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LV= announces group results for half year 2013

Press release: 09/09/2013

Mutual insurance, retirement and investment group LV=, the UK's largest friendly society, announces interim results for the half year to 30 June 2013.

2013 first half financials:

  • IFRS profit before tax of £88.4m (H1 2012: £36.1m)
  • Group underlying operating profit [1] of £48.2m (H1 2012: £73.8m)
  • Life underlying operating profit of £11.1m (H1 2012: £14.5m) with sales down 14% at £74.3m on an APE basis (H1 2012: £86.0m)
  • General insurance underlying operating profit of £43.5m (H1 2012: £62.4m) with premium income stable at £748.0m (H1 2012: £747.0m) despite market conditions remaining competitive
  • Group capital resources, including subordinated debt, of £1298.0m (H1 2012: £901.2m)
  • Peak 2 free capital of £681.0m (H1 2012: £187.0m)

Mike Rogers, LV= Group Chief Executive, said: "We are pleased with the resilient results achieved in the first half of the year with pre-tax profit increasing despite the challenging competitive market.

"In general insurance, our performance is reassuring given the backdrop of weakening motor rates, intense competition and low investment returns. The two core business areas, direct and broker, now underwrite 2.9m and 1.4m policies and contributed to the operating profit at £23m and £20m respectively.

"In life, new business sales and underlying operating profit were affected by the industry-wide impact of the Retail Distribution Review and Gender Directive. In annuities sales fell in a competitive market in which we focused on returns rather than market share. Against this backdrop our sales were solid overall with strong growth in areas such as pensions, savings and investments.

"During the first half we successfully raised £350m of tier 2 capital via a subordinated debt issue, and this has strengthened our balance sheet significantly to support planned profitable growth in our core business lines.

"Our strategy of providing the over 45s segment with good value products through multiple distribution channels, backed up by high levels of customer service, is delivering results. We are well placed to benefit from the UK's on-going demographic changes and our multichannel distribution approach allows us flexibility to select the most attractive channel for growth and profitability at any given time. I am therefore confident we can continue to grow the business in future years."

Life results summary (sales figures announced 29 July):

  • Life underlying operating profit of £11.1 million (H1 2012: £14.5 million) with sales down 14% at £74.3 million on an APE [2] basis (H1 2012: £86.0 million)
  • Protection 9% new business decrease with APE £14.7m (H1 2012: £16.1m)
  • Retirement 18% new business decrease with APE £54.8m (H1 2012: £66.7m) made up of
    - Pensions: 27% increase with APE £33.5m (H1 2012: £26.4m)
    - Annuities [3]: 51% decrease with APE £17.6m (H1 2012: £36.0m)
    - Equity release: 14% decrease with APE £3.7m (H1 2012: £4.3m)
  • Savings and Investments new business 50% increase with APE £4.8m (H1 2012: £3.2m)

GI results summary (announced 29 July):

  • Operating profit of £43.5m (H1 2012: £62.4m)
  • LV= now UK's third largest car insurer [4] with 3.1 million policies
  • Premium income of £748m (H1 2012: £747m) despite market conditions remaining very competitive
  • Combined operating ratio (COR) up 0.6% to 97.6% (H1 2012: 97.0%) due to falling premium rates
  • Investment returns of 2.6% (H1 2012: 4.4%)
  • Customer renewal retention rate of 79% (H1 2012: 79%) on car and 82% on home (H1 2012: 84%)
  • SME premium income up 28% and home income up by 9%

Summary of Half Year Group Results

-

HY 2013 (£m)

HY 2012 Restated * (£m)

FY 2012 (£m)

General Insurance

43.5

62.4

117.1

Life

11.1

14.5

26.3

Group

(6.4)

(3.1)

(17.2)

Underlying Operating Profit

48.2

73.8

126.2

Additional margin for credit default and other risks

(5.5)

(13.6)

(29.4)

Model and valuation changes

(11.4)

(0.1)

(13.0)

Operating Profit

31.3

60.1

83.8

Accounting policy differences (IFRS)

(1.1)

(6.9)

(11.6)

Short Term Investment Fluctuations

70.1

12.8

65.7

Centrally managed costs

(5.7)

(23.5)

(22.2)

Finance costs

(2.8)

(0.4)

(0.5)

Amortisation of intangibles

(3.4)

(6.0)

(12.0)

Profit before tax and mutual bonus

88.4

36.1

103.2

Additional margin for credit default and other risks:

Additional margin for credit default represents the difference between management's best estimate of credit default, which is used to calculate the value of new business reported within underlying operating profit, and the basis used for valuing policies. This is principally driven by the annuity business within Life.

Model and valuation changes:

Represents the impact on the in-force business of changes in valuation assumptions and improvements in the actuarial models used to value existing policies. The adverse impact reported in the first half year of 2013 largely reflected the strengthened life annuity mortality assumptions.

Centrally managed costs:

represents costs relating to group functions, various projects costs and certain long term management incentives. The decrease in 2013 is due to the non-recurrence of the £15m provision for PPI claims made in 2012. Based on current claims experience, no additional PPI provision was required in the first half year of 2013.


Notes

LV= employs 5,700 people and serves over five million customers with a range of financial products. We are the UK's largest friendly society and a leading financial mutual. We are a leading player in our chosen markets with top five positions in personal motor insurance, protection and enhanced annuities.

When we started in 1843 our goal was to give financial security to more than just a privileged few and for many decades we were most commonly associated with providing a method of saving to people of modest means. Today we follow a similar purpose, helping people to protect and provide for the things they love, although on a much larger scale and through a wide range of financial services including insurance, investment and retirement products.

We offer our services direct to consumers, as well as through IFAs and brokers, and through strategic partnerships with organisations such as ASDA, Nationwide Building Society and a range of trade unions.

Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. LVFS is a member of the ABI, the AFM and ILAG. Registered address: County Gates, Bournemouth BH1 2NF.


  1. Underlying operating profit is IFRS profit before tax adjusted for basis and methodology changes, short-term investment fluctuations, amortisation of intangibles and other one off costs
  2. APE = Annual Premium Equivalent
  3. Annuities includes enhanced, with-profits and ‘fixed term annuity' protected retirement plan
  4. Measured by number of in-force car policies