17 August 2017

Royal London reports strong profit and new business growth in the first half of 2017

7 min read

Mona Patel, Group Head of External Communications
Mona Patel

Group Head of External Communications


Trading highlights

  • New life and pensions business (PVNBP basis)1 up by 45% to £6,078m (30 June 2016: £4,201m);
  • Funds under management2 up by 6% to £106bn (31 December 2016: £100bn);
  • European Embedded Value (EEV) operating profit before tax up by 34% to £185m (30 June 2016: £138m);
  • IFRS transfer to the unallocated divisible surplus (before other comprehensive income) increase of £274m to £192m (30 June 2016: deduction from the unallocated divisible surplus of £82m); and
  • Overall new business margins remained broadly in line with the prior period at 1.8% (30 June 2016: 1.7%).

New business review

Intermediary business

  • Individual Pensions and Drawdown new business sales1 were up by 64% to £2,916m (30 June 2016: £1,783m). The strong new business performance in the first half of the year reflects growth in the overall market size and significant success in our proposition, particularly the Drawdown Governance service. In addition to these factors, we have also experienced a net increase in individual pensions business from the Financial Conduct Authority’s (FCA) introduction of the early exit charge cap, primarily through our focus on offering products which are good value for money.
  • Group Pensions new business sales1 were up by 32% to £2,527m (30 June 2016: £1,921m). The strong performance in the first half of the year is a result of more members moving into existing schemes, increased transfer values driven by positive stock market performance, and higher quality schemes being won with larger average member numbers and contributions. We have indicated for some time that we expect a slowdown in workplace pensions, and the pipeline of schemes from auto-enrolment has indeed shown signs of reducing primarily as a result of reaching the final stages of auto-enrolment in 2017 where new schemes, which did not exist before 2012, are not taking adviser-led decisions. As a result Group Pensions new business is expected to be lower in the second half of the year. The secondary market, where advisers recommend schemes move to take advantage of better quality scheme administration or investment options, has slowly started to emerge and we will increasingly focus on this market going forward.
  • Intermediary Protection new business sales1 increased by 34% to £384m (30 June 2016: £287m) following continued growth in the market. Despite increased competition, we have maintained our market position through our focus on adviser relationships and customer service. We are also working on solutions to extend our products to meet a wider range of customer needs, including piloting a new Diabetes Life Cover product and using technology to enhance the services to customers and advisers. Our Irish Protection business has developed a well-received critical illness proposition (known in Ireland as Specified Serious Illness) and has seen increasing volumes of Whole of Life business launched last year.

Consumer business

  • Our direct to consumer business was set up only three years ago with the aim of bringing fairer and better value for money products to customers. The business has initially focused on selling pre-paid funeral plans, over 50s life cover and simple life cover products through direct marketing and strategic distribution partnerships.
  • Consumer new business sales1 were up by 43% to £229m (30 June 2016: £160m), reflecting the continued success of the direct-to-consumer propositions and in particular our Over 50s Life Cover and Life Insurance products. In the first half of the year the Over 50s proposition achieved one of the top positions in the direct-to-consumer market. We have broadened our Term product to give customers higher levels of cover and improved pricing. We have a strong pipeline of new proposition developments underway.
  • A key part of our strategy is to expand distribution via strategic partnerships, and alongside existing partnerships with Co-operative Funeralcare and Ecclesiastical Insurance, our partnership with Post Office Money launched in January 2017 is performing well. We continue to seek opportunities to expand the reach of our propositions through further distribution partnerships.


  • Royal London Asset Management (RLAM) continued to perform well, attracting gross inflows of £5.1bn (30 June 2016: £2.3bn) arising from both Institutional and Wholesale markets. Institutional gross inflows were £3.1bn (30 June 2016: £1bn) with some large investment mandate wins during the first half of 2017. Gross and net flows in Wholesale continued to be strong as we broadened our coverage of wealth managers and financial advisers. Funds under management2 increased to £106bn (31 December 2016: £100bn), with market conditions more stable in the first half of 2017 compared with the same period in 2016. Our funds have performed well (particularly short duration bond funds, UK equity and sustainable fund ranges – all of which have won awards), and two new funds have also recently launched: the Emerging Markets Equity Tracker fund on 5 June 2017 and the Multi Asset Credit (MAC) fund on 17 July 2017.
  • Royal London Platform Services (RLPS) gross inflows were up 27% to £1.4bn (30 June 2016: £1.1bn), which maintained its market share. Royal London’s wrap platform saw assets under administration3 increase by 9% to £13.4bn (31 December 2016: £12.3bn). The business trades under the Ascentric brand and also provides white label platform services for larger advisory firms and other Royal London businesses. In the first half of 2017 Ascentric launched a simplified pricing structure with a single charge across all wrappers and investment offerings, which makes it easier for advisers and their clients to understand total costs. Since the new pricing structure was introduced in May, Ascentric has seen a significant increase in Self-Invested Personal Pension (SIPP) accounts set up on the platform.

