management
falling to GBP147.2bn (2021: GBP163.8bn).
Despite the challenging macroeconomic and geopolitical
environment in 2022, net flows remained positive. Internal flows
increased to GBP2.0bn (2021: GBP0.9bn) due to higher gross inflows
from our pensions business. External net inflows fell to GBP1.7bn
(2021: GBP4.4bn) driven primarily by net inflows of GBP2.6bn into
our Global Equity strategies, partially offset by net outflows of
GBP0.9bn across our other offerings.
Our Sustainable fund range ended the year in a marginal net
outflow position of GBP0.1bn (2021: GBP2.1bn net inflow). Although
market appetite for responsible investment remains strong,
investment returns across sustainable funds have been at lower
levels in comparison to previous years, mainly due to the strong
performance of oil and gas companies as the war in Ukraine inflated
energy prices and technology valuations reduced due to the higher
interest rate environment.
Cash funds have seen increased volatility in flows in the year.
This was primarily due to events around September's mini-budget,
when sharply rising gilt yields had a knock-on effect that meant
institutional clients with leveraged liability driven investment
portfolios managed by other institutions withdrew GBP2.1bn as they
managed their liquidity requirements. This impact was offset by
wholesale clients buying our short-term fixed income funds, as the
yields available on cash funds rose sharply from the record lows
seen in recent years and climbed back to levels seen before the
Global Financial Crisis.
Our commitment to take our services to a wider audience has
included expansion into Europe in 2022. We now have an established
distribution partner based in Luxembourg allowing us to offer our
services in the EU and have registered a number of key strategies
in areas such as Global Credit, Global Equities and Global
Sustainable for sale in several countries.
As we grow our product range and extend our distribution reach,
we continue to focus on making it easier for existing and
prospective clients to gain insights into our strategies. We have
continued to publish a number of articles and blog posts, backed by
multiple online webinars and podcasts, including short-notice
events when markets were particularly volatile in the autumn.
Responsible investment
Responsible investing is a core capability and our investment
teams are supported by specialists in climate change, corporate
governance and other environmental, social and governance (ESG)
topics. In 2022 we built an ESG analytics tool which allows teams
to view key carbon and sustainability metrics to support deeper
insights and analysis. We also worked with consultants to assist in
developing our climate transition action plan, which will help us
achieve our net zero carbon ambitions. As part of our net zero
commitment, we have identified and engaged with 40 companies that
represent 51% of our overall financed emissions, with our goal
being to better align our highest emitting companies with a net
zero pathway.
We continue to launch new funds, adding another fund to our
Sustainable multi-asset range and launching Global Equity
Transitions, a fund that invests in companies to support the
transition to more sustainable activities over time. We have also
responded to greater regulatory demands, implementing technology
and reporting tools to meet new regulatory requirements and
provided feedback to regulators on the adoption of a new
sustainable fund labelling regime in the UK.
Ireland
Market overview
The broker protection market in Ireland continued to grow in
2022. Within this market, we were the first provider in Ireland to
remove the broad questions related to Covid-19 from applications,
allowing larger amounts of cover and more older age customers to
get the cover they needed.
Brokers continue to be the largest distribution channel in the
Irish market. Our view is that impartial financial advice is key to
customers achieving the best outcomes. We are firm believers in the
value of advice and that brokers help customers optimise their
financial resilience and to deliver good outcomes.
Business performance
Our Irish business had another successful year, recording its
highest ever level of new business sales and maintaining its market
leader status in the Irish broker protection market. New business
sales increased to GBP203m (2021: GBP185m), however overall
operating profit reduced to GBP5m (2021: GBP16m) driven by a loss
on existing business arising from fund consolidation activity. As
part of our next stage of development, we launched our new pension
proposition in September.
We were proud to achieve the Investors in Diversity: Silver
Accreditation from the Irish Centre for Diversity, Ireland's
premier Diversity and Inclusion accreditation mark. Supported by
Ibec, the programme both recognises existing efforts and supports
the journey of continuous improvement by providing a structured
framework to transform workplace practices and culture.
For the first time we launched a nationwide advertising campaign
in Ireland. The campaign included television and video on demand
adverts, as well as online video and paid social media. Through
these adverts we conveyed our rich and long heritage in Ireland
providing valued products and encouraged viewers to contact their
financial broker. The campaign reached over 90% of our target
audience and accounted for a 6% increase in our brand awareness
amongst Irish consumers.
