29 March 2018

Royal London reports strong new business and profit growth as CEO calls for five year moratorium on changes to pensions tax relief

15 min read

Mona Patel, Group Head of External Communications
Mona Patel

Group Head of External Communications


  • New life and pensions business (PVNBP basis)1 up by 38% to £12,002m (2016: £8,686m);
  • Funds under management2 up by 14% to £114bn (31 December 2016: £100bn); 
  • European Embedded Value (EEV) operating profit before tax up by 17% to £329m (2016: £282m); 
  • ProfitShare (after tax) distribution to eligible members rises to £142m (2016: £114m); 
  • Overall new business margins remained broadly in line with the prior period at 1.8% (2016: 1.9%4); 
  • IFRS transfer to the unallocated divisible surplus (before other comprehensive income) increase of £111m to £352m (2016: before change in estimate for Solvency II and other comprehensive income £241m); and 
  • Solvency II Standard Formula basis Investor View3 solvency surplus of £5.5bn (31 December 2016: £4.5bn) and a capital cover ratio of 235% (31 December 2016: 232%) before closed fund restrictions.
New business review

Intermediary business

  • Individual Pensions including Drawdown new business sales1 were up by 68% to £6,339m (2016: £3,778m). Customers continued to take advantage of the pension freedoms, creating greater demand for our award-winning investment solutions and income drawdown product.
  • Group Pensions new business sales1 were up by 12% to £4,346m (2016: £3,872m). In 2017 we were one of the leading providers of insurance-based new auto-enrolment pension schemes. Following the completion of the initial auto-enrolment staging programme in the UK we expect lower sales of workplace pensions in 2018 due to the reduced market size. Our focus will be on supporting our existing customers through the planned increases in employer and employee pension contribution rates. 
  • Intermediary Protection new business sales1 increased by 25% to £807m (2016: £647m). We have become one of the leading providers in the intermediated retail life assurance market, growing our market share since rebranding as Royal London in 2015. We have achieved this through a market-leading and customer-centric proposition and by continuously improving our service for customers and advisers. Our focus has been on making it easier for customers to buy insurance and making the products more accessible to groups of customers who have historically been underserved by the insurance industry. It has also been an outstanding year for our Intermediary Protection business in Ireland; in November 2017 our successful service transformation won first place for service excellence in the 2017 Brokers (Adviser) Ireland Excellence Awards for the first time.

Consumer business

  • Consumer new business sales1 were up by 36% to £408m (2016: £301m). Growth in our Consumer division came from increasing our brand visibility and offering great value products, which we believe provide better outcomes than those offered by our competitors. We are now one of the largest players in the Over 50s protection market and the only product provider awarded a five star rating by Fairer Finance.
  • This was the first year of our partnership with the Post Office and we have been delighted with its success with over 14,000 policies sold during 2017. Our partnerships with Co-operative Funeral Services and Ecclesiastical Insurance continued to flourish. We also reached agreement in December 2017 to form a new partnership with CYBG plc, owner of Clydesdale Bank and Yorkshire Bank, to offer over 50s life cover to their customers. In 2018 we will launch our own-branded Funeral Plan, which will expand the range of products we offer directly to customers to meet funeral planning needs.


  • Royal London Asset Management (RLAM) continued to perform well, attracting external gross inflows of £10.4bn (2016: £6.7bn) arising from both Institutional and Wholesale markets. Institutional clients such as pension schemes and local authorities, and Wholesale clients such as wealth managers and IFAs, continued to buy our fixed income and cash funds. Our Sustainable range has also gained popularity. Funds under management2 increased to £114bn (31 December 2016: £100bn), with market conditions more stable in 2017 compared with 2016.
  • We also made good progress in building the business. We recruited a highly-regarded global equity team, launching two new global equity funds in 2017. We completed one of the largest ever launches of a UK property fund in October 2017, with a portfolio of £2.7bn, as well as launching a multi asset credit fund for institutional investors. 
  • The Ascentric wrap platform saw gross inflows increase 22% to £2.8bn (2016: £2.3bn). A new, industry-leading charging structure helped to deliver record inflows into the business in 2017. The new pricing makes it easier for advisers and their clients to understand total costs. Assets under administration5 increased by 17% to £14.4bn (31 December 2016: £12.3bn).
Review of financial performance

EEV operating profit

Royal London has once again performed strongly, increasing EEV operating profit before tax by 17% to £329m (2016: £282m). Profit contribution from new business was £292m in 2017, up 31% from the previous year reflecting the quality of the new business we are writing. Profits from managing our existing book of business (including expected return on opening net worth) increased by £93m to £278m. This mainly consists of experience variances of £37m (2016: £4m), an overall positive £111m (2016: £50m) impact on profit from changing our operating assumptions, mainly relating to changing our longevity and expense assumptions. Strategic development costs and other items increased to £208m (2016: £82m) as we invested in our business while there was an impairment to intangible assets of £31m (2016: £44m). The impairment charge of £31m related to the development of new back office software in Ascentric and the expected increase in costs relating to the sophistication of the new system and complying with MiFID II regulations.

