Tim provided an overview of economic conditions in 2011, reassuring members that despite difficult market conditions Royal London had again performed well. That success, in part, he attributed to Royal London’s mutual status.
The transfer of Royal Liver’s assets and liabilities was completed on 1 July 2011. Tim described the benefits of the transfer as being:
- from increased income from administration and fund management;
- from economies of scale and synergies;
- because there was no capital outlay to acquire the business; and
- because servicing revenues should exceed costs in all periods, even during the integration period.
Remaining on the subject of acquisitions, he then confirmed that discussions with the Co-operative to acquire its life assurance and asset management businesses are continuing.
The Royal London Foundation
The Foundation was launched in April 2011 and Tim advised that up to April 2012 it has donated over £70,000 to causes nominated by members. This includes £25,000 to the first recipients of the annual Degge & Ridge award.
Corporate responsibility (CR)
Tim updated the meeting on our CR programme, noting that £45,000 was raised for our national charity partner, Alzheimer’s Research UK. ‘Volunteering Awards’ have also been launched, giving the company a way to recognise the commitment of Royal London people to volunteering in their own time. And the company improved from a Bronze to a Silver rating in the Business in the Community index. More information can be found on our website pages.
During 2011 Mike Yardley stepped down as Group Chief Executive and on 1 October 2011 Phil Loney joined as Group Chief Executive. Following the 2012 AGM Robert Jeens stepped down from the board after nine years of service.
Group Chief Executive
Phil discussed the Group’s performance in 2011, noting that the present value of new premiums in 2011 amounted to nearly £3.3 billion, an increase of 6% over the 2010 result. He described the Group’s family of businesses, providing highlights for each business.
Wealth Management (Ascentric, Royal London Asset Management – RLAM)Both the asset management business and the Ascentric Wrap platform had healthy net flows of new business. RLAM contributed £34 million of EEV operating profit, 36% higher than in the previous year, while Ascentric moved into operating profitability.
Intermediary (Scottish Life, Bright Grey, Scottish Provident and Caledonian Life)
Phil advised that, overall, our intermediary businesses achieved almost £3.1 billion of new business in 2011, an increase of over 6% on the year before. EEV operating profits were unchanged at £162 million, reflecting the difficult trading conditions.
Consumer (Royal London Plus and MoneyVista)
Royal London Plus successfully integrated the Royal Liver business that we acquired in the middle of 2011. MoneyVista is a new business that launched towards the end of last year. It’s been designed for people who don’t have a financial adviser. It provides an online service to help customers get information and prepare their own financial plans. Phil encouraged members to have a look at the website www.moneyvista.com.
Phil then moved on to talk about our future plans. He highlighted the upcoming regulatory changes: Retail Distribution Review, Solvency II and Auto-Enrolment. He reassured members that Royal London has already taken great steps to be prepared for these changes and that we believe the changes will result in a healthier market with greater trust from consumers, which will benefit all of our businesses.
Part of our development will be focussed around four key areas:
- enhance our key propositions;
- for our businesses to work together to develop more new business than we’re currently securing from them individually;
- to be more effective in gaining a competitive advantage from our mutual status; and
- to manage the growing Royal London Group more cost effectively, especially in relation to our IT platforms and external suppliers.
Group Finance Director
Stephen Shone began by stating that Royal London had a good year in 2011, particularly in the context of a challenging economic environment, before covering our financial performance in more detail. He showed that, despite the volatile markets, we delivered a good performance:
- we increased our capital;
- our core operating performance was similar to last year’s good result, and on top of that the acquisition of Royal Liver created around £100m of additional profit in 2011; and
- our strong performance means we were able to share our returns with relevant with-profits policyholders through a mutual dividend of £88m.
Stephen provided a breakdown of our capital strength, explaining that before allocating mutual dividends we have increased our capital from £1.5bn at the end of 2008 to over £2.3bn at the end of 2011.
Since 2008 we have distributed a total of £238m in mutual dividends. So after allocating the mutual dividend we increased our capital to £2.15bn from £1.46bn in 2008. We made an operating profit of £171m in 2009 and £243m in 2010. In 2011 our operating profit was £334m, which was a result of:
- £31m investment return on our opening net worth – which is our surplus assets at the start of the year;
- £129m of profit from servicing our existing business. As discussed at the AGM last year, we had reviewed our expense base in detail, leading to substantial cost reductions which we were able to benefit from fully in 2011;
- £77m from new business; and
- £97m from the Royal Liver acquisition (more information below).
Stephen led the acquisition of Royal Liver, something he noted he was delighted to do. We have now almost finished integrating Royal Liver’s operations into our operations in Wilmslow. We’ve placed the assets and liabilities we acquired from Royal Liver in a new separate closed sub-fund, and we administer this business in return for servicing and investment management fees.
We can administer the business for less than these fees because of our increased scale and more efficient operations. This will give us significant future profits and it is these future profits that we have recognised as a one-off £97m gain in our 2011 accounts.
He highlighted that we have a strong in-house acquisitions team that is busy right now making good progress in our proposed acquisition of the life assurance and asset management businesses of the Co-operative Group. The structure of our potential deal with the Co-op is very similar to the Liver transaction.
He concluded that 2011 was a good year for the Group and that we have delivered good returns to our with-profits policyholders. In particular we have enhanced the asset share of relevant policies by allocating a record mutual dividend of £88m.
Chairman of the Remuneration Comittee
David advised that the main elements of our executive reward package are salary, a short-term incentive plan (referred to as 'the STIP'), a long-term incentive scheme, market-related benefits and pension provision. The remuneration arrangements are set so they’re appropriately aligned with the interests of our members and other policyholders, the performance of the Group and its strategic direction, as well as with good corporate governance practice.
He explained that the scheme for 2012 has been reviewed, and whilst it will continue to reward participants against measures for Financial Performance, Risk and Customers, it will now also consider performance against 'Our People' and 'Building the Future'. He also confirmed that following the review of remuneration undertaken in 2010, long-term incentive awards in 2011 were granted under the long-term incentive scheme (LTIS).
The primary consideration in setting remuneration policy is to provide value for all members. The Committee look to achieve this through the delivery of effective business strategy – with profitable operating performance and strong returns on investment – in an environment which promotes effective risk management. In setting policy, David confirmed that we strongly seek to adhere to all relevant regulation; in particular the policy will be compliant with the FSA Code and Solvency II.
He concluded that the Remuneration Committee is satisfied that the overall compensation is appropriate, given the performance of the executive team in driving the consistent and very significant performance achieved by Royal London over a period of several years.