Protection
Sales of our Protection products increased to GBP198m (2021:
GBP185m), as we continued to help customers and their families
protect themselves and build their financial resilience.
Throughout 2022, we have continued our focus on service
excellence. This included digital enhancements to help financial
brokers and their customers.
We also continued to innovate and improve our product
proposition. This included improvements to our Income Protection
product and to our Specified Serious Illness offering, expanding
the illnesses we cover. We were the first provider to introduce a
Specified Serious Illness partial payment covering adults being
treated for a specified severe mental illness.
We continued to provide financial brokers with support to help
them in their protection conversations, aimed at ensuring customers
have plans in place to build their financial resilience. We did
this through regular meetings with brokers and our consultants,
regular ezine and collateral updates and technical and sales
focused webinars, with an average of more than 900 brokers
registering to attend each event.
Our culture of empowering our people and a customer-first
approach is key to our service delivery, and means our colleagues
provide a 'one and done' service which strengthens our strong
relationships with financial brokers.
We paid out over GBP41m in claims to over 5,000 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 support service.
Pensions
Our position as market leader [b] in broker protection products
provides a strong distribution platform to build from to broaden
our offer to include pensions. In September 2022, we launched a
Personal Retirement Bond and an Approved Retirement Fund.
Underpinned by strong customer service, these products offer a
range of unique product features including zero policy fees or fund
switching charges, automatic portfolio rebalancing and ValueShare,
the Royal London Ireland equivalent of ProfitShare. This feature is
unique in the Irish market and demonstrates our mutual mindset.
Following several years of consultation with financial brokers
and significant capital investment, we have created a compelling
pension proposition that aims to deliver value for money and
competitive pricing for customers, combined with access to funds
provided by our in-house asset manager RLAM and a further range of
funds from BlackRock.
Financial Review
The financial markets have experienced significant turmoil
during 2022, adjusting to interest rate increases in the face of
inflationary pressures alongside ongoing supply chain constraints
and geopolitical events such as the war in Ukraine. Despite these
challenging conditions, Group operating profit before tax for the
year ended 31 December 2022 increased to GBP210m (2021: GBP133m)
following higher contributions from our pensions and annuities
products and our continuing focus on cost control throughout the
year.
There was a transfer from the fund for future appropriations
(FFA) of GBP162m (2021: transfer to FFA GBP79m), which reflects the
adverse market movements over the year, in particular the fall in
equity and bond markets, which outweighed the benefits from
increased yields.
Overall we delivered a 12% increase in new business premiums
driven primarily by our Individual and Workplace Pensions
propositions. The falls in investment markets over the course of
2022 have impacted assets under management in RLAM which were 10%
lower at GBP147bn. Whilst this has affected revenue, we have
continued to invest in investment capabilities and systems which
will support longer-term growth.
Given the current inflationary environment we have taken action
to manage our cost base over the course of 2022 which protects the
value of our in-force business and positions us well as we start
2023. This has included focused optimisation of spend,
rationalisation of suppliers and a consolidation of our office
space in Edinburgh. All of these actions have allowed us to
mitigate the impact of inflation over 2022.
The Group's result in 2022 benefited from two significant items.
Following the successful launch of our annuity proposition last
year, we completed further transfers into our ring-fenced annuity
portfolio. As part of this we have invested in higher yielding
long-term assets allowing us to recognise a gain of GBP31m (2021:
GBP32m) from the change to the rate used to discount the
liabilities. There has also been a GBP31m (2021: GBP26m)
contribution from closed funds to the Royal London Main Fund (Main
Fund), representing compensation for providing capital support for
the transferred business following the consolidation of two
with-profits funds into the Main Fund.
ProfitShare for the year totalled GBP155m (2021: GBP169m), with
underlying allocation rates maintained at prior year levels,
demonstrating our consistent approach to sharing returns with
eligible customers.
Our capital position remains robust with the estimated Solvency
II Investor View capital cover ratio stable at 213% (31 December
2021: 216%) despite the movements in yields and asset values, with
our hedging programmes operating as intended. The estimated
Solvency II Regulatory View capital cover ratio has increased to
206% (31 December 2021: 173%), driven by the increases in yields
during the year reducing the closed fund capital requirements, in
particular in relation to guaranteed annuity options.
Group operating profit before tax
The following table shows the Group operating profit for the
year ended 31 December 2022. Further detail on the Group's
segmental reporting is included on pages 20-21.
