Glossary

A

Adviser

Someone authorised by the FCA, who is qualified by experience and examination to provide financial advice.

Acquisition costs

The costs of acquiring and processing new business, including a share of overheads.

Alternative Performance Measure (APM)

A financial measure of performance not defined or specified by accounting standards.

Annual allowance

The maximum amount of pension savings that an individual can contribute to in a tax year without facing a tax charge.

Annual General Meeting (AGM)

An opportunity for members to receive an overview of Royal London’s financial and business performance, and to vote on resolutions proposed by the Board.

Annuity

An insurance policy that provides a regular income in exchange for a lump-sum payment.

Asset Management segment

Includes Royal London Asset Management Limited (RLAM Limited), which provides investment management services to the Group and to external clients. This includes pension funds, local authorities, universities, and charities, as well as individuals.

It also comprises subsidiary companies owned or operationally managed by RLAM. These include the fund management companies RLUM Limited, Royal London Unit Trust Managers Limited and Dalmore Capital Limited.

Asset manager  

An investment firm that provides portfolio management services to investors. This includes an Alternative Investment Fund Manager and the operators of an Undertaking for Collective Investment in Transferable Securities.  

Asset owner 

An entity that holds and manages assets on behalf of its customers, members and clients, and exercises Stewardship responsibilities in line with its regulatory obligations.

Asset share  

A policy’s asset share is calculated by: 

• accumulating the premiums paid
• deducting all applicable expenses and tax
• adding its share of the investment returns achieved by the With-Profits fund over the policy’s lifetime.

Assets under management (AUM)

The total of assets managed by, or on behalf of, the Group, including funds managed on behalf of third parties.

Association of British Insurers (ABI)

The ABI represents the collective interests of the UK’s insurance industry.

Automatic enrolment

A system that requires employers to enrol their eligible workers into a workplace pension scheme.

B

Best estimate liability (BEL)

The expected (or probability weighted average) value of the present value of future cash flows for current obligations, projected over the expected life of the contract, taking into account all available market and other information.

Biodiversity

Biodiversity is a foundational characteristic of natural systems. It is a proxy for functional, productive and resilient ecosystems that are able to provide the ecosystem services upon which life on Earth relies.

(Source: IFRS)

Board

The Board of directors of The Royal London Mutual Insurance Society Limited.

Bulk purchase annuity (BPA)

An insurance policy bought by the trustees of a pension scheme to remove some or all of the risks of the scheme. The insurance policy is held as an asset by the scheme and may cover all or a proportion of its liabilities.

Business plan

An internal forecast, which is approved by the Board annually. This sets out Royal London’s forecast and targets over a planning horizon.

Business unit

A sub-division of the Group that focuses on a specific product offering, market or function. A business unit may be a statutory entity or part of one or more separate statutory entities.

C

Capital add on

The PRA can apply judgement to determine additional capital requirements (add ons) to individual firms, which are included when calculating the SCR. Their judgement takes into account a variety of considerations including capital projections, the maturity of the risk management framework and peer group comparisons.

Capital Cover Ratio  

Own Funds divided by Solvency Capital Requirement.  

Carbon avoidance credits 

One carbon avoidance credit represents the avoided release of one tonne of carbon that would have been emitted without the efforts of the project associated with the credit. These are often known as carbon reduction or avoidance credits.

Carbon dioxide equivalent emissions (CO2e)

The release of Greenhouse Gases (GHGs) into the atmosphere using the universal unit of measurement.

This indicates the global warming potential (GWP) of each of the seven greenhouse gases, expressed in terms of the GWP of one unit of carbon dioxide.  

Carbon neutral 

The state achieved when an entity that produces carbon emissions removes the same volume of carbon emissions from the Earth’s atmosphere. 

Carbon removal credits  

One carbon removal credit represents the removal of one tonne of carbon that has already been emitted into the atmosphere. Carbon removal strategies include reforestation, soil carbon sequestration, and wetland restoration.  

CIS  

Co-operative Insurance Society Limited which was purchased by the Group on 31 July 2013. On 1 August 2013 it was renamed Royal London (CIS) Limited. 

Climate Action 100+

Climate Action 100+ is the world’s largest investor-led initiative. It focuses on engaging over 160 of the largest corporate greenhouse gas emitters to reduce emissions, improve governance, and strengthen climate-related financial disclosures.

(Source: Climate Action 100+)

Climate Aware Investment Solutions (CAIS)

Investment approaches that integrate climate considerations into portfolio construction and product design. They build on base expectations of considering financially material ESG risks and include solutions with mandatory climate requirements.

Examples include applying climate factors in portfolio or security selection, making explicit commitments to achieve net zero, and delivering measurable, positive impact on climate change. 

Climate Biennial Exploratory Scenario (CBES)

CBES was published by the Bank of England in 2021 to explore the financial risks posed by climate change for the largest banks and insurers in the UK.