IFRS transfer to unallocated divisible surplus

As a mutual company, all earnings are retained for the benefit of participating policyholders and are carried forward within the unallocated divisible surplus. The IFRS transfer to the unallocated divisible surplus (before other comprehensive income) for the year ended 31 December 2017 was £352m (2016: £76m). The 2016 results included a charge for a change in estimate for Solvency II of £165m. The 2016 IFRS transfer to the unallocated divisible surplus before this charge was £241m. Our IFRS result benefits from the strong trading performance of the Group and continues to be affected by the low interest rate environment.


Our capital position remains strong and our Solvency II Standard Formula basis Investor View3 solvency surplus was £5.5bn (31 December 2016: £4.5bn) with a capital cover ratio of 235% (31 December 2016: 232%). The Regulatory View solvency surplus was £2.4bn (31 December 2016: £1.9bn) with a capital cover ratio of 159% (31 December 2016: 155%).

The 31 December 2016 Solvency II6 solvency surplus and capital cover ratios are as presented in Royal London’s 2016 Annual Report and Accounts. These figures were estimates and final figures were disclosed in the Solvency and Financial Condition Report (SFCR) for the year ended 31 December 2016; being a capital cover ratio of 227% and £4.4bn solvency surplus (Investor View), and a capital cover ratio of 153% and £1.8bn solvency surplus (Regulatory View).


Over recent years we have expanded the reach of ProfitShare to include thousands more of our members, and in 2017 another 200,000 new members qualified to receive ProfitShare. In 2017 1.2m people received ProfitShare, compared with 1m in 2016. As a result of maintaining the level of ProfitShare across our increased membership base, the total amount paid in ProfitShare has increased to £142m in 2017 (2016: £114m).

Phil Loney, Group Chief Executive of Royal London, said:

"In a year full of political and economic uncertainty which impacted market volatility and consumer spending, we achieved a 17% increase in EEV operating profit before tax, largely due to strong sales growth across our businesses. This growth reflects our well established strategy of continually improving the quality of products and service offered to our customers, demonstrating our customer-owned business model.

As a member-owned business our customers are at the heart of everything we do. Royal London members and qualifying customers have received almost a billion pound boost to their policies since 2007 – three quarters of a billion coming from sharing our profits and the remainder from cumulative investment returns on these profits. This is a real demonstration of how we make a meaningful difference to our customers.

Our 2017 ProfitShare of £142m was supported by a record year for new business backed by strong investment performance, despite a backdrop of continued political upheaval. Royal London’s funds under management increased to £114bn with a record breaking year for gross sales for our asset management business. A new, unique all-in charging structure drove strong new sales for Ascentric, our platform business.

We also saw strong sales of workplace and individual pensions while Royal London’s drawdown proposition served us well during a time when low interest rates made this type of product the retirement vehicle of choice. The completion of the initial stages of the UK wide auto-enrolment project means that the size of the workplace pension new business market will reduce in 2018 and we expect our own workplace pension sales to fall accordingly. In 2018 our primary focus will be on supporting our current workplace pension customers through the planned increases in employer and employee contribution levels, whilst continuing to offer a quality workplace pensions solution for those employers dissatisfied with their current pension provider.

Our Protection businesses continued to go from strength to strength across the board. Our innovative work simplifying the underwriting journey on streamlined mortgages, was referred to as a “game-changer” and advisers praised our pioneering work on diabetes cover. Royal London Ireland had an outstanding year, exceeding prior year and growing market share to over 16%7. Royal London’s consumer business is now one of the top sellers of Over 50s life cover. We believe this growth was driven by the recognition that our product is fairer and better value compared to our competitors. Royal London is the only provider to be awarded a 5* rating for Over 50s cover by the consumer group Fairer Finance.

We have continued to be recognised for excellent customer service across all of our businesses, offering consistently high quality service to customers and the advisers who work on their behalf. Our net promoter score, measuring how likely consumers are to recommend us to friends and family, continued to increase in 2017 and financial advisers have recognised all of Royal London’s businesses as 5 star service providers.

The backdrop to much of our business is the political agenda for longer term saving. The pensions landscape has seen revolutionary and largely positive changes, but more can be done to deliver real consumer benefits. Auto-enrolment has enabled millions of people to contribute to a private pension for the first time, but the Government’s 8% combined contribution target is only a starting point and contributions need to be increased further over time. The Government also needs to widen the net to bring in self-employed people.

However, there is one area where we need stability. Pensions tax relief has been subject to no less than six cuts in the last seven years and we are asking the Government to commit to a five year moratorium on further changes. This would help to support consumer confidence in pensions just at the time that employer and employee contribution rates are set to increase as part of the auto-enrolment project.

We continue to work closely with Government on the development of the Pensions Dashboard, a potential game-changer for consumers. Government should drive the initiative forward, making it compulsory for all schemes and pension providers to supply data that will inform consumer choice."


- ENDS -

For further information please contact:

Mona Patel, Group Head of External Communications

Tom Johnson, Press Officer

Editor’s notes

Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £114 billion, 8.8 million policies in force and 3,637 employees. Figures quoted are as at 31 December 2017. 