Review of financial performance

EEV operating profit

Our EEV operating profit before tax increased by 34% to £185m (30 June 2016: £138m), assisted by strong new business profit of £149m (an increase of 71%) particularly in Pensions, Consumer and RLAM.

EEV profit before tax increased to £327m (30 June 2016: loss before tax £145m) as a result of the new business profit mentioned above, benefits from economic conditions and yield assumptions, and the Royal London Group Pension Scheme (RLGPS) moving from a deficit to a small surplus. The 2016 interim results included a charge for a change in basis for Solvency II of £182m, reflecting a one-off accounting charge arising from the alignment of EEV with the requirements of Solvency II.

The overall new business margins remained broadly in line with the prior period at 1.8% (30 June 2016: 1.7%), driven by the margins for new pensions business increasing to 2.3% (30 June 2016: 1.8%) from very strong pensions new business performance (both Individual Pensions and Drawdown and Group Pensions), offset by a decrease in margins on Protection business.

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 six months ended 30 June 2017 was £192m (30 June 2016: deduction from the unallocated divisible surplus of £82m).

Our IFRS result for the first six months of 2017 benefited from the strong trading performance of the Group and rising stock markets increasing investment returns, however the results remained impacted by the low interest rate environment. The 2016 interim results included a charge for a change in basis for Solvency II of £165m.


Our capital position is robust and our Solvency II Standard Formula basis Investor View4 surplus was £4.0bn at 30 June 2017 (31 December 2016: £4.5bn) with a capital cover ratio of 203% (31 December 2016: 232%). The Regulatory View surplus was £1.9bn at 30 June 2017 (31 December 2016: £1.9bn) with a capital cover ratio of 149% (31 December 2016: 155%).

The 31 December 2016 Solvency II5 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) in May 2017; being a capital cover ratio of 227% and £4.4bn surplus (Investor View), and capital cover ratio of 153% and £1.8bn surplus (Regulatory View). The decrease in surplus and the reduction in the capital cover ratio on an Investor View and Regulatory View in the first half of 2017 were predominantly as a result of the expected run off of the Transitional Measure on Technical Provisions (TMTP) from 1 January 2017, and a revised capital add-on agreed with the Prudential Regulation Authority (PRA) on 7 March 2017 which was mainly as a result of a fall in the risk-free rate during 2016.

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

Our strategy remains to deliver excellent value for money by focusing on creating the best customer outcomes and best customer experiences at really competitive prices. This philosophy is rooted in our status as a mutual. The growth in profit and new business sales we announce today underlines the continued success of our strategy.

“During 2017 we have consolidated our position as one of the new business leaders in the retail protection, pension and drawdown markets, and as one of the main providers of new workplace pension schemes entering auto-enrolment. Our Consumer business continues to grow successfully, in particular through the Over 50s Life Cover and Life Insurance products whilst securing strategic distribution partnerships.

“Our market position reflects our strategy of delivering high-quality products and service. We continue to invest in our capabilities to increase value for money for customers and to make it easier for their advisers to do business with us. For example the new Royal London Review Service launched in July 2017 automatically collates all Royal London pensions information for advisers into individual tailored client reports; advisers are then able to focus their time on providing important advice and recommendations for their clients based on this insight.