Climate change

Long-term shifts in temperatures and weather patterns.

Climate risk 

Climate risks can arise from potential impacts of climate change as well as human responses to climate change. Impacts of climate change result in risks arising from dynamic interactions between climate-related hazards and the exposure and vulnerability of the affected human or ecological system.  

Climate change responses result in risks arising from the potential for such responses not achieving the intended objective(s). They also arise from the potential trade-offs with, or negative side-effects on, other societal objectives, such as the Sustainable Development Goals (see also risk trade-off).  

(Source: IPCC) 

Climate scenario modelling 

Models and techniques employed to estimate likely impacts on our portfolio value in a range of climate scenarios over various time horizons. Climate financial modelling is underpinned by many uncertainties and subjective choices.  

Models commonly exclude widely accepted material climate risks (including the impacts from policymakers’ decisions, impacts of market sentiment and climate tipping points). They rely on material subjective assumptions (including viability of investee net zero plans and assumed sector-level transition pathways).

Climate Transition Plan  

An integral part of an entity’s overall strategy, setting out its plan to contribute to and prepare for a rapid global transition towards a low Greenhouse Gas-emissions economy.

(Source: Transition Plan Taskforce) 

Climate transition risks 

Transitioning to a lower-carbon economy may entail extensive policy, legal, technology and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed and focus of these changes, transition risks may pose varying levels of financial and reputational risk to organisations.  

Closed funds  

Funds that have been closed to new business. Also known as Ring-fenced funds. See Ring-fenced fund (RFF) for further details.

Company

The Royal London Mutual Insurance Society Limited.

Consumer Duty  

A duty introduced by the FCA for financial services firms to act in the best interests of consumers and provide them with good outcomes.  

Consumer Price Index (CPI)  

A measure of changes in the price level of a basket of consumer goods and services purchased by households. 

Consumption emissions 

Consumption emissions reflect the demand side of sovereign debt emissions and account for consumption patterns and trade effects.  

Consumption emissions provides a broader view of a sovereign’s GHG emissions by tackling the issue of carbon leakage that arises due to production shifts from countries where goods and services are consumed later.  

(Source: PCAF) 

Contract boundary  

The point where the insurer can unilaterally terminate the contract, refuse to accept a premium, or amend the benefit or premium without limit.  

Critical illness cover  

Cover that pays a lump sum if the insured person is diagnosed with a serious illness that meets the cover’s definition.  

D

Decarbonisation

Decarbonisation refers to all measures through which a business sector, or an entity (for example a government or an organisation) can lower greenhouse gas emissions to reduce its impact on the climate. 

Deferred acquisition costs (DAC)

A method of accounting whereby certain acquisition costs on long-term business are deferred and therefore appear as an asset. This leads to a smoothed recognition of acquisition costs instead of recognising the full amount in the year of acquisition.

Deferred fee income/Deferred front end loads (DFEL) 

A method of accounting whereby up-front policy charges are deferred and therefore appear as a liability. This leads to a smoothed recognition of these charges instead of recognising the full amount in the year of acquisition.

Defined benefit scheme

A type of occupational pension scheme where the benefits are based on the employee’s salary and service.

Discounting

The process of expressing a future cash transaction in terms of its present value using a discount rate that reflects the time value of money.

Drawdown

With a defined contribution scheme, once a policy holder reaches 55, they can withdraw some or all their savings as cash lump sums, income or a combination of both.

E

Economic assumptions  

Assumptions of future amounts of various economic parameters, such as interest rates, investment returns, inflation and tax rates. The impact of variances in these assumptions is treated as non-operating profit or loss.  

Ecosystem services 

The contributions of ecosystems to the benefits that are used in economic and other human activity. 

(Source: TNFD)

EIOPA

The European Insurance and Occupational Pensions Authority (EIOPA) is a European Union financial regulatory institution.

Embodied carbon 

The embodied carbon emissions of an asset are the total greenhouse gas emissions and removals associated with materials and construction processes, throughout the whole life cycle of an asset.

(Source: RICS) 

Employee engagement index  

A widely used measure of employee satisfaction.  

Energy Performance Certificate (EPC) Rating   

Energy Performance Certificates are a rating scheme to summarise the energy efficiency of buildings in the European Union (including in the UK post-Brexit). The building is given a rating between A (very efficient) and G (inefficient). 

Engagement 

Engagement refers to structured, purposeful dialogue between investors and companies, policymakers, standard setters and other stakeholders with the intention of influencing (or identifying the need to influence) positive change and/or improving disclosure.

Engagement can take two forms:

• Engagement for information, which describes engagements that seek to uncover information or identify the need to change or influence. 
• Engagement for change, which describes engagements that seek to influence change, with defined objectives and demonstrable outcomes.