2022 2021 Change
GBPm GBPm GBPm
============================================ ====== ====== =======
Long-term business
New business contribution 163 164 (1)
Existing business contribution 181 125 56
Contribution from AUM and other businesses 101 124 (23)
Business development and other costs (32) (37) 5
Strategic development costs (71) (62) (9)
============================================ ====== ====== =======
Result from operating segments 342 314 28
============================================ ====== ====== =======
Corporate costs (57) (106) 49
Financing costs (75) (75) -
============================================ ====== ====== =======
Group operating profit before tax 210 133 77
============================================ ====== ====== =======
New business contribution
Total sales (i.e. Present Value of New Business Premiums)
increased 12% to GBP10,776m (2021: GBP9,588m), reflecting strong
sales growth in both Individual and Workplace Pensions, partially
offset by a reduction in Protection new business sales following
the higher sales we experienced over 2020 and 2021.
Overall, new business contribution was broadly flat at GBP163m
(2021: GBP164m) as the strong growth in pensions sales alongside
growth in annuity product contributions were offset by the
reduction in Protection new business contribution.
New business contribution PVNBP New business margin
===================== ============================ =============== ======================
2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm % %
===================== ============= ============= ======= ====== ========== ==========
Individual Pensions 83 78 5,219 4,766 1.6 1.6
Workplace Pensions 43 30 4,114 3,200 1.0 0.9
Protection 11 39 1,037 1,251 1.1 3.1
Annuities and
other 9 - 203 186 4.5 (0.1)
===================== ============= ============= ======= ====== ========== ==========
UK 146 147 10,573 9,403 1.4 1.6
===================== ============= ============= ======= ====== ========== ==========
Ireland 17 17 203 185 8.5 9.2
===================== ============= ============= ======= ====== ========== ==========
Total 163 164 10,776 9,588 1.5 1.7
===================== ============= ============= ======= ====== ========== ==========
UK
Individual Pensions new business sales increased to GBP5,219m
(2021: GBP4,766m) with growth in the first half of 2022 following
an increased number of face-to-face adviser appointments
post-pandemic. Sales levels were supported by the benefits of the
relative performance and diversification of our flagship Governed
Range. New business margin was flat at 1.6%.
Workplace Pensions new business sales grew by 29% to GBP4,114m
(2021: GBP3,200m) with an increased number of new entrants into
existing schemes reflecting a strong UK employment market across
the year, and an increased number of new scheme wins. Growth was
supported by improvements to our customer proposition, including
digitalisation of the pension consolidation request process via our
mobile app and the introduction of our interactive Royal London
Financial Wellbeing service giving customers tailored guidance to
help them make informed decisions across their life stages. New
business margin increased from 0.9% to 1.0% reflecting the
increased sales.
Protection sales fell to GBP1,037m (2021: GBP1,251m) reflecting
the increasing competition in a broadly stable market, with new
business margin decreased from 3.1% to 1.1% as a result of the
lower volumes against a largely flat cost base.
Annuities and other business sales increased to GBP203m (2021:
GBP186m) with the current period reflecting a full year of annuity
trading.
Ireland
New business sales grew to GBP203m (2021: GBP185m) reflecting
both an increase in our protection sales to GBP198m (2021: GBP185m)
and GBP5m of pension sales, following the launch of our new pension
product in September 2022. Enhanced application and underwriting
processes helped to support the continued growth in our protection
business. The reduction in new business margin to 8.5% (2021: 9.2%)
reflects a change in business mix.
Existing business contribution
Existing business contribution increased to GBP181m (2021:
GBP125m), the components of which are shown in the table below.
2022 2021 Change
GBPm GBPm GBPm
============================================= ====== ====== =======
Expected return 108 117 (9)
Experience variances and assumption changes (10) (56) 46
Modelling and other changes 83 64 19
============================================= ====== ====== =======
Total 181 125 56
============================================= ====== ====== =======
Expected return reduced to GBP108m (2021: GBP117m) reflecting
changes in the Group's asset mix.
Experience variances and assumption changes were a charge of
GBP10m (2021: charge of GBP56m). Experience variances were small
over the period, reflecting experience in line with long-term
assumptions through 2022 overall. There have been minor updates to
long-term expense, persistency, mortality and longevity assumptions
reflecting recent experience as well as latest views on long-term
future experience following the pandemic.