“As part of our strategy we are working continually to improve our proposition and enter new consumer markets to offer better value where we see that the market is delivering a poor deal for consumers. We have recently launched pilots for two new innovative products. In April 2017 we introduced the Diabetes Life Cover plan to improve outcomes for a group of consumers who are not currently well served by the life insurance industry; reducing the time taken to accept an application from weeks to less than an hour. Further, in June 2017 a new life insurance application service moved into pilot called ‘Streamlined Mortgage Protection’, which uses advanced ‘machine learning’ to simplify the underwriting journey and provide an online, immediate decision to mortgage customers without additional underwriting questions and medical evidence being required.

“Recent FCA data confirmed a significant rise in Income Drawdown business across the market since the introduction of ‘Pension Freedoms’ in 2015. The data revealed a particular surge in non-advised Drawdown sales; we think this is concerning as the best outcome for customers when choosing an income drawdown strategy generally occurs when they take financial advice, as the decisions are complex and can form a significant part of an individual’s retirement income. We are pleased that the FCA is looking at this area more closely, and our view is that they should do more to encourage individuals to take impartial financial advice when contemplating Income Drawdown. We are also concerned that some providers may be “sleep-walking” their existing non-advised pension customers into their own in-house drawdown offerings, repeating some of the poor practice seen in the historic annuity market. Royal London intends to develop a better value for money drawdown offering and tools for those clients who insist on the non-advised route, but such competition will only be a viable solution if the FCA takes action to open this part of the market up to competition.

“We also believe that the Pensions Dashboard has the potential to boost competition in the UK pensions market. It is an important project designed to help customers by allowing savers and their advisers to have a comprehensive view of their pension savings and entitlements in one place to determine their retirement income. The dashboard could also provide a useful starting point for those advisers and customers seeking to obtain better value for money by consolidating numerous small pension pots. There is currently no legislation to ensure that all pension providers make their data available to the dashboard, which may create gaps in the data available causing the project to fail. We believe it is imperative that the Government legislates to mandate participation in the Pensions Dashboard as a key step to underpin greater competitive rivalry in the UK pensions sector which will in turn drive better value for money for consumers.

“During the first half of 2017 Article 50 was triggered and the process commenced for the UK to leave the European Union (EU). We are in the process of domiciling a subsidiary in Ireland to enable our business in the Republic of Ireland to continue to trade and to mitigate any uncertainty. We expect to maintain strong capitalisation and profitability as the UK leaves the EU.”


For further information please contact:

Gareth Evans, Head of Corporate Affairs

About Royal London:

Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.

Editor’s notes:

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.

3) Assets under administration represent the total assets administered on behalf of individual customers and institutional clients. 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.

4) 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 £2.1bn (31 December 2016: £2.6bn) as a deduction from total Own Funds of £7.9bn (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 £2.1bn restriction, the Total Company (‘Regulatory View’) reported a capital cover ratio of 149% at 30 June 2017 (31 December 2016: 155%).

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. The Solvency II results at 30 June 2017 are estimated and are not subject to an external audit opinion.

6) Financial calendar

13 November 2017 RL Finance Bonds No 3 plc subordinated debt interest payment date

30 November 2017 RL Finance Bonds No 2 plc subordinated debt interest payment date

Royal London will hold an investor conference call to present its 2017 interim financial results on Thursday 17 August 2017 at 09:00.

Interested parties can register at: https://cossprereg.btci.com/prereg/key.process?key=PL4BNL3HV

7) 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
  30 June 2017 30 June 2016 30 June 2017 30 June 2016 30 June 2017 30 June 2016


£m £m £m % %
Pensions 5,465 3,754 126.5 67.0 2.3 1.8


287 20.7 25.8 5.4 9.0


  PVNBP New business contribution1 New business margin
  30 June 2017 30 June 2016 30 June 2017 30 June 2016 30 June 2017 30 June 2016
  £m £m £m £m % %
Consumer 229 160 0.9 (5.2) 0.4 (3.3)


  PVNBP2 New business contribution1 New business margin
  30 June 2017 30 June 2016 30 June 2017 30 June 2016 30 June 2017 30 June 2016
  £m £m £m £m % %
RLAM 3,220 2,018 21.6 14.7 0.7 0.7

30 June 2017


30 June 2016





Gross and net flows (including cash mandates)

Inflows  5,122 2,319 121%
Outflows (2,988) (1,852) (61%)
Net 2,134 467 357%

30 June 2017


30 June 2016




Gross inflows 1,366 1,070 28%

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: 1.7%) 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.