Enterprise value including cash (EVIC)  

EVIC is the sum, at fiscal year-end, of the market capitalisation of ordinary shares, the market capitalisation of preferred shares and the book value of total debt and non-controlling interests, without the deduction of cash or cash equivalents. 

(Source: FCA Handbook) 

Environmental, social and governance (ESG)  

Financially material environmental, social and governance risks or opportunities being embedded into investment and operational decisions.  

Environmental, social and governance (ESG) risk integration  

ESG integration is systematic, explicit and transparent integration of material environmental, social and governance considerations into processes for investment research, analysis and decision making.  

For funds, ESG integration refers to the consideration of ESG risk as part of the investment process. It does not mean the fund is trying to achieve a particular positive ESG outcome.

Equity release  

A way of unlocking some of the value of one’s home without having to move out. It works by either taking out a loan secured against the property or selling a share of it to a provider.  

Experience variances  

The impact of actual mortality, morbidity, persistency and expense experience being different to that expected at the start of the period.

F

Fair value

The amount for which an asset could be exchanged, or a liability settled between knowledgeable, willing parties in an arm’s-length transaction.

Fair value through profit or loss (FVTPL)

Where, for assets and liabilities measured at fair value, the movement in that fair value is taken directly to the statement of comprehensive income.

Final salary scheme

A defined benefit pension scheme that provides a pension based on salary at retirement.

Financed emissions

The absolute emissions associated with the investments in a portfolio, expressed in tCO2e (metric tonnes of carbon dioxide equivalent). 

Financial Conduct Authority (FCA) 

An independent conduct of business regulator. It ensures that business is conducted in such a way that advances the interests of all users of, and participants in, the UK financial sector. 

Financial options and guarantees  

For Royal London business, ‘financial options’ refers principally to guaranteed annuity options. ‘Guarantees’ refers to With-Profits business where there are guarantees that parts of the benefits will not reduce in value, or are subject to a minimum value.  

Financial Reporting Data and Control Framework (FRDCF)  

The framework of internal control established by Royal London to ensure that it effectively mitigates the risk of material misstatement in its internal and external financial reporting.

Fit and Proper (F&P)

The standard required by the regulators to be applied when appointing those employees who effectively run the Group or have other key functions, to make sure they are suitably competent and reputable.

Fund for Future Appropriations (FFA)  

The amount of surplus that has not been allocated to policyholders at the balance sheet date.  

G

Global Warming 

Global warming is the long-term warming of the planet’s overall temperature. While this trend has been ongoing for a long time, its pace has significantly increased in the last hundred years due to the burning of fossil fuels.  

Fossil fuels include coal, oil and natural gas, and burning them causes what is known as the ‘greenhouse effect’ in the Earth’s atmosphere. 

GMAP fund  

The Royal London GMAPs or ‘Global Multi Asset Portfolios’ are RLAM’s range of seven actively managed, multi asset funds.

The funds cover a broad range of asset types and are designed to offer investors diversified exposure to these in line with their investment objectives and appetite for risk.  

The funds primarily invest in Royal London Asset Management funds, with exposure to other schemes managed by third parties.  

Governed Range  

As Royal London’s flagship offering, these are ready-made investment options designed to suit customer needs. Governed Range investments are automatically balanced dependent on the customer’s risk appetite and length of time to retirement.  

Greenhouse Gas (GHG) Protocol  

Establishes comprehensive global standardised frameworks to measure and manage GHG emissions from private and public sector operations, value chains and mitigation actions.

(Source: GHG Protocol)

Greenhouse gases (GHG)  

The seven gases included in the United Nations Framework Convention on Climate Change as drivers of climate change: 

• carbon dioxide (CO2)
• methane (CH4)
• nitrous oxide (N2O)
• hydrofluorocarbons (HFCs)
• perfluorocarbons (PFCs)
• sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3). 

(Source: GHG Protocol) 

Gross inflows  

Flows into RLAM from external clients (Asset management flows) and those generated from the Group’s life and pensions business (Life and pensions flows). External client gross inflows include cash mandates. Internal gross inflows from RLMIS represent the combined premiums and deposits received (net of reinsurance).  

Given its nature, non-linked protection business is not included.

Group

The Royal London Mutual Insurance Society Limited and its subsidiaries.

Group Internal Audit (GIA)  

The internal audit function of the Royal London Group. 

Guaranteed Annuity Option (GAO) or Guaranteed Annuity Rate (GAR)  

These primarily arise in connection with pension business for one of two reasons: 

• guaranteed income rate specified in the policy 
• guaranteed terms (option) for converting the pension fund of a policy into an income for life at the policy’s pension date.  

I

Income protection  

A type of insurance that pays a regular income if a policy holder is unable to work due to illness or injury.  

Independent financial adviser (IFA)  

An individual authorised by the FCA, qualified by experience and examination to provide financial advice, who is not working for any single product provider company.  