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
2022, the benefit of these changes amounted to GBP21m (2021:
GBP6m). 2022 also benefited from the following one-off
activities:
-- During the year we transferred GBP112m of Scottish Life deferred annuities and GBP233m of Royal London (CIS)
annuities in payment into our ring-fenced annuity portfolio. This led to a benefit of GBP31m due to an increase
in the discount rate used to value these liabilities in order to reflect the illiquidity premium relating to the
backing assets.
-- Following the consolidation into the Royal London Main Fund of two further with-profits funds that are closed to
new business, the closed funds paid a contribution of GBP31m to compensate the Main Fund for providing capital
support for the transferred business. This is in addition to the GBP26m contribution in 2021 resulting from the
consolidation of four funds last year.
Contribution from AUM and other businesses
Contribution from AUM and other businesses decreased to GBP101m
(2021: GBP124m) as revenues were impacted by falls in the value of
the underlying assets under management.
Business development and other costs
UK business development costs of GBP20m are consistent with
2021. Key proposition enhancements in year included the development
of the Adviser Dashboard as well as the Workplace Pensions
financial wellbeing proposition through our subsidiary Wealth
Wizards. Asset Management business development costs reduced to
GBP11m (2021: GBP17m) as we focused on the implementation of larger
scale investment, recognised in strategic development costs.
Strategic development costs
Strategic development costs of GBP71m (2021: GBP62m) represent
the ongoing investment we are continuing to make across our
businesses. It comprises GBP52m of costs in our UK business
including continuing investment in our pensions business and the
costs of the two further fund migrations under our Legacy
Simplification programme, GBP13m in Asset Management to enhance
RLAM's capabilities through additional investment in core
infrastructure and systems and GBP6m in Ireland relating to the
successful launch of our pension proposition.
Corporate and financing costs
Corporate costs of GBP57m (2021: GBP106m) include the costs of
Group-wide regulatory change development, strengthening of IT
security, and restructuring. The reduction reflects the completion
of work on a number of areas of investment in information
technology, security and resilience during 2021. Financing costs of
GBP75m (2021: GBP75m) represent the interest payable on the Group's
subordinated debt, which has not changed during the year.
Reconciliation of operating profit before tax to transfer
(from)/to the FFA
The transfer from the FFA was GBP162m (2021: transfer to FFA
GBP79m) as the increase in operating profit was offset by adverse
economic movements experienced during the year.
2022 2021 Change
GBPm GBPm GBPm
=============================================== ====== ====== =======
Group operating profit before tax 210 133 77
Economic movements (446) 225 (671)
Amortisation of goodwill arising from
mergers and acquisitions 2 3 (1)
ProfitShare (155) (169) 14
=============================================== ====== ====== =======
(Loss)/profit before tax and before transfer
(from)/to the fund for future appropriations (389) 192 (581)
=============================================== ====== ====== =======
Tax attributable to long-term business 227 (113) 340
=============================================== ====== ====== =======
Transfer (from)/to the fund for future
appropriations (162) 79 (241)
=============================================== ====== ====== =======
Economic movements
Economic movements were a charge of GBP446m (2021: credit of
GBP225m), as investment portfolio returns were below our
longer-term expected return assumptions, following significant
falls in both bond and equity markets during the year. The change
in economic movements from 2021 to 2022 reflects the significant
market volatility seen over this period.
Amortisation of goodwill arising from mergers and
acquisitions
Amortisation of goodwill arising from mergers and acquisitions
was a net credit of GBP2m (2021: GBP3m) comprising the amortisation
charge of positive goodwill of GBP5m relating to Police Mutual and
our investment in the Responsible Group offset by an amortisation
credit of negative goodwill of GBP7m relating to historic
acquisitions.
ProfitShare
ProfitShare allocation rates were maintained, with total
ProfitShare for the year decreasing to GBP155m (2021: GBP169m) in
line with the fall in the aggregate value of eligible policies due
to market movements. The enhancements to qualifying policies from
ProfitShare were 1.2% for existing with-profits policies and 0.15%
for unit-linked policies (2021: 1.2% and 0.15% respectively). New
with-profits policies taken out since the start of 2022 received
0.3%.
Assets under management
Assets under management decreased to GBP147bn (31 December 2021:
GBP164bn) driven by negative market movements across equity and
bond asset classes in response to the global economic slowdown,
rising inflationary pressures and the geopolitical impacts of the
war in Ukraine.