  1. Present value of new business premiums (PVNBP) is the total of new single premium sales received in the year plus the discounted value, at the point of sale, of the regular premiums the Group expects to receive over the term of the new contracts sold in the year. The rate used to discount the cash flows in the reported results has been derived from the swap curve. 
  2. Funds under management represent the total of assets managed or administered by the Group on behalf of Institutional and Wholesale clients, and on behalf of the Group. It excludes assets administered through our platform business.3) We have presented a Total Company (‘Investor View’), which comprises the Royal London Open Fund, into which all new business is written, and seven closed ring-fenced funds from previous acquisition activity. The Investor View includes the surplus from the closed funds. Total Company (‘Regulatory View’) includes a restriction of £3.1bn (31 December 2016: £2.6bn) as a deduction from total Own Funds of £9.6bn (31 December 2016: £7.9bn), because excess capital in the closed funds is ultimately for the benefit of those closed fund policyholders. Therefore closed funds report a zero surplus, with Total Company surplus equal to the Open Fund surplus. After the £3.1bn restriction, the Total Company (‘Regulatory View’) reported a capital cover ratio of 159% at 31 December 2017 (31 December 2016: 155%). 
  3. The 2016 total margin has been updated to exclude cash mandates. 
  4. Assets under administration represent the total assets administered on behalf of individual customers and Institutional clients through our platform business. It includes those assets for which the Group provides investment management services, as well as those that the Group administers when the customer has selected an external third-party investment manager. 
  5. Solvency II basis of preparation: 
    The Solvency II position has been prepared in accordance with the Solvency II Directive which came into effect on 1 January 2016 for all insurance entities operating in Europe. Initially we are using the Standard Formula approach for the purposes of measuring regulatory capital under Solvency II. However, we are preparing an Internal Model that we plan to seek approval to adopt in 2019. We already use an internal capital model for the purposes of monitoring our capital and decision making across the Group. Royal London received approval for the use of both the Transitional Measure on Technical Provisions (TMTP) and the Volatility Adjustment. Permission to recalculate TMTP was received from the Prudential Regulation Authority (PRA) in December 2017. The TMTP stated is estimated and unaudited. The final position will be reported in the SFCR on 4 May 2018. 
  6. Source: Milliman Q3 2017 Temperature Gauge results. 
  7. Financial calendar: 
    29 March 2018 Financial results for 2017 and conference call* 
    4 May 2018 2017 Solvency and Financial Condition Report published on our website 
    13 June 2018 Annual General Meeting 
    16 August 2018 Interim financial results 
    13 November 2018 RL Finance Bonds No 3 plc subordinated debt interest payment date
    30 November 2018 RL Finance Bonds No 2 plc subordinated debt interest payment date 
    * Royal London will hold an investor conference call to present its 2017 financial results on Thursday 29 March 2018 at 09:00. Interested parties can register at: https://cossprereg.btci.com/prereg/key.process?key=P37B46J36
  8. Forward-looking statements: 
    This document may contain forward-looking statements with respect to certain of Royal London’s plans, its current goals and expectations relating to its future financial position. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Royal London’s control. These include, among others, UK economic and business conditions, market-related risks such as fluctuations in interest rates, the policies and actions of governmental and regulatory authorities, the impact of competition, the timing, impact and other uncertainties of future mergers or combinations within relevant industries.

    As a result, Royal London’s actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Royal London’s forward-looking statements. Royal London undertakes no obligation to update the forward-looking statements. 

New business review


  PVNBP New business contribution1 New business margin
  2017 2016 2017 2016 2017 2016
  £m £m £m £m % %
Pensions 10,787


241.6 170.6 2.2 2.2
Protection 807 647 49.8 42.8 6.2 6.6



New business contribution1

New business margin
  2017 2016 2017 2016 2017 2016
  £m £m £m £m % %
Consumer 408 301 (5.3) 4.3 (1.3) 1.4


  PVNBP2 New business contribution1 New business margin
  2017 2016 2017 2016 2017 2016
  £m £m £m £m % %
RLAM3 6,906 5,065 46.8 37.7 0.7 0.7










Gross and net flows (including cash mandates)4

Inflows 10,396 6,741 54
Outflows (7,594) (4,420) (72)
Net 2,802  2,321 21







Gross inflows 2,796 2,264 23

Notes on the new business review

  1. The new business contribution in the tables above has been grossed up for tax at 19% (2016: 20%). We have done this to help compare our results with the results of shareholder-owned life insurance companies which typically pay tax at 19% (2016: 20%). The EEV Consolidated income statement has been grossed up at the applicable tax rates. Overall new business margin of 1.8% (2016: 1.9%) combines Intermediary, Consumer and Wealth and is based on exact figures.
  2. PVNBP for Wealth relates to gross sales inflows in the period, excluding external cash mandates which are treated as uncovered business and not valued on an EEV basis. The 2016 comparative has been updated to exclude cash mandates.
  3. The 2016 margin has been updated to exclude cash mandates.
  4. Excludes Channel Islands cash mandates.