Individual pension  

A pension plan for an individual policyholder.  

Institutional Investors Group on Climate Change (IIGCC)   

The IIGCC is a European-focused investor membership organisation that brings the investor community together in progressing towards a net zero and climate resilient future.

(Source: IIGCC)  

Insurance Ireland 

Insurance Ireland is the representative organisation for the insurance sector in Ireland. It advocates on behalf of its members with policymakers and regulators in Ireland, Europe and internationally.  

Its goal is to promote the value that its members create for individuals, the economy and society. Insurance Ireland also helps customers understand insurance products and services so that they can make informed choices. 

Intergovernmental Panel on Climate Change (IPCC)  

The IPCC is the United Nations’ body for assessing the science related to climate change. It was created to provide policymakers with regular scientific assessments on climate change, its implications and potential future risks.

The IPCC also puts forward adaptation and mitigation options.

(Source: IPCC) 

Internal model

The processes, systems and calculations that together allow the Group to control the risks that it faces and quantify the capital needed to support those risks. It includes a calculation engine to quantify capital requirements, the Group’s risk management framework and its system of governance.

International Financial Reporting Standards (IFRS)

Financial reporting standards issued by the International Accounting Standards Board (IASB).

International Sustainability Standards Boards (ISSB) 

The ISSB is an independent, private-sector body that develops and approves International Financial Reporting Standards’ Sustainability Disclosure Standards (IFRS SDS). The ISSB operates under the oversight of the IFRS Foundation.

The ISSB is committed to delivering standards that are cost effective, useful and market informed. 

Investment Association 

The Investment Association is the trade body that represents UK investment managers. 

Investor View

In common with the rest of the industry, Royal London presents two views of our Solvency II capital position:

• an Investor View for analysts and investors in our subordinated debt (which equals the RL Main Fund and excludes the capital position of the ring-fenced closed funds).
• a Regulatory View where the closed funds’ surplus is excluded as a restriction to Own Funds.

Ireland segment

The Ireland business comprises the Group’s Irish subsidiary, Royal London Insurance Designated Authority Company (RLI DAC). The Ireland business provides propositions to customers in the Republic of Ireland through brokers.

Products offered include individual pensions and protection products.

J

Just adaptation

Just adaptation minimises the negative social externalities from efforts to adapt to climate change while maximising the adaptation benefits for wider society. 

Just transition

An inclusive approach which helps avoid exacerbating existing injustices or creating new ones, considering the social implications of moving fairly to a low-carbon economy.

K

Key performance indicator (KPI)  

An indicator used by a business to measure its development, performance or position.

L

Life and pensions new business sales

The present value of new business premiums (PVNBP), for life and pensions business only. It excludes RLAM, other lines of business and bulk annuity buy-ins transacted with the Group’s defined benefit pension schemes.

Life insurance

A type of insurance that pays out a lump sum or a regular income to beneficiaries if a policy holder dies during the policy term.

Longstanding customers

Customers from Royal London’s legacy businesses. This includes customers with protection, life and pension policies, along with annuities and tax-efficient savings plans including ISAs.

M

Maintenance expenses

Expenses related to the servicing of the in-force book of business, including investment and termination expenses and a share of overheads.

Market-consistent basis

A basis of valuation in which assets and liabilities are valued in line with market prices and consistently with each other. In principle, each cash flow is valued using a discount rate consistent with that applied to such a cash flow in the capital markets.

Matching Adjustment

An adjustment made to the risk-free interest rate for Solvency II purposes when the insurer sets aside a portfolio of assets to back a predictable portion of their liabilities.

Materiality

Materiality is a concept that defines why and how certain issues or information are important for a company or a business sector. 

Matrix fund asset managers

Matrix funds are a range of equity funds that RLMIS select and make available for customers who wish to invest in funds beyond those directly managed by RLAM. The Matrix fund asset managers are those working on RLMIS’s behalf to manage the Matrix funds.

Minimum Capital Requirement (MCR)

The minimum level of capital required by the SII regulations, below which the amount of financial resources should not fall.

Mutual

A company owned by its member customers rather than shareholders. A member of a mutual company can vote at its Annual General Meeting.

N

Nationally Determined Contributions (NDCs)  

NDCs are countries’ self-defined national climate pledges under the Paris Agreement, detailing what they will do to help meet the global goal to pursue 1.5°C, adapt to climate impacts and ensure sufficient finance to support these efforts.

(Source: UNDP) 

Nature

Nature’s four realms – land, ocean, freshwater and atmosphere – include different types of ecosystems such as tropical forests, rivers and streams.

Net asset value (NAV)

A company’s total assets less its total liabilities.

Net inflows

The net position of gross inflows and outflows in the period. This comprises net flows from external clients into RLAM (external net flows) and those generated from RLMIS (internal net flows).