Gross inflows Net inflows
================ ================ ==============
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
================ ======= ======= ====== ======
External flows 17,104 17,910 1,709 4,372
Internal flows 9,543 8,522 2,009 915
Total 26,647 26,432 3,718 5,287
================ ======= ======= ====== ======
External net inflows were GBP1.7bn (2021: GBP4.4bn), driven in
particular by net inflows of GBP2.6bn into our Global Equity
strategies, offset by GBP0.9bn outflows across our other product
offerings. Sustainable funds had a marginal net outflow of GBP0.1bn
(2021: GBP2.1bn net inflow). Events around the September
mini-budget meant certain institutional clients withdrew GBP2.1bn,
in particular external pension funds following liability driven
investment strategies managed by other institutions needing to meet
margin calls brought about by the sharp fall in gilt values.
However, this impact was more than offset by wholesale clients
buying our fixed income funds as yields available on these funds
rose.
Internal net inflows increased to GBP2.0bn (2021: GBP0.9bn) due
to higher gross inflows from our pensions business.
Strength of our capital base
The strength of our capital base is essential to our business,
both to ensure we have the capital to fund further growth and to
give peace of mind to our customers that we can meet our
commitments to them.
Managing our capital base effectively is a key priority for us.
In common with others in the industry, we present two views of our
capital position: an Investor View for analysts and investors in
our subordinated debt, and a Regulatory View where the closed
funds' surplus is excluded as a restriction to Own Funds.
The table below sets out the capital position and key Solvency
II metrics on a Partial Internal Model basis for the Group.
Key metrics 31 December 31 December
2022 2021
------------------------------------- ------------ ------------
Regulatory View solvency surplus GBP2,483m GBP2,817m
Regulatory View capital cover ratio 206% 173%
Investor View solvency surplus GBP2,483m GBP2,817m
Investor View capital cover ratio 213% 216%
===================================== ============ ============
At 31 December 2022, the estimated Solvency II Group Investor
View capital cover ratio was 213% (31 December 2021: 216%) and the
estimated Solvency II Group Regulatory View capital cover ratio was
206% (31 December 2021: 173%). Estimated solvency surplus on both
the Group Investor and Regulatory View was GBP2,483m (31 December
2021: GBP2,817m).
The Investor View ratio has remained stable over 2022, with our
hedging strategy providing protection against market volatility
through the year. Economic variances have been positive in cover
ratio terms (primarily from rebalancing to less capital intensive
assets) and have been broadly offset by the impacts of management
actions (including the consolidation of two closed funds into the
Main Fund) and the allocation of ProfitShare to eligible
customers.
The Regulatory View ratio has increased during the year as a
result of higher yields which result in a lower capital requirement
in the closed funds, particularly in relation to guaranteed annuity
options.
We continue to monitor closely our capital position given market
volatility and wider global economic pressures. Scenario testing
performed as part of our regular capital management activities has
been expanded to consider further scenarios and demonstrates that
our capital position continues to be robust under a number of
severe but plausible market scenarios.
Our capital position is sensitive to changes in economic and
non-economic assumptions. The 'Solvency II Investor View
sensitivities' table sets out a sensitivity analysis of the
estimated capital cover ratio and 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.
The 2022 Single Group Solvency and Financial Condition Report
(SFCR) will be published on our website in April 2023 and will meet
disclosure requirements for both the Group and Company.
Scenario [c] Investor View Impact on
capital cover solvency surplus
ratio (GBPbn)
(%)
------------------------------------------ --------------- ------------------
Base scenario: 31 December 2022 213 2.5
------------------------------------------ --------------- ------------------
25% decrease in equity investments 4 (0.2)
15% decrease in property prices (3) (0.1)
100bps rise in interest rates [d] - (0.1)
100bps fall in interest rates[d] 1 0.2
25bps increase in government bond yields (2) -
[e]
200bps widening in credit spreads [f] 3 (0.1)
15% fall in GBP exchange rates [g] 1 0.1
========================================== =============== ==================
Solvency II reform
The proposed reform to Solvency II ('Solvency UK') should allow
capital to be used more effectively, whilst continuing to ensure
that customers are protected. Exact details of the Solvency UK
regime, including the timing of any such changes, are subject to
PRA consultation in 2023. Overall, we expect an increase in the
capital cover ratio from the proposed reduction in risk margin,
although some of the benefit will be offset by a reduction in the
Solvency II transitional measures (TMTP).
