21 March 2019

Royal London announces record EEV operating profit for 2018

6 min read

 
Mona Patel, Group Head of External Communications

Mona Patel

Group Head of External Communications

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Commenting on Royal London’s 2018 financial results, Phil Loney, Group Chief Executive, said

“It has been a record year for Royal London with EEV operating profit before tax reaching an all-time high of £396m.  This success has been shared with our members who will receive a ProfitShare of £150m for 2018, taking our total ProfitShare distribution to £942m since 2007.  Adding investment growth to that has allowed us to contribute over £1bn to our members’ policies since 2007, a real demonstration of the added value of mutuality. When we do well, so do our members.”

“In 2018 the end of the auto-enrolment roll-out, turbulent market conditions as a result of ongoing Brexit uncertainty and the continuing low interest rate environment presented challenges to our sector. However I am pleased to report that we saw strong life and pensions new business sales with strong individual pension sales and increases in protection sales from our intermediary businesses both in the UK and Ireland and also our direct to consumer business.”

“We are among the market leaders in improving access to products and ensuring better customer outcomes, most notably through our Over 50s life product which we believe offers a fairer deal than the market norm and now commands a 23% market share.  We were also first to the UK market with an insurance product tailored specifically for people with either type 1 or type 2 diabetes.”

“Our asset management business delivered record net external inflows of £4.1bn (2017: £2.8bn) with funds under management remaining constant at £114bn, due both to the sale of our Channel Islands business and the backdrop of volatile market conditions1. Assets under Administration at Ascentric remained steady at £14.5bn, showing a small uplift from £14.4bn in 2017.”

“Looking ahead to 2019, our pensions business will continue to focus on helping customers to maximise their retirement income and more actively engaging our customers in the value of saving, encouraging them to make decisions about their financial futures.  Our intermediary protection business will introduce more flexible options for customers with different needs, continue to make further improvements to the Diabetes Life Cover product and introduce a decreasing term option.  In our direct to consumer business we will invest in our core Over 50s product to deliver even more value for money, continue to grow our direct funeral plan sales and help improve consumer understanding of funeral insurance products.  Our policy work will continue to highlight the many potential gaps in the state pension system that can impact carers, people taking a career break and those with low retirement income. We will also continue to campaign to highlight the growing funeral poverty problem in the UK.”

“Our asset management business is focused on building broader and more diversified solutions to meet customer need through a range of product enhancements and new propositions. Royal London will continue to demand high governance standards from the companies in which we invest our members’ money and to expand our focus on socially responsible investment.  We will continue to consolidate, strengthen and build on the new technology in our platform business.”

“Being the UK’s largest insurance, pensions and investment mutual allows us the freedom to address issues that genuinely improve the lives of our consumers, members and wider society in the areas where we have expertise.  2019 will also see us focus our efforts on three social impact issues: taking on the long-term savings crisis by working to ensure everyone can enjoy a secure retirement; building financial resilience to help consumers survive the unpredictable income shocks that we all face from time to time; and strengthening responsible business to ensure we push the companies we invest in to do the right thing.”

Total Funds under Management were reduced by £2bn due to the sale of RLAM C.I., sold to Ravenscroft Holding Ltd on 31 October 2018. 

Trading, Financial and Capital Highlights

Royal London announces record EEV operating profit before tax of £396m (2017: £329m), representing an increase of 20%.

  • New business sales (PVNBP basis) remained strong at £11,308m (2017: £12,002m). The expected decrease in Workplace Pensions following the end of auto-enrolment roll-out was offset by an 8% increase in Individual Pensions to £6,818m (2017: £6,339m);
  • IFRS deduction from Unallocated Divisible Surplus (UDS) before Other Comprehensive Income (OCI) was (£48m) (2017: £352m transfer to UDS). This includes the impact of the continued low interest rate environment and negative investment returns experienced in 2018. Despite the challenging economic conditions, our investment returns still performed well against benchmark;
  • EEV profit before tax reduced to £351m (2017: £594m), a decrease of 41%. The EEV profit before tax was driven by strong new business sales with a reduced cost base, offset by negative investment returns which were positive in 2017;
  • Record external net flows of £4.1bn (2017: £2.8bn) generated by RLAM, delivered another year of strong performance and maintained Funds under Management at £114bn (2017: £114bn) despite volatile market conditions and the sale of RLAM C.I. which resulted in a net outflow of £2.0bn;
  • Record ProfitShare (after tax) distribution to eligible members of £150m (2017: £142m), bringing total ProfitShare payments to members to £942m since 2007; and
  • Our estimated capital position under Solvency II (SII) remained strong, with an Investor View solvency surplus of £4.6bn (31 December 2017: £5.4bn) and a capital cover ratio at 31 December 2018 of 202% (31 December 2017: 228%). Our solvency surplus was adversely affected by difficult market conditions during 2018, but we have been able to continue to invest in transforming the business and deliver ProfitShare, whilst maintaining a strong capital position.

Key Financials

EEV   31 December 2018 31 December 2017 Change1
Life and pension sales PVNBP2 £11,308m £12,002m (£694m)
Total new business margin 1.8% 1.7% 0.1%
EEV operating profit before tax £396m £329m £67m
EEV profit before tax £351m £594m (£243m)
EEV embedded value £3,739m £3,560m £179m
IFRS IFRS (deduction from) / transfer to the UDS before OCI (£48m) £352m (£400m)
Flows Gross inflows3 £21,196m £18,852m £2,344m
Net flows3 £7,652m £6,316m £1,336m
Funds Funds under Management4 £114bn £114bn -
Capital (SII) Parent company solvency surplus (Investor view)5 £4.6bn £5.4bn (£0.8bn)
Parent company capital cover ratio (Investor view)5 202% 228% (26%)

DOWNLOAD THE FULL 2018 FINANCIAL RESULTS INVESTOR PRESENTATION

DOWNLOAD THE FULL 2018 FINANCIAL RESULTS PRESS RELEASE

For further information please contact:

Mona Patel, Group Head of External Communications

Notes to Editors

Change is increase or decrease compared to 31 December 2017.

2 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 YE18 swap curve.

3 Gross and net flows incorporate The Royal London Mutual Insurance Society (RLMIS) and Royal London Asset Management (RLAM). Net flows from RLMIS represent the combined premiums and deposits received (net of reinsurance) less claims and redemptions (net of reinsurance). Given its nature, Protection business is not included. RLAM net flows represent external inflows less external outflows, including cash mandates.

4 Funds under Management represents the total of assets actively managed by, or on behalf of, the Group, including funds managed on behalf of third parties. It excludes assets administered through Ascentric, our platform business.

The ‘Investor View’ does not restrict the surplus in the closed funds. The ‘Regulatory View’ includes the restriction on closed funds’ surplus in excess of the SCR, which is treated as a liability and is excluded from total available own funds. Comparative figures have been restated in line with the final regulatory returns which were presented in the 2017 Solvency and Financial Condition Report (SFCR). 2018 Solvency II figures are estimated, final amounts will be disclosed in the SFCR in April 2019.

About Royal London

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 3,893 employees. Figures quoted are as at 30 December 2018.

At Royal London, we’re proud to champion the value of impartial advice. We believe it plays a crucial role in connecting people with the products that are right for them – and is key to delivering better outcomes and experiences for our customers. At the same time, it helps to build trust in our products and services.

Royal London works alongside advisers not in competition with them. That’s why we’ve made some key commitments to the intermediary market. You’ll find more detail on our commitment to advisers at http://adviser.royallondon.com/campaigns/our-commitments/