Internal outflows include claims and redemptions paid (net of reinsurance). Given its nature, non-linked Protection business is not included.

Net zero

The term ‘net zero’ means achieving a balance between the amount of greenhouse gases emitted into the atmosphere and the amount removed from it.

Net Zero Asset Managers initiative (NZAM)  

NZAM is an international group of asset managers committed, in their individual contexts, to supporting investing aligned with the global goal of net zero greenhouse gas emissions. NZAM was suspended in 2025 and relaunched in early 2026. 

Net zero investment framework (NZIF)

The NZIF is a guide used by investors to set net zero targets and produce related net zero strategies and transition plans.

It also sets out implementation actions to effectively achieve portfolio alignment, meet targets and enable a broader transition towards net zero, through a combination of portfolio construction, engagement and policy advocacy.

The NZIF is developed by four investor networks partnered under the Paris Aligned Investment Initiative.

(Source: IIGCC) 

Network for Greening the Financial System (NGFS)

The NGFS is a group of central banks and supervisors willing, on a voluntary basis, to exchange experiences, share best practices, contribute to the development of environment and climate risk management in the financial sector. It also seeks to mobilise mainstream finance to support the transition towards a sustainable economy.

Its purpose is to define and promote best practices to be implemented within and outside of the membership of the NGFS. It also looks to conduct or commission analytical work on green finance.

(Source: NGFS) 

New business contribution

The expected present value on the UK GAAP basis of reporting of all cash flows arising from new business.

New business margin

The new business contribution as a percentage of the present value of new business premiums.

Non-profit policy

Long-term savings and insurance products other than With-Profits policies.

O

Open-ended investment company (OEIC)

An investment fund that pools together investors’ money and invests this in a broad range of shares and other assets. They are similar to unit trusts.

Operating profit

The profit, on a UK GAAP basis, resulting from primary business operations, defined as the transfer to the Fund for Future Appropriations before other comprehensive income, excluding the following:

• short-term investment return variances and economic assumption changes
• profits/losses arising from acquisitions and other corporate transactions
• ProfitShare
• ValueShare
• tax
• one-off items of an unusual nature that are not related to the underlying trading of the Group.

Operational emissions

Direct Scope 1 and indirect Scope 2 operational greenhouse gas (GHG) emissions.

Own Funds

Regulatory capital under Solvency II. Broadly it is the excess of assets over liabilities (plus subordinated debt and less the ring-fenced fund restriction), as measured by the PRA’s regulatory reporting requirements under Solvency II.

Own Risk and Solvency Assessment (ORSA)

The processes and procedures employed to identify, assess, monitor, manage and report the risks the Group faces or may face over the business planning period. ORSA also determines the Own Funds necessary to ensure that its overall solvency needs are always met over that period.

P

Paris Agreement

A legally binding international treaty on climate change adopted by 196 parties at the UN Climate Change Conference (COP21) in December 2015. Its central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5°C.

Paris Aligned Investment Initiative (PAII)

The PAII is a collaborative investor-led global forum enabling investors to align their portfolios and activities with the goals of the Paris Agreement.

(Source: PAII) 

Part VII transfer

A court-sanctioned legal transfer of some or all of the insurance policies of one company to another governed by Part VII of the Financial Services and Markets Act 2000.

Partial Internal Model

The processes, systems and calculations that allow the Group to control risks and quantify the capital needed to support those risks under the Solvency II regime. It includes a calculation engine to quantify capital requirements, the Group’s risk management framework and its system of governance.

Royal London’s Partial Internal Model, approved by the PRA, is also used for internal capital management purposes. Also referred to as the Internal Model.

Participating contracts

Contracts that are With-Profits in type.

Partnership for Carbon Accounting Financials (PCAF)

PCAF is a global initiative of financial institutions that work together to develop and implement a harmonised approach to measure and disclose the greenhouse gas emissions associated with financial activities.

(Source: PCAF) 

Pension

A means of providing income in retirement for an individual and possibly their dependants. Royal London’s pension products include Individual and Workplace Pensions, Stakeholder Pensions and Income Drawdown.

Pension date

The date at which income can be taken from a pension either through a cash lump sum or investment in an annuity.

Physical risks

Physical risks resulting from climate change can be event driven (acute) or longer-term shifts (chronic) in climate patterns. Physical risks may have financial implications for organisations, such as direct damage to assets and indirect impacts from supply chain disruption.

Organisations’ financial performance may also be affected by changes in:

• water availability, sourcing and quality
• food security
• extreme temperature changes affecting organisations’ premises, operations, supply chain, transport needs and employee safety. 

Pooled funds

Where assets are held on a collective basis on behalf of a number of investors and managed according to a single, defined investment objective. 

Portfolio emissions

The emissions of investees represented within our asset portfolio. We share ownership and / or influence over investees through our investments (for example, equity and corporate debt instruments). We are therefore, accountable for a portion of their total emissions.