The broadening of the eligibility requirements for the Matching
Adjustment portfolio to allow the inclusion of assets with 'highly
predictable' cash flows should help widen the potential range of
investments used to back annuities.
Balance sheet
Royal London continues to maintain a robust balance sheet
position. Our total investment portfolio reduced in value to
GBP104.4bn (31 December 2021: GBP118.1bn), as a result of fair
value movements across our equity, bond and property portfolios as
well as a reduction in the value of our derivatives following
increases in interest rates. At 31 December 2022, GBP733m of assets
were ring-fenced (31 December 2021: GBP452m) to back annuitant
liabilities of GBP691m (31 December 2021: GBP427m). The ring-fenced
portfolio of assets includes a mix of corporate bonds, gilts, cash
and commercial real estate loans.
Our financial investment portfolio remains well diversified
across a number of financial instrument classes, with the majority
invested in equity securities and fixed income assets.
A significant portion of our debt securities portfolio is in
high-quality assets with a credit rating of 'A' or above. In our
non-linked portfolio, 80% (31 December 2021: 85%) of our non-linked
debt securities and 68% (31 December 2021: 71%) of our non-linked
corporate bonds had a credit rating of 'A' or better at 31 December
2022. There have been no significant defaults in our corporate bond
portfolio.
Principal risks and uncertainties
The principal risks and uncertainties facing the Group are set
out in the 'Principal risks and uncertainties' section of the
Strategic Report within Royal London's 2022 Annual Report and
Accounts (ARA)
(royallondon.com/about-us/our-performance/investor-relations/).
The risks and uncertainties continue to be monitored and managed
through our risk management system, including those related to
geopolitics and the UK political and economic environment.
Forward-looking statements
Royal London may make verbal or written 'forward-looking
statements' within this announcement, with respect to certain
plans, its current goals and expectations relating to its future
financial condition, performance, results, operating environment,
strategy and objectives. Statements that are not historical facts,
including statements about Royal London's beliefs and expectations
and including, without limitation, statements containing the words
'may', 'will', 'should', 'continue', 'aims', 'estimates',
'projects', 'believes', 'intends', 'expects', 'plans', 'seeks' and
'anticipates', and words of similar meaning, are forward-looking
statements. The statements are based on plans, estimates and
projections as at the time they are made and involve unknown risks
and uncertainties. These forward-looking statements are therefore
not guarantees of future performance and undue reliance should not
be placed on them.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances,
some of which will be beyond Royal London's control. Royal London
believes factors could cause actual financial condition,
performance or other indicated results to differ materially from
those indicated in forward-looking statements in the announcement.
Potential factors include but are not limited to: the war in
Ukraine; UK and Ireland economic and business conditions; future
market-related risks such as rising interest rates; increasing
levels of inflation and the performance of financial markets
generally; the policies and actions of governmental and regulatory
authorities (for example new government initiatives); the impact of
competition; the effect on Royal London's business and results
from, in particular, mortality and morbidity trends, lapse rates
and policy renewal rates; and the timing, impact and other
uncertainties of future mergers or combinations within relevant
industries. These and other important factors may, for example,
result in changes to assumptions used for determining results of
operations or re-estimations of reserves for future policy
benefits.
As a result, Royal London's future financial condition,
performance and results may differ materially from the plans,
estimates and projections set forth in Royal London's
forward-looking statements. Royal London undertakes no obligation
to update the forward-looking statements in this announcement or
any other forward-looking statements Royal London may make.