Present value of new business premiums (PVNBP)

The total of new single premium sales received in the year plus the discounted value, at the point of sale, of the regular premiums expected to be received over the term of the new contracts sold in the year. Discounting uses the opening swap curve for most products, excluding annuities, which uses expected future asset yields, adjusted for downgrade and default risks.

Principles and Practices of Financial Management (PPFM)

A document detailing how With-Profits funds are managed. Royal London has a separate PPFM for each With-Profits fund.

Production emissions

Production emissions are the emissions originating from sources within a domestic territory. These emissions are reflected in the approach taken by the United Nations Framework Convention on Climate Change (UNFCCC) and are the basis of Nationally Determined Contributions. 

ProfitShare

An allocation of part of the Group’s operating profits by means of a discretionary enhancement to asset shares and unit fund values of eligible policies.

Protection policy

A policy providing a cash sum or income on the death or critical illness of the life assured.

Prudential Regulation Authority (PRA)

A UK financial services regulator responsible for the authorisation, regulation and day-to-day supervision of all insurance firms that are subject to prudential regulation.

Q

Quantitative Reporting Templates (QRTs)

Forms required under Solvency II for regulatory reporting. They disclose detailed information including technical provisions, own funds and SCR. QRTs must follow a prescribed format.

R

Rating agencies

Companies that assign credit ratings to a debtor’s ability to pay back debt by making timely interest payments and indicate the likelihood of default.

Regular premiums

A series of payments for an insurance contract, typically monthly or annually.

Regulatory View

In common with the rest of the industry, Royal London presents two views of its capital position:

• An Investor View for analysts and investors in Royal London’s subordinated debt (which equals the RL Main Fund and excludes the capital position of the ring-fenced closed funds).
• A Regulatory View where the closed funds’ surplus is excluded as a restriction to Own Funds.

Representative Concentration Pathways (RCP)

Scenarios that include time series of emissions and concentrations of the full suite of greenhouse gases (GHGs) and aerosols and chemically active gases, as well as land use/land cover. The word representative signifies that each RCP provides only one of many possible scenarios that would lead to the specific radiative forcing characteristics.

Responsible investment

Responsible investment means intentionally integrating environmental, social and governance (ESG) factors into investment processes, alongside targeted stewardship, to support investment outcomes over the long-term. This includes ESG risks, market inefficiencies or opportunities.

Restricted Tier 1 (capital)

High-quality capital items that form part of total Tier 1 Own Funds. A Restricted Tier 1 (RT1) instrument must meet additional eligibility requirements in relation to its ability to absorb losses and any potential redemption date.

Retail Price Index (RPI)

A measure of inflation published monthly by the Office for National Statistics. It measures the change in the cost of a representative sample of retail goods and services.

Reverse stress test

Valuation simulations that assess the impact of a range of scenarios that start with a business failure outcome, in order to identify potential business vulnerabilities.

Ring-fenced fund (RFF)

RLMIS contains one ring-fenced fund (RL (CIS)). RLI DAC contains two ring-fenced funds (Liver Ireland Fund and German Bond Fund).

The ring-fenced funds are closed to new business and were established when business from various acquisitions was transferred to Royal London. They are in run-off, with surpluses to be distributed to policyholders in line with the PPFM for each fund.

Risk-free rate

The theoretical rate of return of an investment with no risk of financial loss.

Risk management system

Provides assurance that the risks to which the Group may be exposed are being appropriately identified and managed within risk appetite. Also, that risks that may result in significant financial loss or reputational damage are being minimised.

Risk margin

Forms part of the calculation of technical provisions under Solvency II requirements. It also represents the amount of money needed, should all surplus and capital be used up, to transfer all obligations to another insurer.

The risk margin is sensitive to interest rate changes.

RLI DAC Open Fund

The part of RLI DAC into which new insurance business is written.

Royal London

The Royal London Mutual Insurance Society Limited and its subsidiaries.

Royal London Asset Management (RLAM)

Our Asset Management business, responsible for managing Royal London’s financial assets as well as funds for external clients. This includes multi-managers, pension funds, local authorities, universities, charities and individuals.

In this glossary, ‘RLAM’ or ‘our Asset Management business’ encompasses one or more of the Group’s subsidiaries that operate within our Asset Management business.

Royal London Insurance Designated Activity Company (RLI DAC)

Royal London’s regulated Irish insurance subsidiary. It is 100% owned by RLMIS.

Royal London Long-Term Fund

The long-term business fund of Royal London, comprising the Royal London Main Fund and a number of closed sub-funds from businesses acquired in the past.

Royal London Main Fund

The part of the Royal London Long-Term Fund into which all of the Group’s new pensions and insurance business is written. Also referred to as the RL Main Fund or the Main Fund.

S

Science Based Targets initiative (SBTi)  

The SBTi aims to drive ambitious corporate climate action by enabling businesses and financial institutions globally to set science-based greenhouse gas emissions reductions targets.

(Source: SBTi) 

Scope 1 emissions

Greenhouse gas emissions resulting directly from our business activities, such as company cars and gas used in our buildings.

Scope 2 emissions

Emissions resulting indirectly through the purchase of energy, such as through generation of the electricity we purchase to light and power our buildings.

Scope 3 emissions  

All other greenhouse gas emissions indirectly produced as a result of business activities across our value chain, such as purchased goods and services, travel and waste. This category includes emissions from our investments (portfolio emissions).  

Section 172

Section 172 of the Companies Act 2006. This sets out the matters that a director of a company must consider when fulfilling their duty to promote the success of the company for the benefit of its members.

Securitisations 

Where various types of contractual debt (including for example residential and commercial mortgages) are pooled together in a ‘structure’ and the related cash flows are sold to third party investors, with repayments made via the structure from the principal and interest cash flows. 

Segregated mandates

Where assets are invested by an appointed asset manager on instruction from an investor on a discretionary or non-discretionary basis and held separately from other clients’ assets. 

Senior Managers and Certification Regime (SMCR)

A regime introduced by the FCA and PRA which is designed to make individuals at financial firms more accountable.

Single premium

A single payment for an insurance contract.

Solvency II (SII)

A European Union directive applicable to European insurers and reinsurers. It covers three main areas: capital requirements, risk management and supervisory rules.

In November 2024, the Prudential Regulation Authority (PRA) announced the final policy statement to implement reforms to the Solvency II framework previously applicable in the UK. The resultant new prudential regime for UK insurers became effective on 31 December 2024 and will eventually be known as ‘Solvency UK’.

However, in line with the approach outlined in the PRA's policy statement, the UK regime will continue to be referred to as Solvency II until such time as the PRA has changed all references from Solvency II to Solvency UK across all their relevant materials.

Solvency II leverage ratio

Solvency II leverage ratio is the Solvency II value of the Group’s outstanding debt (which is entirely subordinated liabilities) divided by the Group’s Solvency II own funds.

Solvency and Financial Condition Report (SFCR)

Life insurers in the UK are required to disclose this report publicly and to report it to the PRA on an annual basis. The SFCR includes both qualitative and quantitative information, particularly in relation to the Company’s and Group’s capital position.

Solvency Capital Requirement (SCR)

The amount of capital that the PRA requires a UK life insurer to hold. It is calculated using Solvency II requirements. It can be calculated using either the Standard Formula or Internal Model methods.

Solvency surplus

The excess of Own Funds over the Solvency Capital Requirement.

Solvency UK

The reformed Solvency II regime for UK insurance companies. See Solvency II for further details.

Standard Formula

A prescribed method for calculating the Solvency Capital Requirement that aims under Solvency II to capture the material quantifiable risks that a life insurer is exposed to. If the Standard Formula is not appropriate for the risk profile of the business, a capital add-on may also be applied after agreement with the PRA.

Stewardship

Stewardship is the responsible allocation, management, and oversight of capital to create long-term sustainable value for customers, members and clients. ‘Steward’ shall be interpreted accordingly.

Stochastic techniques

Valuation techniques that allow for the potential future variability in assumptions by the running of multiple possible scenarios. 

Subordinated debt

In the event of bankruptcy, dissolution or winding-up, the payments arising from this debt rank after the claims of other creditors.

Sustainability

Sustainability means meeting the needs of the present without compromising the ability of future generations to meet their own needs. This thereby contributes to the long-term wellbeing and prosperity of economies, environment and societies. 

Sustainability Disclosure Requirements (SDR)

The Financial Conduct Authority’s SDR regulatory requirements introduced a package of measures aimed at clamping down on greenwashing. This includes sustainable investment labels, disclosure requirements and restrictions on the use of sustainability-related terms in product naming and marketing. 

Sustainability and Stewardship Delivery Group

A Royal London forum which focuses on reviewing progress and ensuring delivery of the product, investment, communication and operational elements of the sustainability and stewardship strategy for the Royal London Mutual Insurance Society Limited.

Sustainable Investing

Sustainable investing is a strategy that intentionally invests in companies or assets which contribute towards positive environmental and/or social outcomes.

T

Task Force on Climate-related Financial Disclosures (TCFD)

The Financial Stability Board created the TCFD to improve and increase reporting of climate-related financial information to investors, lenders, insurers and other stakeholders. It is a framework to report on climate-related risks and opportunities. As of 2023, the TCFD has fulfilled its remit and disbanded.

Technical debt 

The future cost of maintenance or re-work associated with a non-strategic service or component. 

Technical provisions

The amount the Group requires to fulfil its insurance obligations and settle all expected commitments to policyholders and other beneficiaries arising over the lifetime of the portfolio of insurance contracts.