Forward-looking statements in this announcement are current only at
the date on which such statements are made. This announcement 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 2022
Group
======================================================= ===================
Technical account - long-term business 2022 2021
GBPm GBPm
======================================================= ========= ========
Gross premiums written 1,176 1,156
Outwards reinsurance premiums 320 (82)
======================================================= ========= ========
Earned premiums, net of reinsurance 1,496 1,074
Investment income 1,455 4,196
Unrealised gains on investments - 4,875
Other income 640 659
======================================================= ========= ========
Total income 3,591 10,804
======================================================= ========= ========
Claims paid
Gross claims paid (2,863) (2,806)
Reinsurers' share 540 531
Change in provisions for claims
Gross amount (62) (64)
Reinsurers' share 29 21
======================================================= ========= ========
Claims incurred, net of reinsurance (2,356) (2,318)
======================================================= ========= ========
Change in long-term business provision, net of
reinsurance
Gross amount 9,469 1,327
Reinsurers' share (1,346) (599)
======================================================= ========= ========
8,123 728
Change in technical provision for linked liabilities,
net of reinsurance 5,758 (7,953)
======================================================= ========= ========
Change in technical provisions, net of reinsurance 13,881 (7,225)
======================================================= ========= ========
Change in non-participating value of in-force
business 141 104
======================================================= ========= ========
Net operating expenses (581) (623)
Investment expenses and charges (301) (275)
Unrealised losses on investments (14,475) -
Other charges (289) (275)
======================================================= ========= ========
Total operating expenses (15,646) (1,173)
======================================================= ========= ========
(Loss)/profit before tax and before (deduction
from)/transfer to the fund for future appropriations (389) 192
======================================================= ========= ========
Tax attributable to long-term business 227 (113)
(Deduction from)/transfer to the fund for future
appropriations (162) 79
======================================================= ========= ========
Balance on technical account - long-term business - -
======================================================= ========= ========
Other comprehensive income, net of tax:
Remeasurement of defined benefit pension schemes (106) 267
Foreign exchange rate movements on translation
of Group entities 10 (10)
(Deduction from)/transfer to the fund for future
appropriations (96) 257
======================================================= ========= ========
Other comprehensive income for the year, net - -
of tax
======================================================= ========= ========
Total comprehensive income for the year - -
======================================================= ========= ========
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 year is always
GBPnil after the transfer to or deduction from the fund for future
appropriations.
Balance sheets
as at 31 December 2022
Group Company
===================================== ================== ==================
2022 2021 2022 2021
GBPm GBPm GBPm GBPm
===================================== ======== ======== ======== ========
ASSETS
===================================== ======== ======== ======== ========
Intangible assets
Goodwill 21 25 21 25
Negative goodwill (37) (44) (6) (8)
===================================== ======== ======== ======== ========
(16) (19) 15 17
Other intangible assets 123 96 113 95
===================================== ======== ======== ======== ========
107 77 128 112
Non-participating value of in-force
business 2,474 2,333 2,476 2,333
Investments
Land and buildings 122 149 122 149
Investments in Group undertakings - - 14,068 17,684
Other financial investments 33,462 45,293 19,945 28,160
===================================== ======== ======== ======== ========
33,584 45,442 34,135 45,993
Assets held to cover linked
liabilities 70,857 72,697 70,851 72,697
Reinsurers' share of technical
provisions
Long-term business provision 3,234 4,579 3,191 4,529
Claims outstanding 153 125 138 111
Technical provisions for linked
liabilities (51) (53) (51) (53)
===================================== ======== ======== ======== ========
3,336 4,651 3,278 4,587
Debtors
Debtors arising out of direct
insurance operations 50 46 48 45
Debtors arising out of reinsurance
operations 62 56 46 48
Other debtors 2,231 499 2,099 381
===================================== ======== ======== ======== ========
2,343 601 2,193 474
Other assets
Deferred taxation 27 - 14 -
Tangible fixed assets 19 18 - -
Cash at bank and in hand 677 622 430 392
===================================== ======== ======== ======== ========
723 640 444 392
Prepayments and accrued income
Deferred acquisition costs on
investment contracts 87 113 87 113
Other prepayments and accrued
income 37 36 - -
===================================== ======== ======== ======== ========
124 149 87 113
Pension scheme asset 207 357 207 357
Total assets 113,755 126,947 113,799 127,058
===================================== ======== ======== ======== ========
LIABILITIES
====================================== ======== ======== ======== ========
Subordinated liabilities 1,335 1,333 1,335 1,333
Fund for future appropriations 3,751 4,009 3,992 4,329
Technical provisions
Long-term business provision 31,344 40,802 31,441 40,863
Claims outstanding 384 321 353 291
====================================== ======== ======== ======== ========
31,728 41,123 31,794 41,154
Technical provisions for linked
liabilities 70,622 72,499 70,617 72,499
Provisions for other risks
Deferred taxation - 228 - 241
Other provisions 187 250 181 241
====================================== ======== ======== ======== ========
187 478 181 482
Creditors
Creditors arising out of direct
insurance operations 271 264 258 252
Creditors arising out of reinsurance
operations 1,781 2,535 1,764 2,526
Amounts owed to credit institutions 52 42 52 42
Other creditors including taxation
and social security 3,938 4,562 3,778 4,400
====================================== ======== ======== ======== ========
6,042 7,403 5,852 7,220
Accruals and deferred income 90 102 28 41
Total liabilities 113,755 126,947 113,799 127,058
====================================== ======== ======== ======== ========
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 accounting policies applied in the Financial Statements are
the same as those applied in the Group's 2022 ARA. The full UK GAAP
accounting policies can be found in the Group's 2022 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 2022
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 2022 ARA. The Group's 2021 ARA has been filed
with the Registrar of Companies, and the 2022 ARA will be filed in
due course. The results on a UK GAAP basis for the full year 2022
and 2021 have been audited by PricewaterhouseCoopers LLP (PwC). PwC
has reported on the ARA in 2022 and 2021. 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 Financial Statements have been prepared on a going concern
basis under the historical cost convention, as modified by the
inclusion of certain assets and liabilities at fair value as
permitted or required by FRS 102.
The Group regularly performs sensitivities and stress testing on
a range of severe but plausible scenarios and stress testing has
been performed on the capital position for severe adverse economic
and demographic impacts arising over the short to medium term.
There are a range of actions available to the Directors in stress
scenarios which could also be considered if there were a
deterioration in the capital position of the Group. The capital
position remains sufficient to cover capital requirements in these
scenarios. Ongoing monitoring is in place over liquidity coverage
ratios, with additional forward-looking scenario and stress testing
performed based on severe but plausible scenarios to ensure
liquidity adequacy. Having considered these matters, the Directors
have concluded that no material uncertainty exists over the going
concern assumption.
2. Segmental information
Operating segments
The operating segments reflect the level within the Group at
which key strategic and resource allocation decisions are made and
the way in which operating performance is reported internally to
the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and
assessing performance of the operating segments, has been
identified as the Company's Board of Directors.
The activities of each operating segment are described
below:
UK
The UK business provides pensions and other retirement products
to individuals and to employer pension schemes and protection
products to individuals in the UK.
Asset Management
The Asset Management segment comprises Royal London Asset
Management Holdings Limited and its subsidiaries. RLAM provides
investment management services to the other entities within the
Group and to external clients, including pension funds, local
authorities, universities, and charities, as well as
individuals.
Ireland
The Ireland business comprises the Group's Irish subsidiary,
Royal London Insurance DAC (RLI DAC). It provides intermediated
protection products and unit-linked pensions 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
consider that this facilitates comparison of the Group's
performance over reporting periods as it provides a measure of the
underlying trading of the Group.
The operating profit by operating segment is shown in the
following table.
Group - 2022
================================= ======================================
Asset
UK Management Ireland Total
GBPm GBPm GBPm GBPm
================================= ====== ============ ======== ======
Long-term business
New business contribution 146 - 17 163
Existing business contribution 186 - (5) 181
Contribution from AUM and other
businesses 45 56 - 101
Business development and other
costs (20) (11) (1) (32)
Strategic development costs (52) (13) (6) (71)
================================= ====== ============ ======== ======
Result from operating segments 305 32 5 342
================================= ====== ============ ======== ======
Corporate costs (57)
Financing costs (75)
================================= ====== ============ ======== ======
Group operating profit before
tax 210
================================= ====== ============ ======== ======
Group - 2021
================================= ======================================
Asset
UK Management Ireland Total
GBPm GBPm GBPm GBPm
================================= ====== ============ ======== ======
Long-term business
New business contribution 147 - 17 164
Existing business contribution 118 - 7 125
Contribution from AUM and other
businesses 29 95 - 124
Business development and other
costs (20) (17) - (37)
Strategic development costs (47) (7) (8) (62)
================================= ====== ============ ======== ======
Result from operating segments 227 71 16 314
================================= ====== ============ ======== ======
Corporate costs (106)
Financing costs (75)
================================= ====== ============ ======== ======
Group operating profit before
tax 133
================================= ====== ============ ======== ======
[a] Royal London Cost of Living Report September 2022
[b] Royal London analysis of market data as at Q3 2022
[c] Sensitivities include movements in the Transitional Measure
on Technical Provisions (TMTP), which was formally recalculated as
at 31 December 2022. The sensitivities do not include any
subsequent rebalancing of the asset portfolio.
[d] 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.
[e] The government bond yield sensitivity assumes risk-free
rates and other yields remain constant. The Volatility Adjustment
has been reassessed in the stressed scenario.
[f] 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.
[g] 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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END
ACSJRMLTMTAMBRJ
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