Three lines of defence model

A model that can be used as the primary means to demonstrate and structure roles, responsibilities and accountability for decision making, risk and control to achieve effective governance, risk management and assurance.

Tier (of capital)

There are three tiers of capital defined by Solvency II. The higher the quality, the more likely it will be available if it is needed, for example to be able to pay out claims.

• Tier 1 capital primarily represents high-quality capital which is generally more secure and capable of absorbing losses.
• Tier 2 capital is of a lower quality.
• Tier 3 capital is the lowest quality of capital.

Tilt strategy

An investment strategy that allows fund managers to deviate from an underlying index, by giving greater weight to securities according to a chosen measure (for example, ESG and climate practices).

Transfer to/(from) the fund for future appropriations

The statutory UK GAAP measure ‘transfer to/ (deduction from) the fund for future appropriations’ in the technical account within the Consolidated statement of comprehensive income.

Transition risks

Transitioning to a lower-carbon economy may entail extensive policy, legal, technology and market changes to address mitigation and adaptation requirements related to climate change. Depending on the nature, speed and focus of these changes, transition risks may pose varying levels of financial and reputational risk to organisations.

Transition Plan Taskforce

The Transition Plan Taskforce aims to help organisations meet their climate goals and support the UK government’s pledge to achieve net zero by 2050. It does so by providing a set of good practice recommendations to help companies across the economy make high-quality, consistent and comparable transition plan disclosures. 

Transitional Measure on Technical Provisions (TMTP)

A measure that smooths the transition from the previous Solvency I regime to the Solvency II regime and spreads the capital impact over 16 years. Once approved by the PRA, this is included within the valuation of technical provisions.

U

UK business

The Group’s UK business provides propositions to customers, employers and pension scheme trustees, primarily through intermediaries. Products offered include workplace and individual pensions, as well as protection products, ISA savings, bulk purchase annuities and other later life offerings. 

UK Corporate Governance Code (Code)

The FRC’s guidance in the form of principles and provisions on how companies should be directed and controlled to follow good governance practice.

UK Generally Accepted Accounting Practice (UK GAAP)

The body of accounting standards published by the FRC. Royal London’s financial statements are prepared in accordance with these standards.

UK Stewardship Code

A voluntary set of principles that sets high standards for how investors, and those that support them, invest and manage money on behalf of UK savers and pensioners, and how this leads to sustainable benefits for the economy, the environment and society.

UK Sustainable Finance and Investment Association (UKSIF) 

The UKSIF exists to bring together the UK’s sustainable finance and investment community and support its members to expand, enhance and promote this key sector.

(Source: UKSIF) 

Unit-linked policy

A policy for which the premiums buy units in a chosen investment fund.

Unit trust

A collective investment which invests in a range of assets such as equities, fixed interest investments and cash. A unit trust might be a general fund or specialise in a particular type of asset or in a particular geographical area.

United Nations-supported Principles for Responsible Investing (UN PRI)  

The PRI, a UN-supported network of investors, works with its international network of signatories to put the six Principles for Responsible Investment into practice. Its goals are to understand the investment implications of environmental, social and governance issues, and to support signatories in integrating these issues into investment and ownership decisions.

(Source: UN PRI) 

Unitised With-Profits policy

A policy for which the premiums buy units in a With-Profits fund.

V

Value chain

The stages involved in producing a product or service that is sold to consumers, with each stage adding to the value of the product or service.

Value chain emissions

Royal London’s non-investment-related Scope 3 value chain greenhouse gas emissions.

Value of in-force business (VIF)

The present value of the projected future profits after tax arising from the business in-force at the valuation date.

ValueShare

A discretionary enhancement applied to unit fund values of eligible RLI DAC policies, by means of an allocation of part of RLI DAC’s operating profits.

Volatility Adjustment (VA)

An adjustment made to the risk-free interest rate for Solvency II purposes. It is designed to protect insurers with long-term liabilities from the impact of volatility on the insurers’ solvency position.

Voting

Using our rights as shareholders to vote at the Annual or Extraordinary General Meetings (AGM/EGMs) of the companies in which Royal London invests. 

W

With-Profits fund

A fund that may invest in companies, both in the UK and overseas, government stocks, property, and other types of assets. Instead of receiving direct investment returns, for example dividends, rents, interest and capital appreciation, policyholders of the fund receive bonuses.

With-Profits policy

A policy that participates in the profits of a With-Profits fund. This participation may be in the form of one or more of a cash bonus, an annual bonus or a bonus paid on the exit of the policy.

Women in Finance Charter

This is a pledge for gender balance across financial services. This is a commitment by HM Treasury and signatory firms to work together to build a more balanced and fair industry.

The Charter reflects the government’s aspiration to see gender balance at all levels across financial services firms.

Workplace pension

A pension plan that is arranged by an individual’s employer.